AWOCATURA GENERALE DELLO STATO
ATTI DEL GIUDIZIO STA TI UNITI D'AMERICA
CONTRO REPUBBLICA ITALIANA
dinanzi alla Corte internazionale di giustizia dell'Aja
Sentenza 20 luglio 1989
RASSEGNA DELL'AVVOCATURA DELLO STATO
Supplemento al n. 6-1989
ISTITUTO POLI GRAFICO E ZECCA DELLO STATO
ROMA 1992
(2219123) Roma, 1992 - Istituto_ Poligrafico e Zecca dello Stato P. V.
SOMMARIO
Memoria del Governo U.S.A ............................................... pag. I
Contromemoria del Governo italiano . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . » 73
Replica del Governo U.S.A ........................................... : .... . 121
Controreplica del Governo italiano ........................... , ............. ~· )) x8x
Verbali del dibattimento: ...................................... ,·, ... , ..... ,. ))· 243
Arringa Sofaer . . . . . . . . .............................................. . 246
Arringa Matheson ................................................... . » 250
Interrogatorio Adams ................................................. . )) 257
Arringa lVlatheson . . . . . . . . . . . . . . . . . .................................. . 261
Controinterrogatorio Adams ........................................... . )) 267
Interrogatorio Clare ........................... , ...................... . 276
Controinterrogatorio Clare ............................................ . 284
Consulenza Bonelli .................................................. . 289
Consulenza Fazzalari ................................................. . )) 294
Arringa Murphy )) 302
Arringa Gardner » 310
Arringa Ramish ..................................................... . )) 329
Consulenza Lawrence ................................................. . 335
Arringa Ramish ..................................................... . 343
Arringa Matheson ................................................... . 349
Arringa Ferrari Bravo , ............................................... . » 356
Arringa Gaja . . . . . . . . . . . . . . . . . . . . . .................................. . » 363
Arringa Libonati . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ . 372
Arringa Caramazza .................................................. . )) 382
Arringa Bonelli ..................................................... . )) 397
Arringa Capotorti . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............ . » 410
Arringa Monaco ..................................................... . 425
Consulenza Hayward .............. · · ................................. . » 431
Replica Highet . . . . . . . . . . . . . . ........................................ . » 436
IV SOMMARIO
Replica Ferrari Bravo ................................................ .
Replica Matheson ................................................... .
Replica Chandler . . . . . . . . . . . . . . . . . . . . • . . . . . . . . . . . . . . . . . ..........•....
Consulenza Bisconti ........•.........................................
Replica Chandler .................................................... .
Controinterrogatorio Bisconti
Consulenza Lawrence ................................................. .
Replica Matheson ................................................... .
Replica Highet .............................................•........
Replica Libonati .................................................... .
Replica Caratnazza . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Replica Capotarti ................................................... .
Replica Gaja ....................................................... .
Replica Ferrari Bravo ..........................•......................
» 461
465
474
480
» 484
491
)) 496
» soo
» 510
» 519
)) 527
» 532
538
543
MEMORIAL
SUBMITTED BY THE
UNITED STATES OF AMERICA
(CASE CONCERNING ELETTRONICA SICULA S.P.A. - ELSI)

PART I
INTRODUCTION
This case concerns the failure of the Government of Italy to afford to United States investors
in Italy the protections and guarantees established by the 1948 Treaty of Friendship, Commerce
and Navigation between the United States of America and the Italian Republic (the "Treaty »)
and its I95I Supplement.
Beginning in 1956, Raytheon Company and, subsequently, Machlett Laboratories, lnc.,
two United States corporations, invested in and gradualiy acquired complete ownership of
an Italian electronics company, Elettronica-Sicula, S.p.A. (« ELSI »). By 1967, ELSI had
become an established and reputable producer of highly sophisticated electronics components.
However, despite large investments of capitai and other assistance from its United States owners,
ELSI never became financialiy self-sufficient. In March 1968, therefore, Raytheon and Machlett
reluctantly decided to dose and liquidate ELSI and to settle ali outstanding debts from the
proceeds of the sale of its assets.
On I Aprii 1968, however, the Government of Italy requisitioned ELSI's plant and related
assets, in order to prevent the liquidation and to facilitate the acquisition of ELSI's assets by
Italy's commerciai conglomerate Istituto per la Ricostruzione Industriale (« IRI »). As a result,
Raytheon and Machlett were unable to seli the plant and other assets and were forced to put
ELSI into bankruptcy. Italian officials then publidy announced that ELSI would be taken
over by IRI. lnstead of buying ELSI's assets at the scheduled bankruptcy auctions, however,
IRI negotiated a piecemeal take-over with bankruptcy authorities, selectively acquiring the
assets it wanted at a price substantialiy below fair market value. The bankruptcy authorities
similarly failed to recover the fair market value of ELSI's other assets. Bankruptcy proceeds
accordingly were not sufficient to pay ELSI's debts. While ELSI had immediately appealed
the requisition order to the appropriate Italian authority, who found it unlawful, this decision
was not rendered until after Italy had purchased ELSI's plant and other assets.
As a result, Raytheon and Machlett suffered financial losses which they would not have
suffered, had they been aliowed to proceed with the planned liquidation of ELSI, or even had
Italy formaliy expropriated ELSI and paid just compensation. Most significantly, Raytheon
did not recover any of the amounts it was owed by ELSI, and was required in addition to satisfy
Italian bank loans to ELSI which it had guaranteed. Five banks which were owned and controlied
by the Government of Italy also brought suit against Raytheon in Italian courts for payment
of loans to ELSI which Raytheon had not guaranteed. This litigation, which continued for
r6 years at great expense to Raytheon, ended with the dismissal of ali suits as unfounded.
The United States contends that these actions constitute a violation of the Treaty and
Supplement. As explained below, the requisition and subsequent conduct were both arbitrary
and discriminatory, prevented Raytheon and Machlett from managing and controliing an
Italian corporation whose shares they had lawfuliy acquired, and resulted in the impairment
of their legally acquired rights and interests- in violation of Artides III and VII of the Treaty
and Artide I of the Supplement. In addition, the requisition constituted a taking of Raytheon's
ànd Machlett's interests in property without due process and without adequate compensation,
4 INTRODUZIONE
in violation of Artide V of the Treaty. Italian authorities also failed to comply with the obligation
under Artide V to afford the protection and security, by the unwarranted delay in ruling on
the challenge to the requisition order and by failing to afford protection to ELSI's plant and
premises.
After x8 years of unsuccessful attempts to resolve this matter through diplomatic channels,
the United States appeals to the Court to fì.nd that the requisition and other actions and
omissions of Italy constituted violations of the Treaty and Supplement and to order that full
compensation be made to the United States for the damages suffered by Raytheon and
Machlett as a result of Italy's failure to accord them the protections guaranteed by the Treaty
and Supplement.
PART II
STATEMENT OF FACTS
CHAPTER I
BACKGROUND
From I955 through I967, Raytheon Company and Machlett Laboratories, Inc., two
United States corporations, acquired Ioo% of the shares of Elettronica Sicula S.p.A.
(« ELSI ))), an Italian electronics company operating in Palermo, Sicily. Although they
developed ELSI into a manufacturer of sophisticated electronics equipment and a major
employer in the Sicilian Region, ELSI never became a profitable enterprise. In I967-
Ig68, Raytheon and Machlett made a last major effort to make ELSI profitable.
SECTION 1. - The Treaty of Friendship, Commerce and Navigation.
On 2 February 1948, the United States and Italy signed a Treaty of Friendship, Commerce
and Navigation (the « Treaty ))), The Treaty entered into force on 26 July 1949 (1). The Treaty
was subsequently strengthened by an Agreement of 26 September 1951 (the « Supplement ))),
which entered into force on 2 March 1961 (2). One of the major purposes of these agreements
was to encourage American investment in the I talian postwar economy by establishing a mutually
agreed framework of legai protection for commerciai activities and investments of United States
nationals in Italy (3).
As reflected in Artide V of the Supplement, the Government of Italy was particularly
interested in promoting new investment in its Southern Region, the Mezzogiorno,, an historically
underdeveloped area which includes the island of Sicily (4). Toward that end, the Government
of Italy enacted incentives to encourage foreign investment in that Region and created a specific
ministry within the national government to administer these programs and otherwise to encourage
development in the Mezzogiorno (5).
(l) Treaty of Friendship, Commerce and Navigation between the United States of America and the Italian
Republic, signed at Rome, 2 Feb. 1948, entered into force, 26 July 1949. T.I.A.S. 1965; 79 UNTS 171 (Annex 1).
(2) Agreement Supplementing the Treaty of Friendship, Commerce and Navigation of 2 Feb. 1948, signed
at Washington, 26 Sep. 1951, entered into force, 2 Mar. 1961. T.I.A.S. 4685; 404 UNTS 326 (Annex 2).
(3) The importance of the Treaty to the Government of Italy as one means of encouraging United States
investment in Italy is highlighted in the attached Reports from the Italian Parliament. Chamber of Deputies,
Parliamentary Proceedings, Documents- Bills and Reports, N. 246-A, p. 4, presented to the Office of the President
on 2 Mar. 1949 (Annex 3); Senate of the Republic, Legislature III, 291st Session, Assembly, p. 13758,
19 July 1960 (Annex 4). See also, discussion, infra, pp. 27-28 on Italian parliamentary consideration.
(4) Map of Italy, highlighting the Mezzogiorno Region (Annex 5).
(5) The Foreign Investor's Digest of Italian Corporate Law, pp. 245-254 (1963) (Annex 6).
6 RASSEGNA DELL'AVVOCATURA DELLO STATO
SECTION 2. - Raytheon's and Machlett's Investment in ELSI.
Raytheon Company (« Raytheon »), a United States electronics manufacturer incorporated
in Delaware (6), was a participant in this postwar investment activity (1). In 1952, Raytheon
entered into a licensing and technical assistance agreement with an Italian company based in
Genoa, Fabbrica Italiana Raddrizzatori Apparecchi Radiologici (FIRAR) (8). Subsequently,
the owners of FIRAR decided to transfer its business to a relatively new company located in
Palermo, Sicily- Elettronica Sicula, S.p.A. (« ELSI »)- and proposed that Raytheon become
a shareholder in ELSI. In Raytheon's view, .ELSI had very good prospects of success, notwithstanding
its location in a remote and underdeveloped area. ELSI was supported by an experienced
and successful Italian partner, the Moro Group, as well as by the strong government policy
of support for business development in the Mezzogiorno (9). Moreover, the Italian Government
offered and publicized investment incentives to companies investing in the Mezzogiorno (1°).
Raytheon acquired a 14 % shareholder interest in ELSI in 1956 (11).
From 1956 through 1967, Raytheon invested some 7.421 billion (12) lire (US$u,899,300) (18)
in ELSI, ultimately acquiring 99.16 % of its shares (14). Raytheon also guaranteed over 5 billion
lire (US$8,ooo,ooo) of loans to ELSI by various Italian banks (15). Machlett Laboratories, lnc.,
a United States corporation incorporated in Connecticut specializing in the manufacture of
X-Ray tubes (16), acquired the remainder of ELSI's shares in Aprii 1967, investing 34 million
lire (US$54,1oo) in ELSI (17).
In addition to their direct investment, Raytheon and Machlett supported ELSI by providing
patents, licenses and other technical assistance, providing management, marketing, and other
expertise, and developing profitable business opportunities for ELSI, including a lucrative
contract to produce electronic tubes for the North Atlantic Treaty Organization (NATO)
HA WK missile system (18).
SECTION 3· - The Development of ELSI to I967.
By 1967, ELSI had become a significant manufacturer of sophisticated electronic components
and equipment and a major employer in Sicily, with a skilled work force of slightly under 900
(6) Raytheon Company Certificate of Good Standing, State of Delaware, 22 Dee. 1986 (Annex .7); Introductory
Pages from 1985 Raytheon Company Annua! Report (Annex 8); Affidavit of Charles F. Adams, Finance
Committee Chairman and Director, Raytheon Company, para. 9, 17 Apr. I987 (Annex 9).
(7) -Annex 9, paras. I o-u.
(B) Manufacturing and Sales Agreement between Raytheon Manufacturing Company and Fabbrica Italiana
Raddrizzatori Apparecchi Radiologici, I8 July I952 (Annex Io).
(9) Annex 9, paras. IO and I5.
(10) Annex 6; see also, Annex 9, paras. I5-I6.
(11) Letter of Participation from Raytheon Manufacturing Company to Elettronica Sicula, S.p.A., dated
21 Oct. I955, revised I5 Mar. 1956 (Annex II).
(12) Throughout this document, the term << billion » refers to I,ooo million.
(13) These are the actual United States dollar and Italian lire amounts of this investment. In the following
discussion, where it has been necessary to determi:ò.e a dollar amount based on an actual lire figure, or vice versa,
this Memoria! uses an exchange rate of United States $t.oo to ltalian L. 625, the generally prevailing exchange
rate from 1967 through 1971. Selected United States Dollar-Italian Lire Conversion Rates from The Wall Street
]ournal (for dates 29 March I968, 19 Aprii I968, 29 Aprii I968, 30 June I97I) and The Washington Post (for dates
I Apri! I968, II July I969, 24 January I974) (Annex 12). The Affidavit of Arthur Schene, former Raytheon Vice
President-Controller (Annex 13) provides complete details of relevant investment and statistica! information about
ELSI's financial history and other matters relevimt" to the claims of the United States.
(14) Annex 9, paras. I2-I3; Annex I3, para. 7 and Schedule A; Affidavit of Herbert Deitcher, Vice President
and Treasurer, Raytheon Company, para. 2 and Exhibit A, 6 Jan. 1987 (Annex I4); see also, Affidavit of John
D. Clare, former Chairman, Raytheon Europe International Company, para. 9 and Exhibit A, Io Jan. 1987
(Annex 15). ELSI was renamed << Raytheon-ELSI » in I963 to reflect Raytheon's ownership of a majority of
ELSI's shares. This Memoria! will refer to the corporation as << ELSI » throughout.
(15) Annex I3, Schedule 12.
(16) The Machlett Laboratories, Inc., Certificate of Good Standing, State of Connecticut, 26 Dee. I986
(Annex I6).
(17) Annex 9, para. 14; Annex I3, paras. 7 and 21 and Schedule A; Annex I4, para. 2 and Exhibit A.
(18) Annex 9, para. 17.
MEMORIA DEL GOVERNO U.S.A. 7
employees, a large, modern, fully-equipped plant in Palermo, a reputation for quality products,
and a significant volume of sales and export earnings (19).
ELSI had five major product lines: microwave tubes, cathode-ray tubes, semiconductor
rectifiers, X-ray tubes, and surge arresters (20). Using Raytheon technology, ELSI produced
microwave tubes, which generate high-frequency electromagnetic waves, for NATO Hawk
Missile system and other uses, including telecommunications, radar, and industriai heating.
ELSI's cathode-ray tubes were TV picture tubes, the most complex component in televisions.
I ts semiconductor rectifiers, which convert alternating current to direct current, were used in
X-ray equipment, radio and television stations, electrostatic filters, and domestic appliances.
Using Machlett technology, ELSI produced X-ray tubes, primarily for medicai use, and surge
arresters, which protect against overvoltage surges in telephone lines, cables and terminallines (21).
ELSI sold these products throughout Europe, the United States, Japan, and other international
markets. For each of the fiscal years ending 30 September 1965 and 30 September
1966, ELSI's sales totalled over 8 billion lire (US$12,8oo,ooo) (22). In addition to goods sold
to NATO, just under 30 % of the sales during this two-year period represented exports from
Italy (28).
ELSI thus became an established business. It did not, however, become self-sufficient.
During fiscal years 1964 through 1966, ELSI made an operating profit, but this profit was
insufficient to offset its debt expense or accumulated losses, and no dividends were ever paid
to its shareholders (24). As of 30 September 1966, the accumulated accounting losses, as shown
on the balance sheet, were some 2 billion lire (US$3,200,ooo) (25).
SECTION 4· - Final Efforts at Self-Sufficiency.
In February 1967, Raytheon embarked upon a major effort to make ELSI self-sufficient.
It designated Mr. John D. Clare, Raytheon Vice President and Generai Manager of its European
management subsidiary Raytheon Europe International Company, to be ELSI's Chairman and
directed him to determine and implement appropriate steps to improve ELSI's financial performance
(26
). Raytheon and Machlett also designated other highly qualified individuals to
assist ELSI (27). Some of these individuals worked full-time and others on a consultant basis
to provide ELSI their specializ;ed financial, managerial, and technical expertise. Raytheon
also provided over 4,ooo million lire (US$6,4oo,ooo) to ELSI in recapitalization and guaranteed
credi t (28).
This 1967 effort focused in part on improving the efficiency of administratfon and operations
at the ELSI plant in Palermo. By December 1967, major steps had successfully been taken
to upgrade plant facilities and operati.ons, including a comprehensive inventory, implementation
(19) Annex 13, paras. 8, 9 and 12; <<A New lndustry in an Ancient Land •>, Raytheon-ELSI, S.p.A., Brochure
Oct. 1963 (Annex 18); Sales brochure, Raytheon-ELSI, S.p.A. (Annex 19); Aerial photograph of Elettronica Sicula,
S.p.A. plant in Palermo, Sicily, 1962 (Annex 20). Affidavit of Rico A. Merluzzo, former Director of Planning
Raytheon-ELSI, S.p.A., para. 8, 17 Apr. 1987 (Annex 21). « Project for the Financing and Reorganisation [sic]
of the Company », 1967 Report prepared by Raytheon--ELSI, S.p.A., pp. 20-21 (Annex 22); Affidavit of Dominic
A. Nett, former Controller, Raytheon-ELSI, S.p.A., 17 Aprii 1987 (Annex 30).
('O) Annex 21, para. 8. These product lines are pictured and described in Annexes x8 and 19.
(21) Annex 15, para. II; Annex 21, para. 8.
(22) Annex 13, Schedule B3; Annex 22, pp. Iù-21. ELSI's fiscal year was I October- 30 September. Unless
otherwise noted, fiscal year data will· be given based on the accounting methods used in preparing ELSI's
accounting records.
(23) Annex 22, pages 20-21.
(24) Annex 13, Schedule B3; Annex 15, para. 12.
(26) Annex 13, Schedule Bx.
(26) Annex 9, paras. 20-22; Annex 15, paras. 14-15; Affidavit of Joseph A. Scopelliti, former Chief Financial
Officer and Controller, Raytheon Company, para. 2, I Apr. 1987 (Annex 17).
(27) Annex 9. para. 21; Annex IS, paras. 33-3s; Annex 17, para. 2; Annex 21, paras. s-8.
(28) Annex 9; para. 28; Annex 14, para. 2 and Exhibit A; Annex 15, para. 21.
8 RASSEGNA DELL'AVVOCATURA DELLO STATO
of improved quality production, and scrap contro! systems, establishment of a major worker
training program, and the restructuring of production facilities (29).
In Raytheon's view, however, it was most criticai to ELSI's self-sufficiency and hence
survival to develop further its product base, personnel, and piace in the Italian economy.
Raytheon management had concluded that, as an American-owned fìrm, ELSI was at a competitive
disadvantage in seeking to develop Italian markets (30). This goal therefore entailed severa!
interrelated objectives: to develop new products an d markets in order to expand an d diversify
its business and make full use of its operating capacity; to secure an Italian partner with economie
power and influence; and to be assured of the criticai interest and support of the national and
regional governments (81). The latter was particularly important because of the Italian Government's
dominant role as a customer and supplier in numerous markets crucial to ELSI's operations
and success, including the electronics, telecommunications, health care, military supplies,
information and transportation systems, and the Italian banking system (3 2).
ELSI sought to benefìt from Italy's Mezzogiorno incentive laws, especially (1) the socalled
« 30 % law " which required 30 % of government agency supply and job contracts to be
made from companies located in the Mezzogiorno; and (2) from transportation subsidies for
businesses in the Mezzogiorno (33). The 30% law was especially important to ELSI's X-ray
tube business, since government-controlled hospitals were purchasing X-ray tubes from outside
Italy which could have been purchased within Italy from ELSI in the Mezzogiorno (34). The
transportation subsidies were especially important to the cathode-ray tube business, because
the large size and weight of ELSI's products made transportation costs particularly expensive (35).
Many important potential new markets for ELSI products and many of ELSI's suppliers
were government-controlled, primarily by the Istituto per la Ricostruzione Industriale
(« IRI ") (36
). IRI, which had been created in 1933 to take emergency contro! of banks during
Italy's banking crisis, had developed into a permanent holding company with extensive and
wide-ranging commerciai interests, dominating, among other things, the telecommunications,
electronics and engineering markets (37). IRI has been described as:
« Europe's largest market-disciplined public enterprise group. ... It owns three of the
largest national banks, and accounted for one fìfth of the total of Italian bank deposits.
In servi ce companies it owns Alitalia, the main shipping companies, runs I talian radio
and television (RAI), the larger part of the Italian telephone system, and has built over
half the renowned national motorway network. In manufacturing it produces some
three-fìfths of Italian steel, over three quarters of ships built, owns the Alfa-Romeo motor
car company, and has an important stake in other national engineering sectors (38) "·
By the end of 1967, IRI had a majority shareholder interest valued at over 1,206 billion
lire (US$1,929,6oo,ooo) in some 139 companies, which employed some 290,000 persons and
had combined sales of 2,230 billion lire (US$3,s68,ooo,ooo) (39).
( 29) Annex 15, para. 36; Annex 21, paras. 9-15.
(30) Annex 17, paras. 3-4.
(31) Annex 9, paras. 24-25; Annex 15, para. 18; Annex 17, paras 4-5.
(32) Annex 9, paras. 24-25; Annex 17, para. 3· Moreover, the policies set by the Government of Italy in any
ofthese areas directly affected ELSI's operations. For example, in March 1967, the Chamber of Deputies approved
the first five-year pian for the Italian economy, which included detailed plans for the development of ltalian industry.
Quarterly Economie Review Annual Supplement, The Economist Intelligence Unit (1967) (Annex 23).
( 33) Annex 6; Annex 15, paras. 28-31; Annex 17, para. 4·
(34) Annex 15, paras. 28-31.
(35) Annex 15, para. 19.
( 36) Annex 17, paras. 3-4.
( 37) Annex 17, para. 3· Raytheon had previously established a successful partnership with IRI and the private
firm ~IAT through their joint ownership of Selenia, an electronics company on the Italian mainland. Raytheon
supphed Selenia managerial and technical expertise; IRI furnished Selenia access to markets controlled by IRIaffiliated
companies and the Italian Government. Annex 9, para. 25. Raytheon therefore had reason to believe
that a similar cooperative relationship could be established with the Italian industriai community, and with IRI
in particular. lbid., paras. 24-25.
(38) Annex 25, p. 47·
(39) Annex 23; IRI, Istituto per la Ricostruzione Industriale, 1967 Annual Report, (pp. 38-39, 65 (Annex
24); The State As Entrepreneur, pp. 45-49, 56-6o (S. Holland ed. 1972) (Annex 25).
MEMORIA DEL GOVERNO U.S.A. 9
Because of IRI's importance and the importance of a strong commerciai reiationship with
the government, Mr. Ciare and other senior Raytheon officiais heid some 70 meetings with
Italian ieaders between February 1967 and March 1968 (40
). In these meetings- with cabinetievei
officiais of the nationai government and the Siciiian Region, as well as representatives of
IRI, the Ente Siciliano per la Produzione Industriale "ESPI'' (the Siciiian Government
industriai organization responsibie for the promotion of iocal deveiopment), and the private
sector - ELSI's management and sharehoiders attempted to find ELSI a strategie Italian
partner and expiore the possibiiities of other governmentai support (41). In particuiar, Raytheon
and ELSI deveioped and presented to Itaiian and Siciiian officiais numerous specific proposais
of ways for the Italian Government to meet its goais of industriai deveiopment in the Mezzogiorno
through a partnership with ELSI and support for ELSI's deveiopment of new products
and markets (42).
At first, Itaiy's response was encouraging. ESPI's President and the President of the
Sicilian Region were enthusiastic about a partnership with ELSI (43). Simiiarly, other Itaiian
officials, including senior officiais at the Ministries of the Treasury and of Industry, Commerce,
and Crafts, expressed their continuing support for the officiai poiicy of Mezzogiorno deveiopment
and their specific interest in heiping ELSI (44).
Notwithstanding this support for ELSI from representatives of the regionai and nationai
governments, IRI was not prepared to invest in or consider other commerciai reiationships
with ELSI (46). On 4 January 1968, a senior IRI officiai confirmed that IRI was interested in
furthering its own activities in the electronics field (46). IRI's specific pians at that time were
apparently stili being deveioped; the official said that IRI would not enter into a relationship
with ELSI at that time, but might be willing to reconsider the decision later, perhaps in a
year (47). ELSI would require additionai capitai contributions from its shareholders, a commitment
they couid not make unless there were good prospects that ELSI wouid become financially
seif-sufficient (48).
( 40) Annex 9, paras. 29-31; Annex 15, paras. 22-46; Annex 17, para. 5·
(41) Annex 9, paras. 29-30; Annex 15, paras. 23-32 and 37-44; Annex 17, paras. 3-5.
(42) Annex 9, paras. 22-23; Annex 13, para. 13; Annex 15, para. 20. ELSI's detailed proposals for its future
development are contained in Annex 22. As explained by Charles F. Adams:
« If ELSI was going to be successful, it had no choice but to obtain a major Italian partner. Mter La
Centrale decreased its ownership of ELSI in the early 196o's, ELSI was viewed as an' American' Company.
W e had learned by 1967 that, in order for a company to be successful in Italy, it had to be viewed as
' Italian ' and have an ' Italian link ' or ' contact ', which would provide access to important Italian markets
and the contacts necessary to obtain vita! support from the Italian government. The only way for ELSI
to be viewed as an Italian company and have that necessary link was to acquire a major Italian partner, such
as IRI and Ente Siciliano per la Produzione Industriale (' ESPI '), the Sicilian governmental entity responsible
for funding and promoting local development ».
Annex 9, para. 24.
(43) Annex 15, paras. 24, 26 and 44, and Exhibits A and B. Because ELSI was a large employer, and because
Sicily hoped to develop its electronics industry, the Sicilian Region had a strong interest in keeping ELS I operating.
Annex 15, paras. 24, 26 and 27.
(44) Annex 15, paras. 25-30.
(46) Annex 9, para. 30; Annex 15, paras. 31-38.
(46) Annex 9, para. 30; Annex 15, paras. 38-40 and Exhibit C.
(47) Ibid. Sicilian officials were not prepared to enter a financial relationship with ELSI without IRI's support.
Annex 9, para. 31; Annex 15, paras. 37-38.
( 48) Annex 15, para. 21. They made this business judgment well known to the Government of Italy. Annex
9, para. 28; Annex 15, para. 21.
CHAPTER II
INTERVENTION BY THE GOVERNMENT OF ITALY TO PREVENT THE ORDERLY
LIQUIDATION OF ELSI
Raytheon and Machlett decided in March I968 to close ELSI and take it through an orderly
liquidation. However, the Mayor of Palermo, acting as an official of the Italian government,
requisitioned ELSI' s assets to prevent the liquidation. The President oj Sicily threatened that
the requisition would be maintained indefinitely unless Raytheon contributed additional capitai,
kept the plant open and unilaterally absorbed ELSI's losses. With its assets being held by
the Italian Government, and debts coming due, ELSI had no choice but to declare bankruptcy.
SECTION I. - The Decision to Liquidate ELSI.
Because their discussions with leaders of the Italian Government and others in Italy did
not appear to be leading to a successful conclusion, ELSI's shareholders began seriously to
plan to dose and liquidate ELSI to minimize their losses (1). They had made a business judgment
not to infuse additional capitai into ELSI if ELSI could not be made self-sufficient, since it
appeared that further investments, like earlier investments, would be lost (2). Without an
additional capitai contribution, the shareholders would eventualiy have no alternative under
Italian law but to liquidate (3).
Raytheon's management and shareholders continued to meet with Italian officials through
the first quarter of 1968, stressing that ELSI's shareholders were considering closing the
plant (4
). Despite periodic mention of possible cooperation at some future time (5
), Italian
agencies were unwilling to finalize any plan to keep ELSI in business (6).
To prepare for ELSI's liquidation, therefore, Raytheon sent its Vice President, Joseph
Oppenheim, to Palermo to be ELSI's Chairman. Mr. Oppenheim had the strong financial
and market expertise needed to conduct the liquidation, and was assisted by similarly experienced
senior management officials (?).
Under a comprehensive liquidation pian prepared by Raytheon Europe's Controlier Joseph
Scopelliti along with Mr. Oppenheim and others, ELSI would maintain a limited operation
to complete work-in-progress and fili existing purchase orders, thereby preserving it as a going
concern and making it more attractive to potential purchasers. Ali possible steps were to be
taken to maintain good relationships with ELSI's customers and suppliers so that potential
purchasers could be offered ELSI's businesses as a going concern, including its established
name and reputation, customer and supplier relationships, and the necessary patent and trademark
licenses and technical assistance from Raytheon and Machlett, in addition to the equipment
( 1) Annex 9, paras. 32-35; Annex 13, para. 13; Annex 14, para. 3; Annex 17, paras. 5-14.
( 2) Annex 9, para. 20; Annex 15, para. 21; Annex 26, para. 4·
(8) Annex 15, para. 42-43; Affidavit of Avv. Giuseppe Bisconti, Studio Legale Bisconti, Rome, para. 4, II
Dee. 1986 (Annex 26).
(4) Annex 13, para. 13; Annex 15, para. 43·
(5) E.g., Annex 15, para. 44 and Exhibit B.
(6) Annex 9, para. 30; Annex 15, para. 42.
(7) Annex 9, paras. 32-35; Annex 15, paras. 49-53; Annex 26, para. 5·
MEMORIA DEL GOVERNO U.S.A, 11
and other tangible assets (8). ELSI's business would be offered for sale both as a total package
and as individuai product lines to maximize the price realized under the liquidation (9),
As of 31 March 1968, the book value of ELSI's assets was 17.05 billion lire (US$
27,2oo,ooo) (1°). ELSI's fìnancial condition would, of course, bave been stronger had it received
the benefìts of the widely-publicized Mezzogiorno incentive laws and had it been able to expand
its position in the Italian market (11). Tbis book value represented a fair measure of the value
of ELSI's assets on a going concern basis (12). On tbe otber band, for internai planning purposes,
Raytbeon estimateci tbat a guaranteed minimum of 10.84 billion lire (US$17,28o,ooo) could
be realized on a « quick sale " basis (13).
ELSI's liabilities, on tbe otber band, totalled some 16.66 billion lire (US$26,6s6,ooo) (14
).
Tbus, from tbe sale of ELSI's assets on a going concern basis, enougb money would bave been
realized to pay off ELSI's liabilities in full, including tbe amounts owed by ELSI to Raytbeon,
with a 391 million lire (US$62s,6oo) surplus to Raytbeon and Machlett as a small return on
their investment (lD).
At worst, if only 10.84 billion lire were realized, Raytbeon intended to use tbe proceeds
from tbe sale of ELSI's assets to pay in full ELSI's preferred and secured creditors andali of
ELSI's smaller unsecured creditors (16). Raytbeon reasonably anticipateci, bowever, tbat tbe
bank creditors witb large unsecured, unguaranteed loans would quickly settle their claims at
no more tban so % of tbis value as part of tbe orderly liquidation, as sucb a settlement would
guarantee prompt and substantial payment, as compared witb receiving little or nothing in
bankruptcy (17). In tbis event, tbe liquidation would cost Raytbeon some 3·79 billion lire
(USS6,o82,6oo), for partial recovery of amounts owed to it on open account and to pay off tbe
remainder of ELSI's guaranteed loans (18
).
Raytbeon's Italian counsel, Avv. Giuseppe Bisconti, advised ELSI and its sbarebolders
in Marcb 1968 that an orderly liquidation was botb legally possible and prudent in view of
(B) Annex 9; Annex xs, paras. 49-S3·
(9) Annex 15, para. SI; Annex 17, para. 12; Annex 26, para. s. ELSI's product lines are pictured and described
in Annex 18 and Annex 19. An extensive exposition of the liquidation plan is contained in Annex 17, paras.
6-14.
(1Q) Annex 13, Schedule B1.
(11) Annex 17, paras. 3-4.
(12) Ibid., para. 1s.
(13) Annex 17, para. 16 and Schedules Cx, C2, C3 and C4; Annex 17, paras. 7-10 and Exhibit A. This
conservative valuation, personally prepared by Raytheon Europe's Chief Financial Officer and Controller, deliberately
omitted the significant intangible value of ELSI's businesses, including: '
« [I]ts excellent reputation as a producer of reliable electronic products, and its experience and know-how
in the electronics industry, its supplier and customer lists and market reputation, patent licenses and other
rights to technology supplied by Raytheon and Machlett, and other contracts. Moreover, in ELSI's case, its
products were backed by the strong names, technology and reputations of Raytheon and Machlett Laboratories,
Inc., and it had established products with a reputation for quality. In our judgment, these items were
of significant value and interest to potential buyers >),
Annex 17, para. 8. The plan was conservative to reflect << the minimum prospects of recovery of values which
we could be sure of, in arder to ensure an orderly liquidation process >), Ibid.
(14) Annex 13, Schedule E (« Total Adjusted Claims •). This included some 5.71 billion lire (US$9,10o,ooo)
in principal and interest on loans guaranteed by Raytheon; some 1.14 billion lire (US$x,83o,ooo) in amounts owed
to Raytheon by ELSI; and some 9.81 billion lire (US$ xs,696,ooo) in other liabilities and expenses, including amounts
required for severance pay, taxes, and other expenses of the liquidation. Ibid.
( 15) Ibid., Schedule E; see also, Table at p. 6o, infra.
(16) Annex 13, Schedule F; Annex 17, para. 14.
(1"1) Annex 17. As described infra, at p. x6, these banks were willing to settle at so % or less as part of an
overall voluntary settlement. See Annex 26, para. x6; Affidavit of Joseph Oppenheim, former Chairman of the
Board, Raytheon-ELSI, S.p.A., 22 Sep. 1971 (Annex 27); Affidavit of Charles H. Resnick, General Counsel, Raytheon
Company, 8 Sep. 1971 (Annex 28); Affidavit of Avv. Giuseppe Biscanti, Studio Legale Biscanti, Rome,
20 Aug. 1971 (Annex 29). In fact, most unsecured creditors waited seventeen years until the bankruptcy closed
and then received less than I % of their claims because ELSI was forced to declare bankruptcy. See Annex 26,
Attachment. Raytheon and its subsidiaries with claims against ELSI were willing to accept settlements of so %
or less from ELSI as part of the orderly liquidation. Annex 13, Schedule D; Annex 17, para. 14.
(18) Annex 13, para. 16 and Schedule F, and detail at Schedules H4, 12 and J. As detailed ibid., Schedule J,
Raytheon and its wholly-owned subsidiary were owed 1.14 billion lire (US$x,83o,ooo) for goods and services rendered
on open account. Se.e also, Annex 14, para. 3; Table at p. 6o, infra. .
12 RASSEGNA DELL'AVVOCATURA DELLO STATO
ELSI's financial situation (19
). With preparations for liquidation completed, and no apparent
prospect of developing a cooperative business relationship with Italian authorities, ELSI's
Board of Directors voted on 16 March 1968 to cease full-scale production on 29 March 1968
and liquidate the company (20
). On 28 March 1968 ELSI's shareholders voted to affirm this
decision (21).
SECTION 2. - The Requisition of ELSI's Assets.
On 27 March 1968, the President of the Sicilian Region threatened four officers of Raytheon
Europe and ELSI that the Government of Italy would seize ELSI's plant and related assets
if its shareholders proceeded with their pian for an orderly liquidation (22). On 29 March 1968,
ELSI's management, acting pursuant to the decisions of ELSI's Board and shareholders, nonetheless
determined that it had no alternative but to proceed with the liquidation pian (23). That
night, the Generai Manager of the Ministry of lndustry Commerce and Crafts, speaking for
the Prime Minister of Italy, asked Mr. Clare to delay dosing ELSI, stating that Raytheon would
incur the Prime Minister's severe displeasure if the plant were dosed (24). Mter consulting
with Raytheon's President, Mr. Clare and his stati sent dismissal letters late the night of
29 March 1968 (26).
On 31 March 1968, at 6 :45 a.m., the President of the Sicilian Region met with ELSI's
Managing Director to inform him of the Italian Government's pian for ELSI. According to
the President, the Italian Prime Minister had said that the Government of Italy would requisition
ELSI's plant in order to prevent the liquidation (26). He stated that an ESPI-affiliated
company wouid be formed to run ELSI until IRI could acquire ELSI's assets (27). In addition
to their pian ultimately to acquire the assets, Italian officials did not want to allow ELSI to
dose on the schedule determined by ELSI's directors and shareholders. National eiections
were scheduied for May 1968, and government officials told Raytheon repeatedly that they
did not want the plant to dose, with resuiting large-scale unemployment shortly before an
election (28).
Accordingly, on 1 Aprii 1968 the Mayor of Palermo issued an order, effective immediateiy,
requisitioning ELSI's plant and related tangible assets for a period of six months (29). The
(19) Annex 26, para. 4· Avv. Bisconti explains:
«I advised Raytheon about the Italian lega! requirements for an orderly liquidation of an Italian company.
Under Italian law, in particular under Articles 2447 of the Italian Civil Code, when a company's capita! is
depleted below a statutory minimum amount (at the relevant time, the statutory minimum was x,ooo,ooo
Italian Lire), the directors are required to call a shareholders meeting in order that the shareholders bring the
capita! back at least up to the required statutory minimum. If the shareholders fai! to take the required action,
the company is dissolved as a matter of law under Artide 2448 of the Italian Civil Code. ELSI's capita!, after
taking into account losses to date at that time, was well in excess of the minimum statutory requirement.
I t was therefore possible under Italian law for ELSI's shareholders to pian an orderly liquidation of the company
~.
Ibid. ELSI would not at this point have been considered bankrupt under Italian law, as it was stili able to pay
its debts as they became due. Only later, when Italy had seized ELSI's assets to prevent the liquidation, were ELSI's
directors forced to file a petition in bankruptcy under Italian law. Annex 26, para. 12, and discussion infra,
pp. 14-IS.
(20) Minutes of Raytheon-ELSI, S.p.A., Board of Directors Meeting, x6 Mar. 1968 (Annex 31).
(21) Minutes of Raytheon-ELSI, S.p.A., Shareholders Meeting, 28 Mar. 1968 (Annex 32).
(22) On 27 Mar. 1968, he stated that « the plant would almost certainly be requisitioned t if ELSI sent out
letters of dismissal pursuant to the decisions of its Board of Directors. Annex 15, paras. 56-57 and Exhibit F.
(23) Annex xs, para. 58.
(24) Annex 15, paras. 58-59 and Exhibit G.
(26) Annex xs, para. 6o.
(26) Ibid., paras. 61-62 and Exhibit H.
(27) Ibid. According to the President, IRI preferred to acquire ELSI's assets for its own use rather than to
work with Raytheon to keep ELSI open because IRI did not want to enter a partnership with Raytheon.
(28) Annex 15, paras. 46 and 58; Annex 26, para. 6.
(29) Requisition Decree, Mayor of the Municipality of Palermo, I Apr. 1968 (Annex 33).
MEMORIA" DEL GOVERNO U.S.A. 13
order was based on a 1865 law·that bestowed extraordinary·power on Italian.administrative
authorities to « dispose of private property » for reasons of « grave public necessi:ty (30) ». Among
the stated reasons for the requisition were that « the local. press is taking a great interest in the
situation and ••. is being very criticai toward the authorities and is accusing them of indifference
to this serious civic prol:>l~rn » and that« t~ere is .a grave public necessity and urgency to protect
the gep~ral . e.co!lori:J,~c l'\ll)lic ipte.rest @rel{qy ~eriously compromised) f!Od public f)rder (81) ».
bri. Z Aprii x968, EtSI's mariagemenf relinquished coritrol of ELSI's . plàrit arid assets
to the Mayor on the adviée of local counsel (3'). As a :result of the requisitìt:m, ELSI's owners
àtid i:nariagement were•; as a matter· oflaw, deprived of control over and the tightto dispose of
ELSI's assets; and could not proeeed with the liquidation (33). ELSI's relationships with its
supplìers and customers were cut off abruptly, in'-process inventories could not be oonverted
to finished products, and neither ELSI's goods nor its other assets could be sold (34) •
• . ... ·• Although he had legru controlof the plant, the Mayor di d not attempt to ~:eopen and operate
it •• ·• Rather, Italian authorities allowed ELSI's former workers to. occupy. the plant (36). ELSI
representa:tives immediately sent cables asking the Mayor and other Italian authorities to revoke
the requisition, but received no response (36
). On. 9 Aprii ELSI formally Petitioned the Mayor
to lift.hi!l ()rder, arguing tha~ the requisition was illegal and would only delay the so}ution of the
problem an d create false hopes arnong ELSI workers ••.. The Mayor. <;iicl nqt respond (37). O n
19 Aprii, EL SI. appealed. t!le Mayor' s. orcier to the Prefect of Palermo, an official of the I talian
Governfuerit einpoweted t() bear appeals of decisions by local· govetrifuental officials (38). ELSI
argued th!l.t the requisition was iUeg!l.l and àrbitrary, and that the Mayor acted outside his
authority in requisitioning the plant (39). Although the Prefect ultimately held that the Mayor
had acteci unlawfully, he delayed issuing this decision for sixteen months, untilafter IRI had
completed its aéqu.isitìon . of EJ:.,SI)s · p}ant ~tnd asseti! (40).
. After havinr.C requìsitioned ELSI's planf and other tangible assets, ltalian authorities
presàured Raytheorito reopen ELSI at Ray-theon's own additional expense. On 19April 1968,
the President ofthe Sicilian Regìon told Raytheon representatives that the regionru and nationru
governmerits had agreed to forin a management company ti:> operate ELSI. · He propostid that
Rajitheon participate as a rriinority or equ!l.l partner with the govemment, · contribtiting substantial
new capitai to the venture and assuming complete tesponsibilìty for ELSI's past debts.
He proposed th!l.t thé new management company pay only a token rental (one Italian lira) for
ELSI's facilities; He irtdicatéd that this atrartgement would keep · ELSI workers temporarily
(30) Annex 26, para. 7; Article 7 of Law of 20 Mar. 1865, N. 2248, Attachment E (Annex 34). The requisition
was based indirectly on a 1955law establishing the Mayor's authority to issue « emergency and urgent orders •
of this character. Presidential Decree of 29 Oct. 1955, N. 6 (Annex 35).
( 31) Annex 33·
(32) Annex 21, paras. 18-19; Annex 26, para. 8.
(33) .1\1:\nex 26, para. 7.
(34) A.tmex 2(>, para. 7· The devastating effe<:t of the requisition is described by former Raytheon Controller
Joseph Scopelliti in Annex 17, para. 17:
« On Aprii r, however, the Mayor of Palermo requisitioned ELSI's plant and equipment; With the
requisition of ELSI's assets, it was impossible to invite potential buyers to view ELSI's facilities and discuss
the sale of the businesses. Moreover, in-process inventories could not be converted to finished prodùcts.
Suppliets and customers were thus suddenly and abruptly suspended. ELSI's hard-earned market position
was quickly taken away by competitors. Not only were the bulk of ELSI's assets suddenly not disposaole,
but it did not appear likely that Raytheon would ever regain control of them •. The requisition action ended
our chances of completing an orderly liquidation and obtaining a fair price for ELSI's businesses and assets ~.
( 35) Annex 21, paras. 19-:011. So far as Raytheon can determ.ine, the workers continued to have actual custody
of the plant during the requisition and consequent bankruptcy until the plant was finally reopened. lbid., paras.
20-21; Annex 26, paras. 16--17.
(36) Annex 26, para. 9·
(37) Annex 26, para. 9·
(88) Appeal by Raytheon-ELSI, S.p.A., to the Prefect of Palermo of Requisition Decree of the Mayor of
Palermo, 19 Apr. 1968 (Annex 36); See also, Annex 26, para. 9·
(39) Ibid.; At\nex 36. . .
( 40} See infra, p. 21. This delay in ruling appears to have been unprecedented. Annex 26, para. ro.
14 RASSEGNA DELL'AVVOCATURA DELLO STATO
employed until IRI set up its own plant in Palermo, emphasizing that Sicily had a " single goal,
to keep the workers employed (41) »,
The following day, the President of the Sicilian Region delivered to Mr. Oppenheim a
memorandum stating in part:
" On the premise that the intent of [Raytheon] is that of liquidating ELSI, I shall lièrein
explain the reasons why it is absolutely impossible that this can take place for the time being:
x) Nobody in Italy shall purchase, that is to say IRI shall not purchase neither for
a low nor for a high price, the Region shall not purchase, private enterprise shall not
purchase. Let me add that the Region and IRI and anybody else who has any possibility
to influence the market will refuse in the most absolute manner to favor any sale while
the plant is closed.
2) The banks which have outstanding credits for approximately x6 billion lire, cannot
and will not accept any settlement even at the cost of dragging the Company into litigation
on an international level. ..................................................... .
It is obvious that every attempt will be made (even at the cost of long litigation) to
obtain from Raytheon what is owed by ELSI.
4) In the event that the plant shall be kept closed, waiting for Italian buyers who
will never materialize, the requisition shall be maintained at least until the courts will have
resolved the case. Months shall go by (42) ».
The memorandum set forth a plan for keeping ELSI open temporarily, aiming toward
the liquidation of ELSI at a later time. After consulting with Raytheon officials, Mr. Oppenheim
fonnally rejected the proposal on 26 April, writing to the President of the Sicilian Regio n:
<< Regrettably your proposal to form a management company was a temporary caretaker
measure which would not solve the fundamental problem, namely keeping ELSI in Sicily
and making it a viable and vital industry. For this reason, we find it impossible to accept it.
It is sad to see that after all our investment over the years, and all our appeals during
the last year to public agencies and private industry to join us in putting new blood into
a Sicilian industry, the only responses were the requisitioning of our plant and a _proposal
which would only aggravate ELSI's criticai financial condition.
We are therefore forced to file a voluntary petition for bankruptcy, as required by
Italian law ... (43) »,
SECTION 3· - The Resulting Bankruptcy.
The President's memorandum made clear that the reqmsttlon of ELSI's assets would
continue indefinitely. Deprived of the income which the sale of its assets would produce, ELSI
was no longer able to meet its financial obligations when due. Its attorney advised the Board
of Directors to file for bankruptcy or face possible personal liability for company debts (44
).
(41) Minutes of Meetings in Palermo between Messrs. Joseph Oppenheim, Howard Hensleigh, Stanley Hillyer
and President Carollo of Sicily, 19-20 Apr. 1968 (Annex 37); Memorandum from the President of the Sicilian
Region, 20 Apr. 1968 (Annex 38).
(42) Annex 38.
(43) Letter from Joseph Oppenheim, Chairman of the Board, Raytheon-ELSI, S.p.A., to Hon. Vincenzo
Carollo, President of the Sicilian Region, 26 Apr. 1968 (Annex 39).
(44) Annex 9, para. 36; Annex 17, para. 19; Annex 26, para. 12; Annex 39; Affidavit of Charles H. Resnick,
Generai Counsel, Raytheon Company, paras. 4-5, 19 Jan. 1987 (Annex 40). Avv. Biscanti details in his affidavit
why the requisition forced ELSI to declare bankruptcy:
« On the day after we fìled the appeal to the Prefect, President Carollo of Sicily delivered a written memorandum
to Raytheon threatening that the requisition would be prolonged indefìnitely unless Raytheon abandoned
its plans to dose ELSI. I was informed of this immediately by Mr. Oppenheim. The disposability
of ELSI's assets was a fundamental prerequisite to ELSI's shareholders' ability to take ELS l through an
MEMORIA DEL GOVERNO U.S.A. 15
On 25 Aprii 1968, the Board of Directors accepted this advice and voted to file a voluntary
petition in bankruptcy (46). The bankruptcy petition, which was filed on 26 Aprii 1968, with
the Civil and Criminal Tribunal of Palermo, stated in part:
« On Aprii I, 1968 the Mayor of Palermo, alleging reasons of serious necessity and urgency,
ordered the requisition of the plant and of the equipment of the Company. Such measure,
which is considered by the Company illegal and arbitrary and moreover unfit to resolve the
the economie problem of the Company and of the Sicilian industry, has deprived the Company
of the freedom · to dispose of its assets for a long period, annihilating every possibility
for the orderly disposition of the corpora te assets; the negotiations then in course for the
disposition of part or all of the assets were prejudiced without recourse. Furthermore, in
the last few days there were clear and express indications of a line of behavior intended to
put the Company in even more serious difficulties.
Because of the order of requisition, against which the Company has timely filed an appeal,
the Company has lost the contro l of the plant an d cannot avail itself of an immediate source
of liquid funds;.in the meanwhile payments have become due (as for instance installments
of long-term loans; an installment of Lit. 8oo,ooo,ooo [US$r,28o,ooo] to Banca Nazionale
del Lavoro became due on Aprii 18, 1968 ..• ); it is aclmowledged that it is impossible for
the Company. to pay such sums with the funds existing or available and such impossibility
is due to the events of these last weeks (46) >>.
The Civil and Criminal Tribunal of Palermo found ELSI bankrupt on r6 May 1968, and
named Avv. Giuseppe Siracusa, a Palermo attorney, as Curator (hereinafter, « Trustee ») for
the bankruptcy (47).
orderly liquidation; they were relying on the proceeds of these sales in large part to pay ELSI's creditors
in an orderly manner. Without the ability to dispose of its assets, ELSI would not have the liquidity needed
to pay its debts as they carne due and therefore would soon become technically insolvent under Italian law.
Ali indications from the Italian Gòvernment were that the requisition would not be quashed in the near term.
Because ELSI's illiquidity and its consequent inability to meet its obligations when due were caused by the
requisition, and would continue, I advised ELSI's directors that they had an obligation to file a petition for
a dedaration of bankruptcy, failing which they could be held personally liable pursuant to Artide 217 of the
Bankruptcy Law, Royal Decree of March 16, 1942, N. 267. I had not previously contemplated such a step,
since I saw no possibility of its being required by ELSI's financial situation prior to the requisition. Given
the requisition, however, and the consequent inability to dispose of ELSI's plant and equipment, it was
evident that ELSI would no longer be in a position to satisfy regularly its obligations and pay its debts as
they carne due ».
(Annex 26, paras. II and 12). The text of Artide 217 of the Bankruptcy Law of Italy, Royal Decree of 16
Mar. 1942, N. 267, is attached as Annex 41.
( 45) Minutes of Meeting of Raytheon-ELSI, S.p.A., Board of Directors, 25 Apr. 1968 (Annex 42). See also,
Annex 40, paras. 4-5.
(46) Raytheon-ELSI, S.p.A., Petition for Bankruptcy to the Civil and Criminal Tribuna! of Palermo, p. 6
26 Apr. 1968 (Annex 43).
(47) Raytheon-ELSI, S.p.A., Judgment of Bankruptcy, Civil and Criminal Tribuna! of Palermo, decided
7 May 1968, deposited 16 May 1968, registered 17 May 1968 (Annex 44). The Tribuna! then appointed a fivemember
creditors committee induding two representatives of ELSI's labor force, two representatives of ELSI's
bank creditors, and a representative of Raytheon Europe. Documents filed in the Civil and Criminal Tribuna! of
Palermo designating Giuseppe Siracusa Trustee in Bankruptcy and selecting the creditors committee in the bankruptcy
of Raytheon-ELSI, S.p.A., 4 June 1968 (Annex 4s).
CHAPTER III
THE ACQUISITION OF ELSI'S ASSETS BY IRI
The Government of Italy publicly announced that it would take over ELSI's plant and
related assets through one of IRI's subsidiaries. Raytheon and Italian officials discussed
a possible agreement, but Italy broke off talks in November zg68. Notwithstanding its
decision to acquire ELSI's assets, IRI then boycotted the series of three auctions held by
the bankruptcy judge, while communicating directly with the trustee and the bankruptcy
judge to obtain different purchase terms than had been set for the auctions. Arguing that the
plant has been idle for a long period, an IRI subsidiary leased and soon thereafter purchased
ELSI's plant and most of its assets at afraction of their origina[ worth.
SECTION I. - Public Announcement of the Decision to Acquire ELSI's Assets.
On 25 July 1968, the Minister of Industry, Commerce and Crafts announced to the Parliament
that the Government of Italy intended to take over ELSI's plant through one of IRI's
subsidiaries (1). Until IRI's subsidiary was ready, ELSI's assets would be taken over by a new
company formed by the Sicilian Region and some government agencies (2). He also indicated
that ltaly was stili considering a general creditors' settlement outside the bankruptcy proceeding
es.)
Italian officials in fact met with Raytheon officers repeatedly from July to November 1968
to discussa possible plan fora government take-over that might include a creditor settlement (4
).
The parties tentatively agreed on a plan which by early November 1968 was dose to being
finalized. In the course of these negotiations, ali but one of the seven creditor banks agreed
to accept 30 %-40% of their unsecured claims. One bank decided that it would accept so%
in a settlement (5).
On 13 November 1968, however, the Government of Italy announced its decision that
an IRI subsidiary, IRI-STET, would « intervene, and take over ELSI's plant in Palermo (6
).
A senior Italian official confirmed five days later that Italy broke off nearly successful settlement
negotiations because it had decided to allow IRI to take over ELSI's assets without a creditor
settlement (1). On 30 November, former ELSI workers who had been occupying the plant
(l) Address by Minister of Industry, Commerce and Crafts, Andreotti, to the Italian Parliament, 25 July
1968 (Annex 46). He explained that this subsidiary would acquire «a suitable site » and make other preparations
to commence operations in Palermo, adding that « those familiar with situation in Palermo know that this is not
difficult ». lbid., at p. 3·
(2) Ibid., at p. 4· The pian announced by the Industry and Commerce Minister for Sicily to take over and
operate ELSI's facilities corresponds directly to the pian outlined by the President of the Sicilian Region, speaking
on behalf of the Italian Prime Minister, the day before the requisition. Supra, p. 12.
(3) Annex 46, at p. 4·
(4) Annex 26, para. 16; Annexes 27, 28 and 29.
( 0) Annex z6, para. x6; Annex 29. The United States is not claiming for damages based on this settlement
that fell through. The present claim is based on the assumption that Raytheon would bave paid so % to all of
the large creditor banks. lbid.
(6) Press Release by the Government of Italy, 13 Nov. 1968 (Annex 47); Annex 26, para. 16.
(7) Annex 29.
MEMORIA DEL GOVERNO U.S.A. 17
took down the plant's entrance sign that said • ELSI » and replaced it with a new sign that said
« STET (8) ». In December, IRI formed a new subsidiary in Palermo - Industria Elettronica
Telecomunicazioni, S.p.A. (« EL TEL ») - to take over ELSI's plant and assets (9).
SECTION 2. - The Acquisition of ELSI's Assets.
A) - IRI leases and re-opens ELSI.
The bankruptcy court ordered an auction of ELSI's plant and equipment for 18 January
1969, over eight months after ELSI was declared bankrupt, and seta minimum bid of 5 billion
lire (US$8,ooo,ooo) (1°). The Government of Italy had announced its decision to take over
ELSI's assets for its own use and no private parties bid at the auction (11).
By this time, ELSI's plant had been idle and occupied by former employees for over nine
months, and they were bringing pressure on the regional and national governments to reopen
the plant (12). As early as November 1968, government officials, as well as IRI, had promised
that an IRI subsidiary would take over ELSI's plant and rehire most of the former employees (13).
In attempting to reach an agreement on such reemployment, however, disputes arose between
employee representatives and IRI about timing (14). Four hundred of ELSI's workers marched
on Rome in early 1969 to protest the government's delay (15). IRI representatives and the Trustee
in bankruptcy reportedly agreed on 18 March 1969 that IRI would acquire ELSI's assets,
beginning with a lease of the plant for 150 million lire (US$24o,ooo), followed by a negotiated
purchase of the assets. This agreement, which was publicly reported, was reached in a meeting
with the Prefect of Palermo (1 6).
While these negotiations were taking place, the bankruptcy court held a second auction
on 22 March 1969, offering ELSI's assets for 6,223,293,258 lire (US$9,957,ooo) (17
). As with
the first, IRI boycotted this auction, and no other potential purchasers appeared (18). The
(8) Photograph of entrance to Elettronica Sicula, S.p.A. plant in Palermo, Sicily, 1962 (Annex 48); Photograph
of entrance to Raytheon-ELSI S.p.A. plant in Palermo, Sicily, Nov. 1968 (Annex 49).
(9) Annex 26, para. 20; «I.R.I. Breaks Its Promise- 2oo Workers Remain Jobless », L'Ora, s/6 Dee. 1968
(Annex so).
(10) Notice of Auction to be held 18 Jan. 1969, Corriere Della Sera, II Dee. 1968 (Annex 51).
(ll) Although several buyers expressed to the Trustee their interest in purchasing ELSI's assets, no buyers
appeared at the first auction. Minutes of 18 Jan. 1969 Auction of ELSI's Assets (Annex 52); Annex 26, para. 18.
As stated by Avv. Biscanti:
« [S]ince the Italian Government had made clear its decision to have one of its agencies acquire ELSI's
assets, potential purchasers had no incentive and received no encouragement to pursue their interest. Moreover,
during the time ELSI's plant was occupied by its employees, it would have been difficult for the Curator
to even show the assets ». lbid.
(12) Annex so; « CGIL: The Undertakings for ELSI Aie Not Being Fulfilled », Giornale di Sicilia, 8 Dee.
1968, p. 6 (Annex 53);« ELSI: Agreement Reached for Workers », Giornale di Sicilia, 30 Jan. 1969, p. 2 (Annex
54); « The 'EX' [Employees] of ELSI Protest in Rome», Giornale di Sicilia, 30 Jan. 1969, p. 5 (Annex 55);
« ELSI: Conclusive Meeting in the Prefecture •, Giornale di Sicilia, 19 Mar. 1969, p. 14 (Annex s6). The workers'
unions actively negotiated and lobbied the Government on their behalf. See Annex so. As discussed in these news
reports, IRI was represented in its negotiations for and acquisition of ELSI's plant and assets by SIEMENS,
one of its industriai subsidiaries, and by ELTEL, which ultimately purchased the plant and related assets. See,
e.g., Annexes so, 54 and 56.
( 18) Annex so.
(14) Annexes so, 53, 54, 55 and 56. IRI ultimately agreed to rehire the employees in phases over a one-year
period. See Annex s6.
(10) Annexes 55 and s6.
(16) Annex 56. The Prefect, who had pending before him ELSI's April1968 appeal of the requisition, activel.y
participated in the March 1969 negotiations between IRI, Sicilian officials and the Trustee in Bankruptcy for the
acquisition of ELSI's assets. Ibid. Despite his personal participation in IRI's acquisition of ELSI's assets,
~o~ever, the Prefect. delayed ruling that the requisition was illegal unti! August I 969, five months after the nego~
1at10ns were concluded and sixteen months after ltaly seized the plant but onl y forty days after IRI conci uded
Its purchase of the assets. Se e discussion infra, p. 21.
(17) Notice of Auction to be held 22 Mar. 1969, The New York Times, 5 Mar. 1969, p. 28 (Annex 57).
(18) Minutes of 22 Mar. 1969 Auction of ELSI's Assets (Annex 58).
18 RASSEGNA DELL'AVVOCATURA DELLO STATO
President of tbe Sicilian Region explained on 5 Aprii 1969 tbat EL TEL's decision not to bid
was part of a national government pian dating back to October 1968:
« [President Carolio] said: 'Tbere is an agreement: precise, written, and signed ' .... Tbe
agreement, as Carolio explained it last nigbt, entailed tbe acquisition of tbe factory by
IRI for tbe sum of four billion lire. I t was even agreed tbat IRI would be absent from tbè
first auction, participating instead in tbe second one, wbere tbe basic price was precisely
four billion lire. ... ' Wbat I am saying is so true - ' continued Carolio, ' tbat immediately
after tbis conversation tbe directors of IRI carne to Palermo in order to form EL TEL .
... Tbe trutb ... is tbat IRI (tbrougb EL TEL) bas continued to speculate on a lower
purcbase price, no longer bonoring its previous commitment; and it also bappened tbat
tbe consortium of creditors and tbe bankruptcy trustee backed out as weli, bringing up
tbe problem of tbe inventory to be acquired togetber witb tbe plant (19) >>.
A week after tbe second auction, EL TEL publicly proposed to tbe Trustee tbat it be
aliowed to lease and reopen tbe ELSI plant for an eigbteen-montb period at an annua! rental
cbarge of xso million lire (US$z4o,ooo) (2°).
Tbe creditors committeè met and expressed wbat tbe bankruptcy judge calied an << essentialiy
negative opinion >> of tbe proposed.lease (21), recotnmending tbat any sucb lease be limited
to six to twelve montbs and be granted only if ELTEL agreed to purcbase ali of ELSI's inventoried
raw materials for x.S billion lire (US$z,88o,ooo) (22). Raytbeon Europe's representative
on tbe creditors committee vigorously opposed this lease, in part because of tbe nominai payment,
but more fundamentaliy because it would discourage any potential competition for tbe purcbase
of ELSI's assets. As be elaborateci in a petition to tbe bankruptcy judge:
<< IRI, notwitbstanding tbe alieged commitments [to purcbase ELSI's assets], bas let two
sales go unattended witb tbe obvious purpose of causing in sucb way tbe price to become
lower. Tbe attitude of IRI leads one to suspect tbat this maneuver sbali continue for severa!
montbs until sucb time as tbe price of tbe plant, because of the reductions tbe law permits
(but does not require), will go down to sucb a low value tbat tbe solution of the serious
social problem represented by one tbousand Elsi workers may also convert itself into an
enormous bargain for IRI and into an enormous damage to ELSI creditors ....
It is impossible to see wbat benefit there may accrue to tbe creditors from tbe lease. On
tbe contrary, it appears tbat tbe lease can only cause damage to tbe creditors because EL TEL,
once it bas obtained possession of tbe plant - notwitbstanding tbe provision tbat may be
included in tbe lease agreement tbat in tbe event of purcbase of tbe plant or part tbereof
by tbird parties tbe same sbali be terminated - sbali bave presumably no interest in
purcbasing tbe plant or, in any case, it sbali bave no urgency to purcbase it and a consequence
of ali tbis sball be tbat, tbrougb successive auctions, tbe price sball be reduced to
sucb a point as to depredate completely tbe ELSI plant. On tbe otber band, a private group
whicb migbt stili think of purcbasing tbe plant or part thereof, knowing of tbe aforementioned
decision of tbe I talian Government an d knowing tbat IRI is also in tbe possession
of tbe plant, can only be absolutely discouraged even from taking into consideration sucb a
possibility.
[Moreover, tbe lease] sball make it impossible [for tbe liquidator] to seli tbe inventory at
any reasonable price.
(19) « 'There Was an Agreement' Says Carollo », Giornale di Sicilia, 6 Apr. 1969 (Annex 59).
(20) Minutes of Raytheon-ELSI, S.p.A., Creditors Committee Meeting, 29 Mar. 1969 (Annex 6o); Submission
by Trustee in Bankruptcy Giuseppe Siracusa to the Civil and Criminal Court of Palermo, 3 Apr. 1969
(Annex 61). As noted supra, p. 17, this lease arrangement was reportedly arranged in advance of the creditors
committee meeting by IRI and the Trustee, in the presence of the Prefect. Annex 56.
( 21) Annex 61, p. 3·
(22) Annex 6o, p. 2.
MEMORIA. DEL GOVERNO U.S.A. 19
[I]nventory can be sold at a reasonable price only to whomever uses the plant; therefore,
if the inventory is separated from the plant and if an attempt is made to sell the inventory
separately, the only result shall be that the inventory will be sold as scrap or that it may
be absolutely impossible to sell a substantial part thereof (23) )).
Notwithstanding the views of the creditors committee, the Trustee recommended and the
bankruptcy judge agreed to gràrtt EL TEL the lease on the terms it requested (24). Raytheon
Europe's appeal of the lease to the Cìvil atid Ci:imìnàl Tribunal of Palermo was denied on 9
May 1969, primarily on the ground thàt the lease could preserve the already reduced value
of ELSI's assets, which had remained unused becàuse of the requisition (26).
B) IIU acquires ELSI's work in process.
In Aprii 1969, ELTEL proposed .to buy ELSI's work in process - materialleft on production.
lines when the plant. was requisitioned --:-- for 105 million lire (US$168,ooo). The
creditors committee met on 2 May 1969 to consider this offer, which was for about 48% of
the 217 million lire (US$347,200) at which this material had been inventoried and appraised (26).
Raytheon Europe's representative on the creditors committee opposed ELTEL's offer because
i>f this low price and other grounds, arguing o in part that the sale should not be considered
prior to the auction proceedings. scheduled for early May 1969 (27). The other members of the
committee agreed to the sale despite EL TEL's low offer, in part because this inventory had
already been sitting unused for over 12 months (28).
On 3 May 1969, IRI boycotted the third auction of ELSI's assets held by the bankruptcy
judge (29
). ELTEL had notified the bankruptcy court on 16 Aprii that it wanted to buy the
plant and equipment only and not the supplies, « since these are not indispensible for administration
)). EL TEL indicated that it would bid at the third auction if it could make a bid of
3.2 billion lire for the plant and equipment only- rather than for the plant, equipment, inventory
and supplies (30). The court, however, di d not change the terms of the auction an d EL TEL
did not bid. No other bidders appeared either (31).
On the same day as the third auction, however, the Trustee petitioned the bankruptcy
judge to approve the sale of ELSI's work in process to ELTEL for the exact price ELTEL had
offered, reasoning that the reduced price was justified by the long period of plant inactivity
(23) Brief to the Civil and Criminal Tribuna! of Palermo from Avv. Giuseppe Bisconti, 8 Apr. I969, pp. 4-7
(Annex 62).
(24) Submission to Civil and Criminal Tribuna! of Palermo by Avv. Giuseppe Bisconti, 10 Apr. I969, pp.
3-5 (Annex 63). In justifying his recommendation, the Trustee noted:
~ The rental of Lire I so,ooo,ooo per yèar, considered abstractly, is neither adequate nor remunerating, however
if it is related to the obligation<> which the lessee shall undertake to safeguard the integrity, and to maintain
also for the future, of the value of the plant, it shall on the other hand result to be definitely convenient •.
Ibid., at p. 4·
(26) Decree of the Civil and Criminal Tribuna! of Palermo, 9 May I969 (Annex 64).
(26) Minutes of Creditors Committee Meeting, Raytheon-ELSI, S.p.A., 2 May I969 (Annex 65).
(27) Annex 65. Raytheon Europe's representative stated that IRI was simply pursuing its « well thought-out
pian which is, in essence, geared to a maximum devaluation of ELSI's business from which EL TEL alone would
benefit •. Ibid., at p. 3·
(28) Ibid., at pp. 3-4; Annex 26, para. 22. To Raytheon's knowledge, this materia! was not offered to any
other purchasers, since the plant and its assets were offered as a single package for everyone except IRI. lbid.
(29) Notice of Auction to be held 3 May I969, The New York Times, 8 Apr. I969, p. 71 (Annex 66); Minutes
of 3 May 1969 Auction of ELSI's Assets (Annex 67). The bankruptcy judge set a price of 5 billion lire
(US$8,ooo,ooo) at this auction. The disparity in prices among the first three auctions arises in part because the
bankruptcy judge slightly varied the particular assets that were offered at each auction in addition to ELSI's plant.
See Annexes SI, 57 and 66.
( 80) Submission to the Civil Court of Palermo by ELTEL, S.p.A., I6 Aprii I969 (Annex 68).
( 81) Annex 67.
20 RASSEGNA "DELL'AVVOCATURA DELLO STATO
and by EL TEL's lease of the plant (89). The Court approved the sale at the price set by
ELTEL (33).
C) - IRI completes its acquisition of ELSI's assets.
Having acquired contro} of ELSI's plant through the lease and ownership of its work in
process, EL TEL quickly negotiated a price to its liking for ELSI's remaining assets.
On 27 May 1969, EL TEL submitted to the bankruptcy judge its o:ffer to buy the remaining
plant, equipment and supplies for 4 billion lire (US$6,4oo,ooo) (34). The Trustee proposed
to the creditors committee that it accept this offer, subject to some minor changes (36). The
committee considered the proposal, as modifìed, on 6 June and approved it by a split vote (36).
On 7 June the bankruptcy judge scheduled an auction for 12 July 1969 on the agreed terms (37).
Mter Raytheon Europe unsuccessfully appealed the judge's decision to sell ELSI's assets to
EL TEL (38), EL TEL appeared at the fourth auction and purchased ELSI's plant and remaining
assets (39). The Civil and Criminal Tribuna! of Palermo approved this purchase and assigned
ELSI's remaining assets to ELTEL the next day (40). Thus, on 12 July 1969, ELTEL fìnally
completed its purchase of ELSI's assets for 4.oo6 billion lire (US$6,409,6oo), a price it had
essentially determined eight months earlier (41).
The Government of Italy thus achieved its objective of acquiring ELSI's plant and other
assets without paying or otherwise cooperating with ELSI's shareholders, Raytheon and
Machlett, and without paying a freely market-determined price. IRI's subsidiary Italtel, S.p.A.,
now uses ELSI's plant to manufacture telephone equipment (42).
(32) Submission to the Civil and Criminal Tribuna! of Palermo by Trustee Giuseppe Siracusa, 3 May 1969,
subsequent order by the Tribuna!, 5 May 1969 (Annex 69). The Trustee stated:
• According to the lease agreement the undersigned [Trustee] is obligated to remove the materia! in question
which removal costs a considerable amount of money and time and results in a substantial reduction in value
of the materia! proper .... In view of the fact that the materia! is one year old and difficult to sell while its
removal from the assembly line would only reduce its value, the undersigned is in favor of selling it for,
L. 105,ooo,ooo » (Annex 69).
( 33) Annex 26, para. 22; se e also, Transcript of Bankruptcy Hearing, Civil and Criminal Court of Palermo
13 July 1969 (Annex 74).
( 34) Submission to the Civil Court of Palermo by ELTEL, S.p.A., 27 May 1969 (Annex 70). This offer,
which was accepted, was the price reportedly negotiated by IRI and the Trustee eight months earlier, in October
1968 (Annex 59). Earlier in May 1969, ELTEL apparently attempted unsuccessfully to get an even lower price
for the assets. Two days after the third auction, on 5 May 1969, ELTEL submitted to the bankruptcy judge its
own appraisal of ELSI's plant and the other remaining assets at 2.381 billion lire (US$3,809,6oo). Annex 26,
para. 23.
(36) Minutes of Creditors Committee Meeting, Raytheon-ELSI, S.p.A., 6 June 1969 (Annex 71).
(36) Ibid. The two ELSI cmployee representatives voted in favor, the representative of generai creditor&
abstained, the bank representative was absent, and the Raytheon Europe representative voted against the proposal.
Ibid.
( 37) Notice of Auction to be held on 12 July 1969 (Annex 72).
( 38) Annex 26, para. 24.
(39) Ibid. To encourage ELTEL not to prolong any further its efforts to secure ELSI's assets at an even
lower price, Raytheon Company agreed in late }une 1969 to extend to ELTEL a license for its existing ltalian
patents and certain proprietary information. Letter from Joseph Oppenheim, Vice President, Raytheon Company,
to Industria Elettronica Telecomunicazioni, S.p.A., 26 June 1969 (Annex 73).
(40) Annex 74·
( 41) Annex 59·
• ( 42) See I.R.I., Istituto per la Ricostruzione Industriale, 1985 Yearbook, pp. 260-263 (Annex 75). Italy
ts thus using ELSI's plant to produce one of the new products proposed by ELSI in its 1967 Report to ltalian
officials. Annex 22, p. 28; Annex 15, para. 64.
CUAPTER IV
SùBSEQÙENT rÌ'ALIAN COURTACTION
After JRI had completed its purchase of ELSI's assets, the Prefect finally ruled that
the requisition had been illegal. The Trustee then sued the Mayor and ltalian Interior
Ministérfor damages based>on this ruling, but was awarded only damages for ,[oss of
possessi.on · during the requisition; · Fi'Qe government-controlled l banks sued Raytheon ·. in
ltalian courts to recoverfor the unsecured, unguaranteed loans they had made to ELSI.
All of these suits resulted in judgments for Raytheon. Bankrujitcy proceedings were
completed in I 98 s, with secured an.d preferred creditors receiving payment · in full and
unsecured creditors' receiving only a small jraction of the amounts they had claimed;
SEC'i't.ò~ . 1. .., Tne .lllega.lity of ihe RequisÌtion . and Aftermath.
As noted above (l), on 19 Aprii 1968, ELSI appealed the Mayor's I Aprii 1968 requisition
of its assets to the Prefect of Palermo, an offi.cial of the Italian Government empowered to hear
appeals of decisions by local governmental officials. The Prefect ruled on ELSI's appeal of the
requisition order on 22 August 1969, over sixteen months after the appeal was filed, but only
40 days after ELTEL had completed its acqu:isìtion of ELSI's assets (2
). The Prefect found
the ·• requisition to havé · been illegal, ruling . that . it èould. not possibly have · achieved its stated
purposes (3). Specifica:lly, the Prefect ruled • that « the order is destitute of atiy juridical cause
which may justify it or make it enforceable (4) ». , .
The Mayor appealed the Prefect's Order to the Italilin Council of State and the President
of Italy (6). His appeal\vas dismissed on the ground that be lacked standing to appeal a decision
of the Prefect, his adrillriistrative superior(6)' The Prefect's ruling therefore stands as a final
decision of ltalian judicial authorities that the requisition was unlawful.
.· .. The Prefect's delay in ruling on ELSI's appeal of the requisition was apparently unprecedented.
In other cases in which the 1865 law had been invoked as a basis for requisition of
ari indt1strial plant, the Prefect of the relevaritjurisdiction quickly quashed the requisitions (1).
In most of these cases, the requisitions were quashed in less than thirty days, sometimes in as
little as one day (&).
Based on the Prefect's decision, the Trustee brought suit on behalf of ELSI's bankrupt
e~tate 011 r6 Junt} · ~97P in tht} COutt of Palermo against the Minister of the I11terior of Italy
and the Mayor of Palermo for damages to ELSI resulting from the illegal requisition (9
). In
(1) Supra, p. 13.
(2) Judgment of Prefect of Palermo, 22 Aug. 1969 (Annex 76).
(3) lbid., pp. xo-·n.
( 4) Annex 76, p. I x. The Prefect noted that the Mayor's actions were motivated in part by his desire to
show the local press that he was « fac[ing] the problem in some way •. Ibid., p. n.
(G) Council of State]Opinion Regarding Appeal by Mayor of Palermo, 19 Nov. 1971 (Annex 77); Ruling
by President of Italy Dismissing Appeal by Mayor of Palermo, dated 22 Apr. 1972, registered 19 May 1972 (Annex
78).
( 6) Ibid.
(7) Annex 26, para. xo.
(8) Ibid. In none of these cases did the Prefect delay his ruling for more than thirty days. Ibid.
(9) Annex 78.
22 RASSEGNA DELL'AVVOCATURA DELLO STATO
his complaint, the Trustee stated that the requisition had not only caused ELSI's bankruptcy,
but had also impeded its success:
« In consideration of the heavy legai and economica! situation created by the appealed
order of requisition, Raytheon-Elsi S.p.A. was obliged to file for bankruptcy, which was
declared by decision of this Tribuna! on May 7-9, I968.
Even after the declaration of bankruptcy the Trustee in bankruptcy, Avv. Siracusa, could
not take possession of the plant and relative equipment due to the order of requisition
issued by the Mayor of the City of Palermo, which remained in e:ffect until September 30,
I968, causing unimaginable damages for the bankrupt company and, therefore, for the
creditors (10) >>,
The Trustee sought damages of 2.395 billion lire (US$3,834,500) plus interest for the
decrease in value of ELSI's plant and electronic equipment during the requisition, and for
ELSI's inability to dispose of the plant and equipment during the requisition period (11).
On 2 February I973, the Court of Palermo ruled that the Trustee was not entitled to
compensation for the requisition (12). On appeal, the Court of Appeals of Palermo found on
24 January I974 that the Trustee was entitled at least to compensation from the Minister of the
Interior for loss of use and possession of ELSI's plant and assets during the six-month requisition
period. It therefore awarded, in effect, a « rental >> payment of some I I4 million lire
(US$I7I,ooo), computed as half the annual rate of five percent of the total value of the assets (13).
This decision was upheld on appeal by the Supreme Court of Appeals on 26 Aprii I975 (14).
The amount of the judgment was ultimately received by the Trustee and, less costs and expenses,
distributed to ELSI's creditors (15).
SECTION 2. - Italian Bank Suits Against Raytheon.
Upon demand, Raytheon Company paid 5.7876 billion lire (US$9,283,6oo) as payment
in full of those of ELSI's bank loans that it had guaranteed (1 6). Seven banks had made unguaranteed
loans to ELSI that were outstanding on I Aprii I968, when Italy requisitioned ELSI's
plant and assets (17).
Between I969 and I97I, five of these banks that were owned or controlled by IRI or the
Sicilian Region filed suits against Raytheon in I talian courts to recover the loans they had made
to ELSI (18
). All of these lawsuits resulted in judgments in favor of Raytheon after many years
(10) Lawsuit for damages filed by the Trustee against the Minister of the Interior and the Mayor of Palermo,
16 June 1970, p. 2 (Annex 79).
(11) The suit was brought by the Trustee seeking compensation for the bankruptcy estate. It was not brought.
nor could it have been brought under Italian law, on behalf of ELSI's shareholders, Raytheon and Machlett,
Annex 26, para. 28.
(12) Judgment of the Court of Palermo, decided 2 Feb. 1973, filed 29 Mar. 1973, registered 4 Apr. 1973
(Annex So).
(13) }udgment of the Court of Appeals of Palermo, registered 24 }an. 1974, p. 24 (Annex 81). The United
States dollar equivalent in the text is derived from the exchange rate on 24 Jan. 1974 of United States $x.oo
to Italian L. 666.667 (Annex 12).
( 14) Judgment of the Supreme Court of Appeals, 26 Apr. 1975 (Annex 82). The Court determined that
the Court of Appeals incorrectly computed the damages owed to the Trustee, but that the decision was nonetheless
« equitable >>. Ibid., p. 6.
(16) Annex 26, Attachment.
(16) Annex 13, para. 29 and Schedule Il; Annex 14, Exhibit B. This total includes principal and interest,
as detailed in Annex 13, Schedule Il.
(17) Annex 13, Schedule D.
(18) The following banks filed suit against Raytheon in Italian courts on the dates indicated in parentheses:
Il Credito Italiano (7 May 1969), Banco di Roma (23 June 1969), Banca Commerciale Italiana (15 January 1969),
Banco di Sicilia (13 March 1970), and Cassa Centrale di Risparmio V.E. (18 July 1970). IRI controls the first
three of these banks. Banco di Sicilia and Cassa Centrale di Risparmio V.E. are government-controlled banks
which have their headquarters and primary piace of business in Sicily. Two of ELSI's unguaranteed creditors,
IRFIS and First National City Bank of New York, did not sue Raytheon. President Carollo of the Sicilian Region
had explicitly threatened that Raytheon would be subjected to this type of litigation if ELSI's shareholders decided
t o close ELSI and take i t through an orderly liquidation (Annex 38).
MEMORIA DEL GOVERNO U.S.A. 23
of litigation (19). The courts dismissed the banks' claims that Raytheon had guaranteed the loans
and, in keeping with well-established precedent, held that Raytheon's interest in ELSI did
not make it a « sole shareholder" that could be held liable for loans to ELSI (2°). Ali of the
decisions totally cleared Raytheon of any explicit or implicit misconduct with respect to
ELSI (21).
SECTION 3· - The Conclusion of the Bankruptcy Proceedings.
In the bankruptcy, creditors presented claims against ELSI totalling some 13 billion lire
(US$zo,ooo,ooo) (22). Raytheon and one of its subsidiaries, Raytheon Service Company
(« RSC "), had unsecured claims against ELSI of some 1.14 billion lire (US$x,83o,ooo) for
goods and services they had advanced to ELSI on unsecured open accounts (23). On advice of
Italian counsel, however, Raytheon and RSC did not file claims in the bankruptcy proceeding
because it was clear that they would not receive enough in the bankruptcy to justify their filing
costs (24).
The bankruptcy proceedings closed in November 1985.
According to the bankruptcy reports, the bankruptcy realized only some 6.37 billion lire
(US$xo,xgz,ooo) for ELSI's assets, as compared with the minimum liquidation value of 10.84
billion lire (US$x7,344,ooo) (25). Of the amount realized, some 6.o8 billion lire (US$9,728,ooo)
went to pay banks, employees, and other creditors (26). The remainder went to pay bankruptcy
administration, tax, registry, and customs charges. Ali of the secured and preferred creditors
who filed claims in the bankruptcy were paid in full. The unsecured creditors received less
than I % of their claims (27).
(19) Annex 26, para. 26.
(20) lbid.
(21) Ibid.
(22) Ibid., Exhibit A; Annex 30, Schedule D.
(28) Annex 13, Schedule D; Annex 14, Exhibit C; Annex 26, para. 14. Raytheon Service Company is a
United States corporation incorporated in Delaware and wholly owned by the Raytheon Company. Annex 13,
para. 31. Certificate of Good Standing, State of Delaware, Raytheon Service Company, 22 Dee. 1986 (Annex 83);
Proof of Raytheon Company's 100% ownership of Raytheon Service Company, 8 Oct. 1986 (Annex 84).
(24) As Avv. Bisconti explains:
« Under Italian law, the filing of documents supporting a claim in bankruptcy may be subject to a registration
tax, the amount of which is a percentage of the claim and varies depending on the nature of the claim. lf
Raytheon and RSC had filed in bankruptcy, they would have paid a substantial tax. Given ELSI's many
secured creditors, the likelihood that the full value of ELSI's assets would not be realized in the bankruptcy
proceeding, and the costs of the bankruptcy, I advised Raytheon and RSC not to file claims at the time.
Under Italian law, it would have been possible for them to file such claims at a later stage in the proceedings
and participate in distributions subsequent to their filing. As the bankruptcy proceeded to a conclusion,
however, it became very apparent that Raytheon and RSC would not recover enough in the bankruptcy
to justify the costs of filing. On my advice, therefore, these companies did not file in the bankruptcy ».
Annex 26, para. 14.
(25) Annex 13, Schedules C1, C2, C3 and C4; Annex 26, Exhibit A; Annex 30, para. 6 and Attachment B.
(26) Annex 30, Attachment B, Schedule A.
(27) Annex 26, Attachment; Annex 30, Attachment B.

PART III
THE JURISDICTION OF THE COURT
Jurisdiction is based on Artide 36(1) of the Statute of the Court, as read in conjunction
with Artide XXVI of the 1948 Treaty of Friendship, Commerce and Navigation (the « Treaty »)
between the two countries (1). Artide 36(1) expressly recognizes the ability of parties to the
Statute- such as Italy and the United States- to provide by treaty for the Court to exercise
jurisdiction over specified matters. In Artide XXVI of the Treaty, Italy and the United States
agreed that:
« Any dispute between the High Contracting Parties as to the interpretation or the application
of this Treaty, which the High Contracting Parties shall not satisfactorily adjust by
diplomacy, shall be submitted to the International Court of Justice, unless the High Contracting
Parties shall agree to settlement by some other pacific means ».
As a result of the requisition and subsequent bankruptcy of ELSI, and related actions as
described in the Statement of Facts above, a dispute arose between Italy and the United States
concerning the interpretation and application of the Treaty and its 1951 Supplement (2
). The
Government of the United States contends that Italy's actions have violated a number of
provisions of the Treaty and Supplement, as detailed below. The Government of Italy, however,
has denied this contention.
This dispute has not been « satisfactorily adjust[ed] by diplomacy ». As detailed in Attachment
2 of the Application submitted by the United States in this case, the Governments of
the United States and Italy have attempted to resolve this dispute by diplomatic means for many
years without reaching any mutually satisfactory agreement. Finally, in the fall of 1985, the
two governments agreed in principle that a contentious proceeding under the Treaty would
be an appropriate means of resolving the dispute (3). No efforts at settlement are pending.
(l) Annex r.
(2) Artide IX of the Supplement provides that it shall « constitute an integrai part of the said Treaty of
Friendship, Commerce and Navigation •· Annex z.
(') Either party has, of course, a unilateral right to invoke the jurisdictional provisions of the Treaty. See,
e.g., United States Diplamatic and Cansular Staff in Tehran, judgment, I.CJ. Reparts 1980, pp. 26-z7, in which
jurisdiction was premised, inter alia, on the unilateral invocation of Artide XXI(z) of the 1955 Treaty of Amity.
Economie Relations, and Consular Rights between the United States and Iran, 284 UNTS 93, which contained
linguage virtually identica! to that contained in Artide XXVI of the Treaty between the United States and Italy,

PART IV
THE CLAIMS OF THE UNITED STATES
CHAPTER I
INTRODUCTION
Pursuant to the Treaty and its Supplement, Italy assumed a number of specific obligations
to protect investments made by United States nationals in its territory. A major purpose of
this Treaty was to encourage investment by nationals of one country in the economy of the
other, by creating a code of fair treatment for the protection of foreign investors (1). Thus,
the Treaty contains numerous specific and interrelated provisions for the protection of foreign
investors, reflecting the parties' fundamental intention to provide a framework which would
foster a favorable climate for investment (2).
As stated in the Majority Report to the Italian Senate on the Treaty:
« The underlying principles are simple and fundamental. Full respect for the respective
sovereignty and full equality between the two parties, and consequently reciprocity of
treatment; systematic application of the most-favored-nation principle and thus mutuai
granting of the most-favored treatment to the foreign citizens and foreign interests;
a spirit of friendship in the implementation of the Treaty, goodwill when the precise
provision cannot be satisfied, fair play [so in Italian] in ali cases (3) "·
(l) As noted in the Majority Report to the Italian Senate:
« there is nothing here that could create conditions of privilege, that is not justified un der la w an d equity,
and that does not correspond to the same interest on the part of the Italian economy. The latter has a need,
indeed an urgent need, for foreign capitai. Certainly these generai dispositions are not sufficient in themselves
to hasten the influx, but there remains the appropriateness of these precautionary measures against any
possible creation of persecutory or discriminatory conditions >.
Senate of the Republic, Bills and Reports- 1948-1949, N. 344-A, Report of the Majority, p. 9, Sent to the Office
of the President on 28 May 1949 (Annex 85).
( 2) « [T]his is a genera! treaty, .... It is thus a framework that determines in a definitive, organic and lasting
way the relations between the citizens of the two countries and the legai status that each country grants to
citizens of the other country living o n its territory •.
Ibid., p. 2.
As a leading commentator points out:
«In a rea! sense, therefore, the FCN treaty as a whole is an investment treaty; not a mosaic which merely
contains discrete investment segments. It regards and treats investment as a process inextricably woven
into the fabric of human affairs generally; and its premise is that investment is inadequately dealt with unless
set in the total ' climate ' in which it is to exist .... These treaties focus, in fundamental terms of enduring
value over the long range, upon the line between policy favorable and policy unfavorable to foreign investment:
namely, hospitality to and equality for the foreigner under the law, and respect for his person and his property
>).
H. Walker, « Treaties for the Encouragement and Protection of Foreign Investment: Present United States
Practice >, 5 American J ournal of Comparative Law, p. 229, at pp. 244, 247 (1956).
( 3) Annex 85, pp. 2-3. See also, Commerciai Treaties: Hearings Before the Special Subcommittee on Commerciai
Treaties and Consular Conventions, Committee on Foreign Relations, United States Senate, 82d Cong., 2d
28 RASSEGNA DELL'AVVOCATURA DELLO STATO
As described by the United States Department of State, the Treaty was « designed to assure
to economie enterprises the ability to operate in a foreign country on a basis of true competitive
equality with local concerns (4
) "·
Sess., p. IS (I952) (Annex 86). For the United States, this reflected a significant shift in emphasis after World
War II:
« Perhaps the most important respect in which the current [post war] treaties differ from those of the twenties
and thirties is the greatly increased emphasis on the encouragement of American private investment abroad,
by the expansion and strengthening of provisions relating to the protection of the investor and his interests ».
Annex 86, p. 4 (Remarks of Harold F. Linder, Deputy Assistant Secretary of State for Economie Affairs).
Materials from ratification proceedings in the United States Senate are cited herein, together with comparable
materials from Italian interna! ratification proceedings, to demonstrate that the two parties had a common understanding
of the meaning and purpose of the Treaty. Standing alone, such internai ratification proceedings cannot,
of course, bind another party.
( 4) «Commercia! Treaty Program of the United States », Department of State Publication 6565, Commercia!
Policy Se<ies 163, p. 2 (Jan. I958) (Annex 87).
CHAPTER II
INTERFERENCE WITH THE MANAGEMENT AND CONTROL OF ELSI
SECTION x. - Article III of the Treaty.
Artide III of the Treaty guarantees that nationals of either party may participate in corporate
enterprises orgariized under the other's laws. Artide III(x) provides rnost-favored nation
treatment to United States nationals, induding corporations, to organize and participate in
Italian corporations (l), It also provides that Italian corporations controlled by United States
nationals shall ef\Ìoy most-favored nation treatment with respect to exercising the functions for
which they were created.
Artide III(z) extends further guarantees of treatment in the case of corporations engaged
in most activities (9) :
" The nationals, corporations and associations of either High Contracting Party shall be
permitted, in conformity with the applicable laws and regulatìons withìn the territories of
the other High Contracting Party, to organize, contro/ and manage corporations and associations
of such other High Contractìng Party for engaging in commerciai, manufacturing,
processing, minìng, educatìonal,. philanthropic, religious and scientific activities » (Emphasis
added).
Like Artide III(x), Artide III(z) specifically addresses both the rights of United States
persons seeking to invest in Italian corporations and of the Italian corporations which they
contro!. Paragraph 2 provides in its first sentence that United States investors shall be permitted
to «.organize, contro! and manage » Italian corporations engaged in, inter alia, commerce and
manufacturing, subject only to the requirements established by local law (3). This provision
(l) Artide III(1) provides that foreign corporations:
« shall enjoy, .•. rights and privileges with respect to organil!:ation of and participation in corporations and
associations of such other High Contracting Party, ... in cortformity with the applicable laws and regulations,
upon terms no less favorable than those now or hereafter accorded to nationals, corporations and associations
of any third country ».
Italian corporations so organized :
« and controlled by such nationals, corporations and associations, shall be permitted to exercise the functions
for which they are created or organized, in conformity with the applicable laws and regulations, upon terms
no less favorable than those now or hereafter accorded to corporations and associations that are similarly
organized or participated. in, an d controlled, by nationals, corporations and associations of: any third cp:untry ».
(9) Because each country had restrictions on the rights of aliens to .establish and manage compai).ies engaged
in certain activities, Italy and the United States were not able to make the broader protection of Artide Ill(z)
universal. The activities enumerated reflected those in which neither country had any domestic legal impediments
to conferring an unqualified right on the other's nationals to organize, manage and control corporations or associations.
Artide III(z) further provides that corporations so organized, which are: .
« controlled by nationals, corporations and associations of either High Contracting Party •.. shall be permitted
to engage in the aforementioned activities therein, in conformity with the applicable laws and regulations,
upon terms no less favorable than those now or hereafter accorded to cor.porations and associations of such
other High Contracting Party controlled by its own nationals, corporations and associations» (Emphasis added)
(3) This qualification should be construed to permit regulation of the exercise of management and control.
but not abrogation of that right. As noted by Walker, the phrase «in conformity with applicable laws and regulations
», as it occurs in this Treaty, « is framed in such a manner as to imply that it does not constitute a reservation
detracting from the Treaty right; and such phraseology has been omitted from subsequent treaties ». H. Walker,
• Provisions on Companies in United States Commerciai Treaties », so American J ournal of Jnternational Law,
p. 373 at p. 384, n. 53 (1956). In view of the possible ambiguity of this qualification, however, the Supplementary
Agreement provided stronger protection by absolutely prohibiting arbitrary and discriminatory interfer.ence, whether
or not in .accordance with locallaw. See Section z, infra.
.30 RASSEGNA DELL'AVVOCATURA DELLO STATO
recognizes the need for conformity with loc!ll Iaw, but does not referto treatment «no less favorable
» than that accorded to corporations owned by local nationals. It is by its terms something
other than a guarantee of national treatment. It is, rather, a guarantee of non-interference with
management and contro!. United States 11ationalr;; Kshall be permitted >> to organize, manage
and c.ontrol Italian corporations without impediment or interference, except for the requirements
or constraintalmp~ed. by law; Thir;; g~aràntee ellcourages investment; by assuring investors
of their freedom t;o manage and protect their investment.
Italy thus has an obligation. to the Unìted States under Article Ill(z) to allow Unite d States
corporations to organize, manage, and control Italian corporations operating in certain specified
areas without governmental intervention, except for .such conditions and regulations as are
established by law.
< ':['his obli,gl:l~ioJ)c x:e~~cts ·l:l. par#cu}ar. emphasit~, ip the Treaty as a w ho le, o n the importance
ofassuring lllllllv~s~Qt<thl.\t. ol)çe be i11vests in a cornpany in the other country, he will receive (air tp~a~t:nt: · · · · · · · · · · · · · · · · · · ·
«[T}hete <:an be little in the way of e:ffective promotion [of investment] unless there is
efiective· protecti()n; for new capitai is unlikélyto venture where existing capitai is ill-treated.
Hence the ernphasis on the protective fe11ture of the treaty provisions on investments is
// essentially amatter .of.placing first · things first (4) »;
'J'he first artiçlet~ of the Treaty, the SO-:-Clllled (( establishment )) provisions, are particularly
impohaniin this ~~gai;<l (3), A,$ stated i1:1jhe MaJol"ity E.eport to the ltalian Senate:
~ The. fir!i~ ~rrl~Ies,• • '\'\Thi~h ar~ • the .mo~t import~t'lt. ~n~s, guarantee to citizens of the other
party; to jutidìcal persons; commerciai .companies,. entetprises an d associations consti tu te d
·by them; the•exercise of. commercial.andnon,-cclrimercial activities in the widest sense.
Full rights, then, to any activity, to acquisition, possession, administration of movable and
.• ~eal propert;y; toorgl:llliz,e, direct, manage coml'anies, ..•. etc~ (6
) ».
• . .· The UnlJed Sta.tes'submits t;hat the req1Jisitiori of ELSI's plant and related assets constituted
a:rt iri.tetféfenctfwith Raythecm's and Machlett's niai1agement and control of ELSI which
was not iii àçc()!.'dance wìth applicable law, in•viòlation: ·of Miele III(z) of the Treaty. Siri.ce
Raytheon aiitf iVIa:C:hlett are iri.corpòrated in the Uhited States, they are United States corpora•
tions for purposes of the Treaty (1). ELSI was an ltalian corporation engaged in manufacturing
and commerce - two of the activities enumerateci in Article III(z). The Government of Italy
thus was obligated by Article III(z) not to interfere with Raytheon and Machlett's management
an(l control ofEJ..~J~ )'Vhile ELSJvva~ ~u'bject under that prgvision to generally applicable
Xtalian law, the Mayor of Pal~rmo'$ re@isition was coptrary to that Iaw (8).
This unlawful requisition had the purpose and effect of disrupting Raytheon's and Machlett's
continued mana!,lement and contro! of ELSI. .In early 1968,. following a year of serious but
unsuccessful etfqrtl! to .. improve ELSI's profitability, Raytheon and Machlett - which had yet
to receive ·. any. retut:ri. o n. their capi tal .. --,- decided that further investment in the company was
unwise; While they con,tinued to seekl~alian Government support for the plant in Sicily, they
also begari to ptatf foi tlie. possibl~ v()Iuntary 'liquidation of · ELSI.
(4) « Commerciai Treaty .Program ofthe United States •, Department of State Publication 6565, Commerciai
Pblicy Series 163, p. lt (Jan. 1958) (Annex 87; p. s).
(6).As stated by Hawkinsj
« From the standpoint of · economie relations, ... the signifìcance of establishment provisions arises largely
from their i:elationship to the. ftow of investment capitai. Foreign capitai will not enter a country unless it
has• some· assurance that it will receive. fair treatment ..• o,
H. HAWKINS, Commerèi~l 'Treaties and Agreements, pp. 15-16 (1951).
( 6) · Annex 85, p. 6.
(7) Article Il(2) specifies that:
« Corporations and associations · created or organized under the applicable laws and regulations within the
territories of either High Contracting Party shall be deemed to be corporations and associations of such High
Contracting Party ... •·
(8) As discussed at p. 31, infra, the Mayor's action was attributable .to the Goverrunent of Italy.
MEMORIA DEL· GOVERNO U.S.A, 31
.· .... ·• :P~spì,~ ~1!$Ul:'!mce$. given by the Presid.ent ofth~ Sicilian Region ~s late as February 1968
that ESPl; a SiCiilian Govetnment entity, would. provide funds to enable. ELSI to stay in business
i~necessary; qo support.was fotl:hcoming from Italy to justify a reversalof the impending decision
W.Jiq:uidàte. Accord.ingly; Raythe~ and.. Machlett decid.ed. to cea11e. full-:Scale production and
liquidate the <lomp~my and to d.ismillll as of 29 Maroh all employees but those personnel.necessary
1:Q/ç~,;ryout the Uquida#on(~l········· .. ·· · . • · .
.. Qn 3t.1Vlai4h howevet, theJhe!!ide!ltofthe.Sicilian Region informed ELSl's.Managing
l:>:it~lrtgr of oo:J;tàUan GoverntP~t plan.whereby ELSI's plant would be requisitioned to prevent
lii;p;iìdatiòn and to give the state c:;onglomerate IRI the opportunìty to açqui,;.e ELSI's assets.
TheJ()llowing dayi th!,! Ma"YQ~rof Pal~rm.o issued. the requisition .ord.er .(J.0).
In so çloing; the M!lyox: .of' Palermo . was. acting in his capacity as an agent of the national
g(lvetn;ment, and. thw~ his actions were atttibut!!.ble to the Government of Italy. As the Court
of Palermo ruled ~ ·· ·
« the Mayor in issuing the orders mentioned in Article 69 of Decree Law Pres. Reg. N. 6
of October 21, 1955, acts as a functionary of the dvii administration of the [Ministry of
the] lnterior, of whose heirarchy he is a part, so that, as has been established for the
....... ~esPc:>nsibility.oftbe ()tgans.which .. are. Part of.the.direct ad.tnJnistrationof the State, the
·•·•·••••·•••••ì~f~!~~~ ~ri~Je~Et~~~~=~~&r~r.:J::•=~~~~ctn~()~li~ci!io~~~~s~a~~~:~~~:
• · .·· .J?hi~ ;~~clu~i~n ~s ·~ot ;ffeé~ed by ,th~ • determination that the · requisition was unlawful.
It has long been established;>as stated iri the Estate òf ]ean--Baptiste Cat're (France v. United
Met.l.licanStates); that « it does not matter whether the official or agertcy in question acted within
the limits of its competence or exceeded them (111} ». Moreover, even if the Mayor had not been
foHndJQ llt: acting li~é anpffi~i::l.l. of th.e. nationalgovernment, the requi~ition would be attributable
on otbet grQU11d,liltO the Go:Vemtn<'l1lt of Italy since the action clearlywas taken by the Mayor
in hls offidiil capacity as a government officer- aposition he maintained consistently before
the courts of Italy (13),
(9)Suprii; pp. u-'xz; Annei xs, pata. f.7·
(10) Supra, pp. 12-13 r Annex I6, para&.· 6x.:..6a and Annex 33·
• (11) Am:).ex 8Q, ;~t 6, Thus, the r.equisitiQn is an actJ,on of the national government per se. See, e. g., R. Ago,
ii Le Délit Intèrn;~donal>; 68Rectie# des·ciiurs de l'A~adlmie de d;oii international de !.a Haye (« Recueil des cours »),
p;419 atpp/462-'469 (1939); D. ANzrtoT'ri> i Coiirs dé droitintiirnatiilnal; p. 470 (Ig~g); E. JrMENEZ DE AmlcHAGA,
«ln~emationalResp()nsibilìty », Manflalof Pultlic Intllmatìlmal La'll.l; p. S# (M. Sorensen, ed. Ig68); I. BROWNLIE,
Syst~tft Pl~aw oj lfati(l1)s,. Stat~ ResP;omibilitl!. (Part x), Pp· I3~'C.14l (19.83); G. A. CHRISTENSON, « The Doctrine
of Attrìbtitioit m State R~sponsibllity »; It~teth.iiti<intil La'll.l oj State Resprmsibility far Injuries tò Aliens, pp. 33o-33~
(R/ B/Lillìch; e(J. and eontflb; 1983); C. l:l!! Vxsscas:R; Th~ory and Rl!alitjlìn Public lnternatioftal La'll.l; p. ~89 ( 1968);
C;•EAGL!ttON, •TiteResponsibility of State$ in lnternational Law,.p .• 44 (19~8); Articles s, 6 and 7 of Part One of the
International Law Commission's draft articles on State responsibility (« International l;.aw Commission's draft
articles an State responsibility »), II Yearbook of the International La'll.l Commission, 1980 (Part Two), p. 31; F. V.
GA:R.CtA,.,AMAJ;IOR,. « Dr~ Articles on the Re.~polll!ibility of the State for. In.illries . Call$e.d in its Territory to the
Person or Prope~:tx .o{ Aliena~(« Garcfa~Amador's draft articles an State responsibUity' •), reprl.nted in F.y. GARCIAAMA:
ooit{L. SoliN; i11id R. BA:xtl!R, ReàntCodi:ficatiòn oj the Lriw o/State Rriipomibìliiy jor 1njuries to Aliens, pp.
~1-23 (1974), ' .• .
(12) Translation. s Reports of International Arbitrai A'll.lards, p. 516 at pp. 529-530. As more recently stated
in Comment I to Aiiticle x o of Part One of thlilntemational Law Commission's draft articles on State reilponsibility,
the. aetion is atti:ibutable
uven in. the case of manifest incompetel).ce of the organ perpet+;~ting the. conduct complained of, and even
if other organs of the . $tate bave disowned the conduct of the offendin3 organ &. . .
Il Yearbook of the International Law Commission, I9'J5, p. 61. See also, e.g., T. Meron; « Ihternational
Responsibility of States for Unauthorized Acts of their Officials », 1957 British Yearbook of International La'll.l,
pp. 88, 93, and II3-II4 (1958); P. Reuter, «La responsabilité internationale », Droit international public, pp. 149-
ISO (1958); BROWNLIB, op.cit., at pp. 135-137; }IMBNBZ DE AmlcHAGA, op.cit., at p. 548; Eagleton, op. cit., at pp.
s7-s8; ANziLotTI, op.cit., at pp. 470-47I; AGo, op.cit., at p. 469.
(13) Annex So, p. 3; Annex 81, p. s. See, e.g., Pieri Dominique & Company (France v. Venezuela), IO Reports
of International Arbitrai A'll.lards, p. I39 at p. xs6; BROWNLIB, op. cit., at pp. 141-14~; CHRIBTBNSON, op. cit., at
p. 333i RllUTI!R, op, cit., at pp. IS~-I53i ANZILOTTI, op.cit.; at pp. 475-478; JrMI!NBZ DE ARECHAGA, op;.cit., at pp.
557-558; EAGLETON, op. cit;, at p; 3~; Artide 7 of the ·tntemationar Law· Commission's draft articles on State
responsibility, II Yearbook of the International Law Commission, I98o, at p. 31.
32 RASSEGNA DELL'AVVOCATURA DELLO STATO
The requisition was aimed specifically at preventing Raytheon and Machlett from taking
steps to protect their interests as investors, namely, to liquidate ELSI and minimize their losses.
It necessarily and intentionally blocked ELSI's plans to sell its assets. Having relinquished
contro} of the plant on 2 Aprii, ELSI management no longer had physical access to the assets.
Nor could it bave attempted to sell them with the legai cloud of the requisition over the plant.
ELSI was prevented from carrying out a management decision reached by its controlling
shareholders "'- to dose an unprofitable plant ànd to liquidate its assets to satisfy outstanding
debts. Moreover, this order was not in accordance with ltalian Iaw, as subsequently confirmed
by the Prefect of Palermo (14).
The Government of ltaiy thus did not permit Raytheon and Machiett to organize, manage
and contro} their investment, for their own protection as investors, but rather intervened with
an illegal action to prevent such management and control. The United States accordingly
submits that the Government of ltaly violated Article III(2) of the Treaty.
SECTION 2. - Article I of the Supplement.
Less than two yeai:s after the Treaty entereq into force, Italy and the United States signed
the Supplement to the Treaty. The · Supplement was seen by the parties as an important step
in further encouraging investment by providing stronger guarantees to investors of freedom
from harmful treatment. As stated in the Preamble, the purpose of the Supplement was to
« giv[e] added encouragement to investments of one country in useful undertakings in the other
country •.. by amplification of the principles of equitable treatment >>. The United States Secretary
of . State, in recommending that the Senate give its advice and consent to ratification,
similarly stated that:
« by rounding out the comprehensive rules governing generai economie relations established
by [the] Treaty, [the Supplement would] further encourage private capitai investments
(ID)».
The Italian Minister of Foreign Affairs, speaking before the ltalian Senate, emphasized
Italy's strong economie interest in ratification of the Supplement (1 6). As Senator Jannuzzi,
who wrote the majority report approving Senate ratification, observed:
« The ruling out of any discriminatory treatment or arbitrary measures to the prejudice
of citizens, juridical persons or associations of Italy or of the United States that respectively
work ·in the territory of the other State, the possibility of unobstructed contro l of enterprises,
the most liberai possibie treatment assured for the transferability of capitai, [and] the fiscal
concessions are ali principles which, suitably supplementing those contained in [the Treaty],
aid the Italian economy [in particular], insofar as they are aimed at favoring the investment
of U.S. capitai in Italy (17) ».
The « exclusion of any discriminatory treatment or arbitrary measures to the damage of •..
juristic pei:sons » to which Senator J annuzzi refers is contained in Article I of the Supplement,
which carne into force on 2 March 1961. It provides that:
« The nationals, corporations and associations of either High Contracting Party shall not
be subjected to arbitrary or discriminatory measures within the territories of the other High
Contracting Party resulting particuiarly in: (a) preventing their effective contro[ and management
of enterprises which they have been permitted to establish or acquire therein;
(14) Annex 76, pp. 1o-13.
(16) Letter of the Secretary of State dated 25 Jan. 1952, contained in the Message from the President of the
United States transmitting the Supplementary Agreement, Senate Print Exec. H, 82nd Cong., 2nd Sess., p. 2
(Annex 88). See N. 3, Chapter I, supra.
(16) Senate of the Republic, Parliamentary Proceedings, Legislature III, Bills and Reports - Documenta,
1958-1960, N. 931-A, p. 4, Sent to the.Office of the President on 18 July 1960 (Annex 89).
(11) Annex 89, pp. 2-3.
MEMORIA DBL. GOVERNO U.S.A. 33 ----------------------------
or. (b) impairing their other legally acquired rights. and interests .in such enterprises. or in
the investments which they bave made, whether in the forrn of funds (loans, shares or
otherwise), materials, equipment, services, processes, patents, techniques .or otherwise ... »
(Emphasis addeçl) •
. This provision .• complements an d strengthens the guarantees of non-dis.criminatory
treatment and freedom from interference with mai1agement and control which are contained
in Article III of the Treaty (18), The terms of Article l, « shall not be subjected .», are imperative
and unqualified. Unlike Article III ofthe Treaty, Article I is not limited hy any reference to
national treatment or to domestic law. It thus establishes a standard ofprotection for United
States nationals independent of. the standards of treatment accorded to I talian or third country
nationals or corpor11tions. Article I prohibits, in absolute terms, governmental measures which
are e~ther « arbitrary or discriminatory », and,. which prevent United States i:ra:vestors from effectively.
controlling and managing .. companies which they have established or acquired in ltaly.
As set.forth above, the requ.isition clearly prevented Raytheon and Machlett from exercising
tbeir management and contro} of F;LSI. In order to establish a violation of Article I, therefore,
it.remains to pe shown that the requisition was an « arbitrary or discriminatory measure ».
11'1 accw:dance with Article 3 I of the Vienna Convention on the Law of Treaties, which
in this respect co.difies established customary internationallaw, a Treaty should be interpreted
in accordance with << the ordinary meaning to be given to the terms of the treaty in their context
and in the light of its object and purpose (19) ». The object and purpose of this Treaty in generai,
and of this Article and formula in particular, indicate that the prohibition of « arbitrary or
discriminatory measures » should be:: construed broadly, to protect investors against governmental
actic;nf which • violated · thè hasic principles of non-discrimination and « fair play '' which
tinderlie the. 'l):eaty. In hearings before the United States Senate, the Department of State
witness stated that:
« The basic aim of the [investment] provisions [is] to safeguard the investor against the
nonbusiness hazards of foreign operations, ... [such as] [i]nequitable tax statutes, confiscatory
expropriation laws, rigid employment controls, special favors to State-owned businesses,
drastic exchange restrictions, and other discriminations against foreign capitai (-!0) »,
As explained in the Report of the President to the ltalian Chamber of Deputies:
« The [Supplementary] Agreement proposes, above all, to eliminate any discriminatory
measure. that one of the two countries might adopt to the prejudice of citizens or juridical
persons of the other contractmg party, any measure aimed at impeding management or
effective contro! of enterprises for Which they have received the required license to purchase
or establish, or any · measure aimed a t obstructing the exercise of their rights relative
to such enterprises or to investments of any type (-!1
) "·
As is indicated by the above statement, and by the use of the disjunctive « or » in the phrase
« arbitrary or discriminatory », Article I prohibits « arbitrary '' measures as distinct from, and
in addition to, « discriminatory measures », The prohibition of « arbitrary » n:ieasures conveys
above ali the commitment of the respective governments not to injure the investl'nents and related
interests of foreign investors by the unreasonable or unfair exercise of governmentàl authority.
Following standard dictionary definitions, an « arbitrary » act may be one which is characterized
by absolute power or an abuse of discretion. « Arbitrary actions » include those which are not
based on fair and adequate reasons (including sufficient legai justification), but rather arise from
(18) The rights referred to in Article I(b) are addressed in Chapter Ili, infra.
(19) Vienna Convention on the Law of Treaties, A1.1:. 31(1), U.N. Doc. A/CONF. 39/7.71 p. 7.93 (1969).
(20) Remarks of Harold F. Linder, Deputy Assistant Secretary of State for Economie Affairs (Annex 86, p. 4).
( 21 ) Chamber of Deputies, Parliamentary Proceedings, Legislature III, Documenta - :Bills and Reports,
N. 537, pp. 1--:t., presented to the Office of the President 8 Nov. 1958 (Annex 90).
34 RASSEGNA DELL'AVVOCATURA DELLO STATO
the unreasonable or capricious exercise of authority (22). The terms « oppressive » and << unreasonable
» are thus synonyms of « arbitrary (28) ».
As used in Italian and United States legai practice with reference to governmental action,
« arbitrary » actions include those which are unreasonable, in the sense that they are not based
on sufficient or legitimate reasons, or are unduly unjust or oppressive. The Italian Constitutional
Court has interpreted the I talian constitutional guarantee of impartial public administration
as prohibiting the promulgation of arbitrary or unreasonable regulations (24). Similarly, under
Law N. 1034 of 6 December 1971 which governs regional administrative tribunals, one of the
bases for review of Italian administrative acts is excess of authority (eccesso di potere). This
concept includes both misuse of power (sviamento di potere) and inequality of treatment (disparità
di trattamento), which in turn require that ali administrative actions be free of arbitrariness and
discrimination (25).
Similar standards in United States jurisprudence derive from the constitutional guarantee&
of equa! protection of thè law and due process and are found in the federai Administrative
Procedure Act, among other statutes. The Act provides, in pertinent part, that « a reviewing
court shall ... hold unlawful and set aside agency action ... found to be (A) arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with law (2 6) ». The provision has been
interpreted as requiring the court to « consider whether the [agency] decision was based on a
èonsideration of the relevant factors and whether there has been a clear error of judgment (27) ».
(22) See, e.g., Ballentit~e's Law Dictionary, p. 88 (3d ed. I969); Black's Law Dictionary, p. 96 (5th ed. I979);
Shorter Oxford English Dictionary, p. 9I (I944); Webster's New International Dictionary of the English Language
p. I IO (3d ed. 196I). See also, G. DEVOTO and G. C. OLI, Vocabolario Illustrato della Lingua Italiana, p. 25 (I983)
(« arbitrario ~ defined as « irregolare, abusivo, ingiustificato, fatto o ditta ad arbitrio ~ [irregular, illicit, unlawful
unjustifìed, done or said in violation]).
(28) Roget's International Thesaurus, Secs. 627.5 and 737.I5 (3d ed. I962). A number of United States investment
protection treaties prohibit, variously, « arbitrary and discriminatory >> or « unreasonable and discriminatory ,,
measures. See, e.g., Panama, Art. Il(2), 2I International Legal Materials, p. I227, at p. I230 (I982) (ratifìcation
pending); Belgium, Art. 4(2), I4 United States Treaties 1284, at p. 129I. The United States regarded these terms
(« arbitrary » and « unreasonable ») as equivalent. See, e.g., the United States interpretation of Art. IV(I) of the
Treaty of Amity, Economie Relations and Consular Rights between the United States and Iran, signed IS Aug.
I955, entered into force, I6 }une I957, 284 UNTS 93, 8 UST 899, forbidding application of « unreasonabie or discri- ·
minatory measures ~:
« Government conduct which does not intrinsically violate international law is nevertheless unlawful if it
is arbitrary or it discriminates against aliens. Thus, actions by the Government of Iran which otherwise
might have been lawful were unlawfui if the government engaged in these actions arbitrarily or directed
them against U.S. nationals ».
• Memorandum of the Department of State Legai Adviser on the Application of the Treaty of Amity to Expropriations
in Iran», 22 International Legal Materials, p. I4o8 at p. I4II (I983).
Similar clauses, prohibiting not only discriminatory but also unreasonable, unfair, or arbitrary treatment,
are also found in investment protection treaties between other nations. For example, the agreement concerning
the promotion and reciproca! protection of investments between the Republic of Cameroon and the United Kingdom
stipulates in Artide 2(2) that:
« Neither party shall in any way impair by unreasonable or discriminatory measures the management,
maintenance, use, enjoyment or disposal of investments in its territory of nationals or companies of the other
Contracting Party ».
The corresponding French text prohibits « mesures arbitraires ou discriminatoires ~. ICS ID, lnvestment Promotion
and Protection Treaties, I982 Booklet, p. 4I at pp. 42 and 49· See also, e.g., investment protection
treaties between Panama and Switzerland (Art. 2(a): « mesures indues ou discriminatoires ~), ibid., I983 Booklet,
p. 63 at p. 64; the Belgium-Luxembourg Economie Union and Rwanda (Art. 3(2): « toute mesure injustifìée
ou discriminatoire »), ibid., p. 8I· at p. 83. Stili other treaties, rather than prohibiting unfair or unequal treatment
affirmativeiy guarantee fair and equitable treatment. See, e.g., the Federai Republic of Germany and the People's
Republic of China (Art. 2: assurance of « fair and equitable treatment ~ ), ibid., p. 43 at p. 44; Kuwait and Pakistan
(Art. 2(2): assurance of • fair and equitable treatment >>), ibid., p. I7 at p. I8.
(24) Corte Costituzionale 30 Jan. I98o, N. Io, I Giurisprudenza Costituzionale, I98o, p. 67 at p. 9I; Corte
Costituzionale IS Feb. I98o, N. I6, I Giurisprudenza Costituzionale I98o, p. I37 at p. I43·
(26} RossANo, L'Eguaglianza giuridica nell'ordinamento costituzionale, p. 450 (I966); SANDULLI, I Manuale
di Diritto Amministrativo, pp. 620-624, Sec. I4I(e) (I982).
(26) United States Code, Title s, Sec. 706(2) (A) (I982) (Annex 9I).
(27) Citizens to Preserve Overton Park v. Volpe, 40I U.S. 402, 4I6 (I970). See also, Motor Vehicles Manufacturers
Assoc. v. State Farm Insurance Co., 463 U.S. 29 (I983).
MEMORIA DEL GOVERNO U.S.A. 35
Other municipal legai systems as well prohibit arbitrary governmental action of this character.
In France, for example, in accordance with decisions of the highest French administrative
court, the Conseil d'Etat, administrative action will be considered « arbitrary )) if taken without
due regard fòr the factors and legai principles governing the legitimate exercise of discretion in
a particular case (28). As stated by de Laubadère, a typical example of such improper use of
authority is the use of police power for a goal other than public security, peace or well-being,
« for example, a financial goal (29) ». The << classic mode! )) which he cites is police orders limiting
the use of a public pier in order to reduce the maintenance expense to the commune (30). Similar
standards are in force in the Federai Republic of Germany under Section 40 of the Federai
Law on .Administrative Procedure of 1976 Verwaltungsverfahrensgesetz of 25 May 1976,
BGB1. I 1749 (1976)), which provides:
<< If an administrative authority is authorized to act according to its discretion, it must
exercise its discretion according. to the purpose of the authorization and observe the legai
limits of the discretion (31) ».
In international law as well, the term « arbitrary )) is used to describe prohibited actions
which constitute an unreasonable, improperly motivated, or unduly unjust or oppressive use
of otherwise legitimate governmental authority. Thus, for example, a variety of otherwise lawful
actions, such as expulsion of aliens, arrest, detention, deprivation · of nationality, cancellation of
contracts, and deprivation of property may be prohibited when << arbitrary (32) », In this context,
an << arbitrary )) action is one which is unjust or unreasonable in light of the relevant international
standards (33). More generally, the concept of << abuse of rights » illustrates the generai usage
(28) Société Glace Service, 26 July 1985, N. 51.083, Recueil des décisions du Conseil d'Etat, (« Recueil Sirey t)
1985, p. 236; Caminade, 13 Jan. 1983, N. 27.966. Under French administrative law, arbitrary administrative
acts rnay be annulled through the procedure of the recours pour excès de pouvoir. See, e.g., Vedel and Delvolvé,
Droit administratif, pp. 8o7-8u (9th ed. 1984).
(29) « The typical example [ of détournement de pouvoir] is that of police power's, which, by their nature, can
only be exercised for a goal of security, peace, or well-being, and not .for some other objective of general
interest, for example, a financial objective (the classic model of annulling police orders limiting the usage
of a public pier in order to reduce the expense of upkeep to the commune: Decision of the Conseil d'Etat,
u Nov. 1927, Bellescrize, p. 1048 ~.
Translation. ANDRE DE LAUBADERE, x Traité de droit administratif, p. 599 (9th ed. by J, C. Venezia and Y.
Gaudemet 1984).
( 30) Ibid. See also, e.g., Sieur Beaugé, Conseil d'Etat, 4 July 1924, Recueil Sirey, p. 641 (mayor's order requiring
ocean bathers to change clothes in local bath-houses motivated by financial interest of the village, annulled as
détournement de pouvoir); Caisse de Compensation pour la Décentralisation de l'Industrie Aéronautique, Conseil
d'Etat, 8 July, 1955, Recueil Sirey, p. 398 (refusal to approve the budget of establishment in order to provoke its
liquidation annulled as détournement de pouvoir).
( 31) Translation. This provision represents the concretization of the generai prohibition against arbitrary
action (allgemeines Willkilrverbot) deduced from articles 3 and 20 of the Basic Law (Grundgesetz) of the Federai
Republic of Germany. The German Federai Constitutional Court has reaffirmed this generai prohibition on
numerous occasions. See generally, G. LEIBHOLZ and H. J, RINCK, Kommentar zum Grundgesetz (6th ed. 1985),
Art. 3, annotations 2-5; Art. 20, annotation 20; K. 0BERMAYER, Kommentar zum Verwaltungsverfahrensgesetz
(1983), para. 40, annotation 76(b) (x).
(3J) See, e.g., C. F. Murphy, « Limitations upon the Power ofa State to Determine theAmount of Compensation
Payable to an Alien upon Nationalization ~. in 3 The Valuation of Nationalized Property in International
Law, pp. 56-62 (R. Lillich, ed. 1975) (arbitrary expropriation); American Law Institute, The Foreign Relati ns
Law of the United States. (Second Restatement) (1965) (• American Law Institute, Second Restatement ~), sec. 193
(arbitrary breach of contract) (see also, Tent. Draft N. 7, 1986, sec. 712: arbitrary impairment of property or
other economie interests); International Covenant on Civil and Politica[ Rights, U.N. Doc. A/Res/220o A (1960)
Articles 6 (deprivation of life), 9 (arrest or detention), 12 (right to enter one's own country), 17 (interference with
privacy, family, home or correspondence); Universal Declaration of Human Rights, U.N. Doc. A/Res/2I7(III)
(1948), Articles 9 (arrest, detention or exile), 12 (interference with privacy, family, home or correspondence), 15
(deprivation of nationality), 17 (deprivation of property).
( 33) As one commentator has stated with respect to the use of the term « arbitrary • in the Universal Dcc· a.
ration of Human Rights, « the reason for the use of the words ' arbitrary' or ' arbitrarily ' was to protect individuals
from both 'illegal' and 'unjust' acts ~. P. Hassan, « The Word 'Arbitrary' As Used ·in the Universal Declaration
of Human Rights: 'Illegal' or' Unjust'? >l, xo Harvard International Lawjournal, p. 225 at p. 254 (1969).
See also, P. Hassan, << The International Covenant on Civil and Politica! Rights: Backgrouhd and Perspective on
Artide 9(1) •, 3 Denver journal of International Law and Policy, p. 153 (1973); JIM!WE:I; D1l AR1lCftAGA1 • Thç
36 RASSEGNA DELL'AVVOCATURA DELLO STATO
of the term « arbitrary » to refer to govemmental actions which are unreasonable, improperly
motivated, or unduly unjust or oppressive (114).
The requisition of ELSI's plant was precisely the sort of arbitrary action which was prohibited
by Artide l(a). Under both the Treaty and ltalian law, the requisition was unreasonable
and improperly motivated. The requisition was found to be illegal under Italian domestic law
for precisely this reason: it was « destitute of any juridical cause which may justify it or make
it enforceable (35) ll,
Apart from considerations of Italian law, moreover, the requisition was « arbitrary ll for
purposes of the Supplement. Its object and effect were to prevent Raytheon and Machlett
from proi:ectìng their investment, without any justification which can be viewed as legitimate
in terms of the governing principles of the Treaty.
The declaration of a public emergency in this case was a mere device; if the closing of the
plant was an « einergency », it was an emergency of ltaly's own creation. Raytheon and Machlett
had given the Italian authorities every opportunity to take legitimate steps to prevent ELSI
from closing, but the Italian authorities declined to do so. Instead, they sought to force Raytheon
and Machlett to keep ELSI open by the sheer exercise of power. The requisition was not used
to prevent ELSI from closing; as the Prefect noted, Italy took no steps to keep the plant in
operation, but merely seized it. In short, the planned closing was not a bona fide public emergency,
nor was the requisition a bona fide response.
The purpose of the requisition appears to have been to create the appearance of action,
while allowing time for IRI to step in to take over the plant. The Prefect noted the apparent
intent to show the local press that governmental authorities were « fac[ing] the problem », notwithstanding
that they did nothing concrete to resolve the problem (36). At the same time, IRI
was developing plans to expand into this area, but was not yet ready to do so.
This motive is discriminatory. As noted above, Artide l(a) prohibits « arbitrary or discriminatory
ll measures without qualification. To << discriminate ll is « to make distinctions in treatment,
show partiality (in favor of) or prejudice (against) (37) ll, The term « discriminatory ll thus
embraces discrimination in favor of government-controlled enterprises. The Treaty explicitly
recognizes the need to protect against discriminatory action in favor of publicly owned or controlled
enterprises (38). The purpose of the Supplement was to strengthen these protections,
and in particular to protect against « special favors to State-owned businesses (39) li, Here
IRI's interests were directly contrary to Raytheon's and Machlett's, and the Govemment intervened
to advance its own commerciai interests at the latter's expense. This is a particularly
Background to Artide 17 of the Universal Declaration >l, 8 J ournal of the International Commissions of Jurists
N; 2, p; 34 (1968); F. V. GARCIA-AMADOR, Fourth Report on State Responsibility, Yearbook of the International
Law Commission I959, Part II, para. 24, p. 7 (UN Doc. ACN. 4II9, para. 24).
(34) In Case Concerning the Barcelona Traction, Light, and Power Company, Limited, for example, the Govemment
of Belgium equated the concepts of << arbitrary » administrative action, détournement de pouvoir, and « abuse
of rights ». See, e.g., oral argument (second phase) in 8 Memorials, Pleadings and Documents, pp. 35-43; submissions,
reproduced in the Judgment (Second Phase), IC] Reports 1970, pp. 12, 17. See also, e.g., 1 Oppenheim's
International Law, p. 345, (8th ed. by H. Lauterpacht 1955):
« [Abuse of right] occurs when a State avails itself of its right in an arbitrary manner in such a way as to
inflict upon another State an injury which cannot be justifìed by a legitimate consideration of its own advantage
»;
and G. ScHWARZBNBBRGBR, International Law and Order, p. 1oo:
« The hard core of situations, in relation to which the hypothesis of the abuse of rights remains potentially
relevant, is the arbitrary or unreasonable exercise of absolute rights .... Thus, ultimately, the issue reduces
itself to that of the arbitrary or unreasonable exercise of rights or powers within the exclusive jurisdiction
of States ».
See also, MuRPHY, op. cit., at pp. 59-62; GARCIA-AMADOR, op. cit., at paras. 22-29.
(35) Annex 76, p. 11.
(36) Annex 76, p. 12.
· (37) Webster's New World Dictionary of the American Language, p. 403 (1982) (emphasis in originai). The
Italian word « discriminazione » is defìned « distinzione operata nel corso di un giudizio o di una classificazione t
(«a distinction made in the course of a judgment or classifìcation »), G. DEVOTO and G. C. OLI, Vocabolario illustrato
della lingua italiana, p. 8n (1983).
(38) See, e.g., Artide XVIII of the Treaty and Paragraph 2 of the Protocol.
(39) Annex 86, p. 4·
.· MBMORlA DEL GOVERNO U.S.A. 37
dear-cut departure from the Treaty principle of « fair play » and the specific guarantee of Artide
I(a) of th~ Supplement ..
. . · •. · .• 'fhtll'~(;plisitìon Jhus .was an « arbitrary or discrimi:natory rn.easur~ » for . purposes of the
Treaty •.. rt was an unreasonable actì9n wpjcb. di d .not r.e!ìt on .tegitiJ:nat~ grou:n,cis, .neither under
Italian law nor under the goveming priilciples of the Treaty. It was precisely the sort of
«r~:çtecl t(;lç}l:çtiqM(;l •• »~ C@trary t;o ~be fJJ:ndam(;lQtal prinçipJtls pf .. ~(;lquitabl~ trtlatment», and « ~~~r pJa~r »J 'Whi<J.bArdcleJ(alwlils mte:nded to ptohibit.. Accor<;lingly, the :tJ :n,ited · States sub:rnits
tbat tbe requisidon was. lil,n llibitr~rY • and d~!lcriminatory. measur.e -which efl:ectively preyented
R,aYth~on!lli~.· •.• Mac:;hJ~tt··:rroW..~~ercising W.allagernent.and control of ELSI, in violation of
A,rdcfe l(a) 9( the $UI?I?lern.ep,t •. · · · · ·
S:EcTION 3; · ""' • A:Yticle ·. VII·. oj the Tteaty. ·
The • guat~tl?:tees o:f management ~tn<i 9ontrol established by ArJicle Il I of the Treaty an d
Artide I 0fth.è Sqpplement are futther buttressed by Articl.e VII ofthe Treaty, which provides
1n pa~:f: · · ··· · · · · ·
.··.··.<·.:· .· -: '
« The nationals, ·• corporations and associations of · either High Contracting Party shall be
permitted to .. ; dispose of immovable.property .or interests therein within the territories
of theother High .Contracting Party• upon,. the following terms :.
• t t o o o o o o o o o o o o o o o o o o o o o o o o o o o •• o o o o o o o o o o o o o o o o o o o o······; o o • • o o o o • o o o o o o 'o o o • o • o•
(b) in the case of nationals, corporations; and associations of the United States of
America> the right to acquire; own • and ·dispose of such ptoper.ty upon terms no less favorable
than those which are or may hereafter be accotded by the state, territory or possession
ofthe United States ofAmerica ,;; un:der the laws ofwhich such corporation or association
is created or organized, to ... corporations ... of the Italian Republic ''·
The Treaty thus guarantees that a United States corporation which has invested in Italy
is entitled to dispose of immovable property or interests therein upon the same terms as would
an Italian corpor~.ttion invest~g inthe. United States investor's state of incorporation.
Raytheor.i is incorporated in the State of Delaware (40) and Machlett is incorporated in the
State of Connecticut {41). Under Artide VII of the Treaty the Government of ltaly undertook
to allow these United States cotporations to dispose of immovable property and interests
therein upon terms no less favorable than would be ac.cotded by these states to Italian corporations.
Under the laws of both Delaware and Connecticut, corporations. may be dissolved and their
assets sold pursuant to determinations by their boards of directors and shareholders (42); For
example, Oelaware provides in Section Z7I of.Title 8 of its Code:
« Eyery corpotation may a t any meeting of its board of directors or governing body sell,
. Iease or .exhltnge alLor sub$tantially all of its ptoperty and lissets ... upon such terms and
conditions and for such cor.isidetation ·•. as its board of directors or governing body deems
expedient atid for the best ititetests of the cotporation; when and as authorized by a resolution
adopted by the holders of a majority of the outstandind stock of the corporation
entitled to vote thereon , •. (43) ».
(40) Annex 7·
(41) Annex 16.
(42) See Delaware Code Annotated, Title 8, Secs. 271, 275 (1983 and Supp. 1986) (Annex 92); Connectictut
General Statute, Annotated, Secs. 33-372, 33-375 (West 1958 and Supp. 1986) (Annex 93)• These constitutional
guarantees may be enforced through procedures made available to property owners under state law. See, e.g.,
Delaware Code Annotated, Title xo, Secs. 61ox-6us (1975) (Annex 94}.
(48) See Annex 92.
38 RASSEGNA DELL'AVVOCATURA DELLO STATO
The courts of Delaware have emphasized that:
« there is no statutory limitation on the right of a Delaware corporation to sell its assets
on such terms and conditions and for such consideration as its board of directors deems
expedient and in the best interests of the corporation (44) ''·
Thus, under the reciproca! guarantees of the Treaty, Raytheon and Machlett were entitled
to liquidate ELSI's assets pursuant to the decision of its shareholders and board of directors.
The requisition which foreclosed this planned action violated Artide VII of the Treaty.
Carrying the reciprocity point further, if Delaware or Connecticut were to take the immovable
property of a corporation for a lawful public use, they would be obligated to make compensation
for that property under fundamental provisions of the United States Constitution (45)
and the respective state constitutions (46). Constitutional rights affecting property interests
are guaranteed to both natural persons and corporations (47). The right to compensation fora
taking of interests in property is guaranteed to foreign as well as United States investors (48).
Under United States law, this duty to compensate owners of property for interference with
their property rights arises not only from a formai expropriation decree but also from government
actions, including interference with the use of the property, that amount to a taking of property(49).
Thus, in Benenson v. United States (60
), the United States Court of Claims ruled that where the
United States Government effectively barred property owners from exercising their right to
demolish improvements to their real property or otherwise use the property as they wished, the
United States violated the constitutional rights of the property owners and was required to
make appropriate compensation.
Most of the assets seized by the Mayor of Palermo and subsequently acquired by the Government
of Italy consisted of ELSI's manufacturing plant and other immovable property (51). As
discussed above, ELSI's owners had the right under the Treaty to dispose of this property
as they saw fit. The United States submits that by denying the owners that right, the Government
of Italy violated Artide VII of the Treaty.
(44) Alcott v. Hyman, I84 A. 2d 90, 94 (Delaware Court of Chancery 1962), affirmed 208 A.2d 50 I (Delaware
Supreme Court I965).
(45) The Fifth Amendment of the United States Constitution provides:
« N o person shall be ... deprived of life, liberty or property without due process of la w, nor shall private
property be taken for public use, without just compensation ».
(46) Section 8 of the Delaware Constitution provi d es:
« [N]or shall any man's property be taken or applied to public use without the consent of his representatives,
and without compensation being made ».
Section II of the Connecticut Constitution provides:
« The property of no person shall be taken for public use, without just compensation therefor ».
(47) The generai principle of equal treatment under the United States Constitution for corporations and
natura! persons was set forth by the Supreme Court of the United States in Grosjean v. American Press Co., 297
U.S. 233 (I936) (corporations are entitled to equa! protection of the laws of the United States). See, e.g., Fulton
Market Cold Storage Co. v. Cullerton, 582 F.2d I07I (7th Cir. I978), cert. denied 439 U.S. II2I (I979) (corporate
property owner can bring action against county and state taxing officials for wrongful assessments of property
value); Sterngrass v. Bowman, 563 F. Supp. 456 (S.D.N.Y. I983) (corporation may bring action against city for
wrongful decisions affecting corporation's use of rea! property).
( 48) Russian Volunteer Fleet v. United States, 282 U.S. 48I (I931) (when the United States expropriates the
property of an alien friend, the Fifth Amendment of the United States requires that it pay just compensation
equivalent to the full value of the property). Thus, non-resident aliens owning property within the United States
<< as well as citizens are entitled to the protection of the Fifth Amendment ''· United States v. Pink, 3I5 U.S. 203,
228 (I942). Cf., Sardino v. Federa[ Reserve Bank of New York, 36I F.2d Io6, III (2d Cir.), cert. denied 385 U.S.
898 (I966) (<< This country's present economie position is due in no small part to European investors who placed
their funds at risk in its development, rightly believing they were protected by constitutional guarantees »).
( 49) See, e.g., United States v. Clarke, 445 U.S. 253, 257 (I98o); Pennsylvania Goal Co. v. Mahon, 260 U.S.
393 (I922).
(50) 548 F.2d 939 (Court of Claims 1977). See also, Amen v. City of Dearborn, 718 F.2d 789 (6th Cir. I983),
cert. denied 465 U.S. IIOI (I984) (defendant city's course of conduct designed to force residents to sell property
to city violated United States Constitution).
(51) See, e.g., Annexes 20, SI, 57, 67 and 72.
CHAPTER III
IMPAIRMENT OF INVESTMENT RIGHTS AND INTERESTS
SECTION I. - The Requisition.
Artide I(b) of the Supplement provides, in pertinent part, that:
<< corporations ... of either High Contracting Party shall not be subjected to ... arbitrary
or discriminatory measures within the territories of the other High Contracting Party resulting
particularly in ... impairing ... legally acquired rights and interests in such enterprises [other
than management and control] or in the investments which they bave made, whether in
the form of funds (loans, shares or otherwise), materials, equipment, services, processes,
patents, techniques or otherwise » (Emphasis added).
As discussed in connection with Artide I(a) above, Artide I of the Supplement is intended
to extend the safeguards for foreign investment contained in the Treaty to reach « the more
refined techniques through which governments might effectively destroy investments made
by foreigners ... » (1). As explained in the contemporaneous Department of State report to the
United States Senate:
« [I]t is believed to serve a useful purpose in that it affords one more ground, in addition
to all the other grounds set forth in the treaty, for contesting foreign actions which appear
to be injurious to American interests. A given measure of a foreign government might,
for example, be fully consistent with the national treatment or most-favored-nation treatment
rules of the treaty, and also short of expropriation, but yet arbitrary and unreasonable
as it affected some vested American interest in the country concerned. In that event, the
only treaty ground for protest might be generai language such as is found in [Artide l(b)
of the Supplement] (2) "·
Artide l(b) thus extends the basic principles of fair play and non-discrimination to all
forms of governmental action which are injurious to investors, prohibiting any « arbitrary or
discriminatory measures » which impair not only the rights, but also the interests, of United
States investprs in Italian corporations.
As discussed above, the requisition of ELSI's assets was an arbitrary and discriminatory
measure. It not only effectively blocked Raytheon's and Machlett's exercise of management
and control over ELSI, but « result[ed] particularly in ... impairing [their] other legally acquired
rights and interests » in ELSI. The requisition thus violated Artide I(b), in addition to Artide
I(a) of the Supplement.
The impairment of Raytheon's and Machlett's rights and interests occurred because the
requisition, as intended, prevented the voluntary liquidation of ELSI and caused it to file for
(1) R. R. Wilson, describing the « new formulas on property protection » contained in United States investment-
protection treaties developed in the late 195o's. R. R. WILSON, United States Commerciai Treaties and
lnternational Law, p. 121 (xg6o).
(2) See State Department Comments in Annex 86, pp. 28-29.
40 RASSEGNA DELL'AVVOCATURA DELLO STATO
bankruptcy. As the court-appointed Trustee in bankruptcy stated m his complaint against
the Minister of the Interior and the Mayor of Palermo:
<< In consideration of the heavy legai and economical situation created by the appealed
order of requisition, Raytheon-Elsi S.p.A. was obliged to file for bankruptcy, which was
declared by decision of this Tribunal on May 7-16, 1968 (3) "·
Without control over ELSI's plant or assets, an orderly, voluntary liquidation was simply
impossible. Moreover, since ELSI's assets could not be liquidated, the point would soon be
reached where its debts could not be paid as they became due. Hence, there was therefore no
alternative but for ELSI to file a petition in bankruptcy (4).
By frustrating the voluntary liquidation, the requisition made the closing of ELSI much
more costly to Raytheon and Machlett than it would have been had this governmental intervention
not occurred. Raytheon was required to pay some 5.8 billion lire (US$9,Joo,òoo) to those
bank creditors of ELSI to whom Raytheon had made guarantees. As discussed in Part VI
below, these payments were substantially more than Raytheon would have paid had it been
allowed to proceed with the planned liquidation. In addition, Raytheon recovered nothing
on its open accounts with ELSI, totalling over 1.3 billion lire (US$t,8Jo,ooo). Finally, both
Raytheon and Machlett lost the small return on their investment which the liquidation could
have provided (6).
Further, the liquidation pian would have permitted payment of ELSI's unsecured loans.
Under the bankruptcy, however, unsecured creditors received less than I % of the amounts
claimed. As predicted by the President of the Sicilian Region (6), the government-controlled
banks which held these loans brought suit against Raytheon to recover the amounts due. While
the lawsuits ali resulted in judgments for Raytheon, they caused Raytheon substantial additional
and unnecessary expense n.
In addition to Raytheon's and Machlett's direct capitai contribution, Raytheon's guaranteed
of loans made to ELSI and its open accounts for goods and services provided to ELSI are
« investment rights and interests, which are protected by Article I(b). This Article expressly
protects not only contributions to capitai, but anything else provided by an investor to an Italian
corporation in which it invests « whether in the form of funds (loans, shares, or otherwise),
materials, equipment, services, processes, patents, techniques or otherwise ».
Both the open accounts and the guarantee payments are investments within this broad
definition: « whether in the form of funds ... or otherwise >>. The explicit inclusion of « loans »
in particular demonstrates that credit arrangements between a United States investor and an
Italian corporation are within the scope of protected investment rights and interests under
Article l(b). The open accounts are amounts owed to Raytheon and thus constitute a« loan ».
Raytheon's guarantees were originally in the nature of a contingent « loan » representing a
commitment to provide a specified amount of funds for ELSI's benefit on demand. When the
guarantees were paid, they become an actual loan of funds to ELSI. Thus, both the guarantees
and open accounts are protected investment rights and interests within the scope of Article
l(b).
Raytheon's financialloss in defending against the Italian bank lawsuits similarly constitutes
an impairment of protected rights and interests. The banks were suirlg Raytheon for payment
of ELSI's loans. If these suits had been successful, Raytheon would have been required to make
further contributions of funds on ELSI's behalf.
The United States accordingly submits that the requisition was an arbitrary and discriminatory
measure by the Government of Italy which impaired Raytheon's and Machlett's investment
rights and interests in ELSI, in violation of Article I(b) of the Supplement.
(3) Annex 79, p. 2.
(4) Supra, pp. 14-15, and Annex 26, para. 12.
(G) See discussion at pp. 6o-61, infra, and Table at p. 6o. See also, N. 13, Chapter VI, infra.
(6) Annex 38, p. I.
(7) See discussion at pp. 61-62, infra; Annex 40, para. 7 and Exhibit C.
MEMORIA DEL GOVERNO U.S.A, 41
S:ScTION z. - The Subrequent Courre of Conduct.
The harmful effects of the requisition were confirmed and compounded by the subsequent
conduct of ltalian officials, which was in further violation of Artide I(b) of the Supplement.
The requisition, indeed, was only the first step in a series ofconcerted actions taken by the I talian
government and IRI authorities to acquire ELSI's plan:t and related assets at less than fair
market value, while leaving Raytheon with responsibility for paying ELSI's outstanding debts (8).
Having requisitioned the plant and caused ELSI's bankruptcy, the Government of ltaly discou:
raged Private .. bidders, boycotted the auctions itself, and worked out special arrangements for
a piecemeaLtake-over directly with. the bankruptcy aut:horities.
The object of these actions was to secure ELSI's facilities for IRI, on the terms and at
the below-market price which IRI desired, while also responding to the politica! pressure brought
by ELSl's, former workers. These actions werè discriminatory measures prohibited by Artide
I of the Supplement, since they were taken with the clear object and effect of favoring a public
Italian entetprise at Raytheon's expense .. They resulted in the further impairment of Raytheon's
investment rights and interests. Thus, not only did the Government of ltaly wrongfully cause
the bankruptcy, it also proceeded wrongfully to exploit the bànkruptcy which it had caused (9).
Before the requisition was issued, the President ofthe· Sicilian Region had informed Raytheon
that lRl wanted to take over ELSI's facilities for its own use, but was not ready to do so immediately;
He attempted to convince Raytheon that it should keep ELSI open at its own expense
until . IRI . was ready. to. acquil,'e i t. He note d that, if Raytheon did no t do so, the requisition
would remain in effect and ELSI would have no alternative butto declare bankruptcy. Moreover,
he predicted, in such event the government would .make the result as costly as possible for
Raytheon (10). Raytheon, nevertheless:, declined to make any further investment in ELSI, seeing
no prospect of recovering such funds (11). When ELSI accordingly did declare bankruptcy,
the Govetnment of Italy turned its attention to the bankruptcy process.
The Government of Italy's objective was to acquire ELSI's. facilities for IRI at the lowest
possible price. Towàrd . that end, it incrementally consolidated . both the appearance an d the
substance of a take-over ofELSI's facilities, which enabled it ultitnately to.dictate the sale price.
Even before any bankruptcy auctions were held, the public at large had been informed that
the Government would take over ELSI's facilities. On 25 July 1968, the Minister of lndustry
announced to the Italian Parliament that the Government of Italy intended to take over ELSI's
plant through an IRI subsidiary (12}. On 13 November, after inconclusive negotiations with
Raytheon for a comprehensive settlement, the Government issued a press release announcing
(8) lt is a settled rule of state responsibility that the State is responsible for the actions and omissions of the
judicial and administrative authorities, including regional. and local government officials. See, e.g., G. ScHWARZENBERGER,
1 International Law,. pp. 625-627 (1957); RoussEAu, Droit international public, pp. 358, 374 (1953);
I. BROWNLIE, System of Law of Nations, State Responsibility (Part 1), p. 144 (1983); C. EAGLI!TON, The Responsibility
of States in International Law, pp. 70--73 (1928); and authorities cited at N. 15 and N. 17, Chapter II, pp. 74, 75;
Moreover, irrespective of its generai status for purposes of attribution, the actions of IRI in this case (and of its
subsidiaries) are also attributable to the Government of Italy, since IRI was not only owned and controlled by
the Government, but was also acting as an arm and agent of the Government .. The decision to take over ELSI's
assets through IRI was a centrai government decision, conceived even before the requisition and, subsequently
pùblicly announced as such. As stated by Christenson, Q The criteria for attributing conduct of [state-owned
enterprises] to the State seem to be ... attribution if the entity serves State purposes, thus becoming part of the
State's apparatus ». G. A. CHRISTENSON, « The Doctrine of Attribution in State Responsibility », International
Law of State Responsibility for Injuries to Aliens, p. 333 (R. Lillich, ed. 1983); see aiso, on attribution of acts of
agents generally, Chiessa case, 15 Reports of Internationai Arbitrai Awards, p. 399; x Oppenheim's Internationai
Law, p. 342 (8th ed. by H. Lauterpacht 1955); B. CHENG, Generai Principies of International Law as Applied by
International Courts and Tribunais, pp. 192--193 (1953).
(9) For other examples of cases involving allegations of a wrongful course of conduct. in connection with
bankruptcy proceedings see, e.g., Antoine Fabiani (France v. Venezuela), summarized in M. Whiteman, 3 Damages
in International Law, pp. I785--1788; Barcelona Traction, Light and Power Company, Limited, judgment, I.C.J.
Reportsi97o, p. 3; Timberlane Lumber Co. v. Bank of America, N. T. ~S. A., 549 F.2d 597, 6os (9th Cir. 1976);
Claims of « Salvador Commerciai Company » et al., 15 &ports of Internationai Arbitrai Awards, p. 467.
(10) Supra, p. 14; Annex 38.
(11) Supra, p. 14; Annex 39·
(12) Annex 46.
42 RASSEGNA DELL'AVVOCATURA DELLO STATO
that IRI-STET would take over ELSI at the Government's request (18). In response to this
announcement, workers at the Raytheon plant took down the name-plate tt ELSI » at the entrance
to the plant and put up a new name-plate tt STET >> ( 14). The IRI subsidiary which was to run
the plant, EL TEL, was formed in Palermo in December of 1968 (15). At the same time, IRI
announced its plans for rehiring workers when it reopened the plant in 1969 (16). All of these
developments were publicly reported (17). Thus, by the first scheduled bankruptcy auction
on r8 January 1969, the Government's take-over of ELSI's plant and assets was to all appea~
rances a certainty.
IRI, however, had not yet reached final agreement with the Trustee on its purchase of
ELSI's assets. Nor did it bid at the first auction (18). The first auction was for all of ELSI's
assets, with a minimum bid set at 5 billion lire (19). It appears that IRI was not interested in
purchasing all of ELSI's assets at this price, but only in purchasing the plant and certain related
equipment for some 4 billion lire (20). According to the President of the Sicilian Region, IRI
had reached agreement with the bankruptcy Trustee on such a sale as early as October 1968,
but the agreement had broken down over IRI's unwillingness to purchase any of ELSI's other
assets (21).
While these terms were not to IRI's liking and it boycotted the auction, it nevertheless
proceeded with its plans to take over ELSI. On 30 January it was publicly reported that IRI
had reached agreement with ELSI's former workers on a pian for rehiring (22). It also was repor~
ted that, faced with pressure from the former employees, IRI had agreed with the Trustee
and with the unions on an interim plan to reopen the plant under a lease arrangement, pending
agreement on the final terms of sale (23).
In late March 1969, therefore, ELTEL oftìcially proposed to the Trustee that it be permitted
to lease ELSI's plant for a period of eighteen months at an entirely nominai rate, without
any commitment whatsoever to purchase the plant or assets at any price (24). Raytheon's repre~
sentative on the creditors' comrnittee pointed out that, if such a lease were approved, EL TEL
would be in a position to dictate the terms of final sale (25). The lease nevertheless was approved,
on the ground that ELSI's plant needed to be operated and maintained (26).
U pon taking possession of the plant, EL TEL sought an d received perrnission to purchase
ELSI's work in process for less than one-half its appraised value (27). This first piecemeal sale
without open public bidding was justified in large part by the lease (28). Finally, with EL TEL
in possession of and operating ELSI's plant, the bankruptcy authorities agreed to sell the plant
and related equipment to ELTEL for 4 billion lire (US$6,4oo,ooo) (29). Thus, fora little over
(13) « Without prejudice to the undertaking of the STET Group to build in Palermo a new plant to manufacture
in the field of telecommunications, the IRI-STET Group, solicited by the Government ... , has
communicated its willingness to intervene in taking over the [ELSI] plant and in commencing also new
production >l (Annex 47).
(14) Annexes 48 and 49·
(15) Annex 26, para. 2o; Annex 59, p. 2.
(16) Annex 53·
(17) Annexes so, 53, and 54·
(18) Annex 52.
(19) Annex 51.
(20) Supra, p. 18; Annex 59, pp. 2-3.
(21) Ibid.
(22) Annex 54·
(23) Supra, p. I7; Annexes 54, 55 and s6.
(24) Annexes 6o and 61.
(25) Supra, p. 18; Annex 6o, p. 2.
(26) Annex 64, pp. 2-3. The need for such operation and maintenance was, it may be noted, entirely the
responsibility of ltalian authorities. As is discussed at Chapter IV, infra, instead of reopening and maintaining the
plant after the requisition, Sicilian authorities allowed the workers to occupy it. Thus, as a result of the requistiion
and the subsequent failure to protect the requisitioned property, the plant had been left idle and not maintained
for almost a year.
(27) Annex 6s.
(28) Supra, pp. 19-20; Annex 69.
(29) Supra, p. zo; Annexes 72 and 74•
MEMORIA DEL GOVERNO U.S.A. 43
4 billion lire ELTEL acquired ELSI's plant, equipment, and inventory, including work in
process - assets initially valued at over 12 billion lire (US$xg,2oo,ooo) (30).
Thus, the Government of Italy skillfully took advantage of its own commanding position
and its initial wrongful requisition to acquire ELSI's plant and assets at a reduced price for the
use of their own commerciai enterprise.
Their actions were discriminatory within the meaning of Artide l(b) of the Supplement.
As discussed at p. 33 above, the term « discriminatory », as used in the Treaty and Sup~
plement, expressly encompasses favored treatment for government-controlled enterprises.
The actions, moreover, contributed to the impairment of Raytheon's and Machlett's rights and
interests as investors. Having caused the bankruptcy, the Government of Italy further shaped
its results, to the detriment of Raytheon and Manchlett and the benefit of IRI.
This result was furthered, moreover, by yet another arbitrary and discriminatory actionthe
Prefect's failure to rule on the legality of the requisition until after EL TEL had acquired
ELSI's assets (31). During this entire period, the Prefect of Palermo refrained from ruling on
the lawfulness of the requisition. When the Prefect finally ruled on 22 August 1969, it was
sixteen months after the appeal had been filed, but only 48 days after EL TEL finally purchased
ELSI's assets. As discussed below, the Prefect's delay was exceptional. This delay was
« arbitrary », in that it was unfair, unreasonable, and unsupported by any legitimate considera~
tions. This delay was, moreover, « discriminatory », in that no comparable delay appears to
have occurred in any previous similar appeal brought by an Italian-controlled corporation (3 2).
Thus, the United States submits that, beginning with the requisition and throughout the
bankruptcy, Italian authorities engaged in a series of arbitrary and discriminatory measures
resulting in the impairment of Raytheon's and Machlett's investment rights and interests, in
violation of Artide l(b) of the Supplement.
( 30) Annex 13, Schedule Cl. See N. 38, Chapter IV, infra.
( 31) As discussed further in Chapter IV, infra, this delay in ruling also constituted a failure to afford the protection
due to Raytheon under Artide V of the Treaty.
(32) See further, discussion at pp. 52-53, infra.
CHAPTER IV
WRONGFUL TAKING OF INTERESTS IN PROPERTY
With the requisition, ltaly embarked on a course of activity aimed at acquiring the bulk
of ELSI's assets for a public enterprise at less than jair market value. In addition to
the Treaty violations indicated above, the requisition constituted a taking of property
without due process of law or just compensation, in violation of Article V (2) of the Treaty.
The requisition defimtively ended Raytheon and Machlett's ability to use and dispose of
assets which they owned through ELSI. I t led directly to a jorced bankruptcy sale of the
assets, primarily to an ltalian State enterprise at a price substantially below their jair
market price. The requisition, which later was jound unlawjul, thus constituted a taking
of property giving rise to an right to « .fust » compensation. Because the taking was
accomplished through means specijically proscribed by the Treaty- i.e., interjering with
management and contro[ and jailing to accord the guarantees of due process - just compensation
encompasses not only the actual market value of the property taken but also
any additional amount necessary to ojjset consequential damages of the taking.
SECTION 1. - The Taking of Interests in Property.
Artide V(2) of the Treaty provides that:
« The property of nationals, corporations and associations of either High Contracting Party
shall not be taken within the territories of the other High Contracting Party without due
process of law and without the prompt payment of just and effective compensation » (Emphasis
added).
The Protocol to the Treaty expressly extends this guarantee of compensation to '' interests
held directly or indirectly by nationals, corporations and associations of either High Contracting
Party in property which is taken within the territories of the other High Contracting Party »,
The provision aims « to assure that the investments of the ultimate party in interest, lying behind
the corporate facade, are safeguarded (l) ». In other words, the Treaty unambiguously protects
the investment interest of United States shareholders in Italian companies whose property is
taken by the Italian government.
The « taking >> of property to which the Treaty refers encompasses a multitude of activities
having the effect of infringing property rights. Under international law, a« taking » generally
is recognized as including not merely outright expropriation of property, but also unreasonable
interference with its use, enjoyment, or disposal. As Christie stated in 1962:
« Such cases as there are recognize the principle laid down by the commentators, that interference
with an alien's property may amount to expropriation even when no explicit attempt
is made to affect the legai title to the property, and even though the respondent State may
specifically disclaim any such intention (2) ».
(l) R. R. WILSON, United States Commerciai Treaties and lnternational Law, p. 201 (1960).
(2) G. C. CHRISTIE, « What Constitutes a Taking of Property Under Intemational Law? &, 38 British Yearbook
of lnternational Law, p. 307 at p. 309 (1962).
MEMORIA DEL GOVERNO U.S.A. 45
Subsequently, this principle has been repeatedly reaffirmed by international tribunals
and commentators (8). The recent and numerous awards of the Iran-United States Claims
Tribuna! on this question are illustrative. As stated by the Tribuna! in Starrett Housing, for
example:
« it is recognized in international law that measures taken by a State can interfere with
property rights to such an extent that these rights are rendered so useless that they must
be deemed to have been expropriated, even though the State does not purport to have
expropriated them and the legai title to the property formally remains with the originai
owner (4) )>.
Of particular relevance here, it repeatedly has been recognized that interference with management
and contro! sufficient to consti tute a << taking " of property will be considered to have
occurred where the foreign investor has no reasonable prospect of regaining management and
contro!. As stated by Dolzer, commenting on the rècent Revere case:
<< it cannot be doubted that a long-term interruption of effective contro! by the owner of
the use of property in its fundamental economie function would trigger the duty to compensate
also under the substantive international law concept of expropriation (5
) "·
In SEDCO, Inc. v. National Iranian Oil Company, for example, the Iran-United States
Claims Tribuna! found the appointment of << temporary " managers for an Iranian company
controlled by a United States corporation to be a taking of that corporation's shareholder interest
because << there [was] no reasonable prospect of return of contro! ... as of that date (6) "· The
Tribuna! noted, inter alia, that prior to the appointment of managers, Iran had announced an
intention to form a new government company to take over activities then performed by the
joint company SEDIRAN. It concluded that << the appointed managers were thus 'temporary'
(S) See, e. g., Certain German Interests in Polish Upper Silesia, Merits, J udgment N. 7, I9a6, P.C.I.]., Series
A, N. 7; Norwegian Shipowners' Claims (Norway v. United States of America), I Reports of International Arbitrai
Awards, p. 308 at p. 335; The United States of America on Behalf of Marguerite de]oly de Sabla v. The Republic
of Panama, reported at 28 American ]ournal of International Law, p. 602 (1934); R. HIGGINs, << The Taking of
Property by the State», 176 Recueil des cours, p. 259 at p. 324 (1982-III); L. SoHN and R. BAXTER, << Convention
on the International Responsibility of States for lnjuries to Aliens » ( « revised Harvard Draft Convention » ),
reprinted in F. V. GARcfA-AMADOR, L. SoHN and R. BAXTER, Recent Codification of the Law of State Responsibility
for Injuries to Aliens, p. 133 at p. 204 (1974); « OECD Draft Convention on the Protection of Foreign Property »,
7 International Legal Materials, p. II7 at pp. 125-126 (1968). See further, authorities cited at N. 4 and N. 5
infra.
(4) Starrett Housing Corp., et al. v. Islamic Republic of Iran, Awd. N. 32-24-1, 4 Iran-United States Claims
Tribuna! Reports (x983-III), p. 122 at p. I 54· See also, e.g., Thomas Earl Payne v. Islamic Republic of Iran, Awd.
N. 245-335-2, at p. xo (8 Aug. 1986) (« It is well settled in this Tribunal's practice, as elsewhere, that property
may be taken under international law through unterference by a State in the use of that property or with the
enjoyment of its benefìts »); Harza Engineering Company v. Islamic Republic of Iran, Awd. N. 19-98-2, 1 IranUnited
States Claims Tribuna! Reports, p. 499 at p. 504 (x981-1982) («[A] taking of property may occur under
internationallaw, even in the absence .of a formai nationalization or expropriation, if a government has interfered
unreasonably with the use of pròperty »); ITT Industries, Inc. v. Islamic Republic of Iran, Awd. N. 47-156-2
(Aldrich, concurring), 2 Iran-United States Claims Tribunal Reports, p. 348 at pp. 351-352 (1983-l); Tippets,
Abbet, McCarthy, Strattoil v. TAMS-AFFA Consulting Engineers of Iran, et al., Awd. N. 141-'7-2, 6Iran-United
States Claims Tribunal Reports, p. 219 at pp. 225-226 (1984-II); Foremost Tehran, Inc., et al. v. The Islamic
Republic of Iran, Awd. N. 220-37/231-x, p. 22 (II Apr. 1986); Phelps Dodge Corp., et al., v. Islamic Republic
of Iran, Awd. N. 217-99-2, p. 14 (19 Mar. 1986); International Technical Products Corp., et al. v.Islamic Republic
of Iran, et al., Awd. N. 196-302-2, p. 46 (xo Oct. 1985).
(5) Translation. R. DoLZER, << Nationale lnvestitions-versicherung und volkerrechtliches Enteignungsrecht:
Bemerkungen zum Revere Copper Fall », 42 Zeitschrift filr ausliindisches iiffentliches Richt and Viilkerrecht, p. 480
at p. 505 (1982). In Revere Copper and Brass, Inc. v. Overseas Private Investment Corporation (<• Revere&), the
Tribuhal found that Jamaica had engaged in« expropriatory action » because, in repudiating its long-term contractual
commitments to Revere, it had prevented the company from exercising effective contro! over its operation in J amaica.
Focussing on the decision-making process in the Jamaican subsidiary, it noted that «[f]reedom to make rational
management decisions is at the heart of effective contro!. Jamaica's actions were found to have undermined this
process notwithstanding the fact that Revere's subsidiary retained its formai rights and property. 56 International
Law Reports, p. 258 at pp. 29o-293, 295 (1980).
( 6) Awd. N. ITL 55-129-3, pp. 4o-41 (28 Oct. 1985).
4
46 RASSEGNA DELL'AVVOCATURA DELLO STATO
not in the sense that controi wouid be returned to SEDCO but oniy in the eventuaiity of
SEDIRAN becoming utterly defunct (1) "· Iran's clear intention not to return the company
to sharehoider controi from the time of appointment of managers was deemed evidence of a
taking as of that date.
Simiiarly, in Thomas Earl Payne, the Tribunai found that:
« The effect [of the appointment of' temporary' managers] is to strip the originai managers
of affected companies of all authority and to deny sharehoiders significant rights attached
to their ownership interest. While one of the purposes of the Law of 16 June 1979 is the
appointment of managers on a ' provisionai ' basis, the sum effect in this case was the
deprivation of any interest of the originai owners in the companies once they were made
subject to provisionai management by the Government (8) "·
By this estabiished standard, the requisition was a permanent taking. The Government of
Itaiy physically seized ELSI's property with the object and effect of ending Raytheon and
Machiett's management and controi, in order to prevent them from conducting the planned
liquidation. While the requisition order by its terms was affective for oniy six months, Italian
officials indicated at the time that it would be extended as necessary to prevent Raytheon and
Machlett from conducting the liquidation. They indicated that a new public enterprise would
be formed to manage ELSI on an interim basis, while IRI completed arrangements for acquiring
ELSI's assets. Thus, from the time the requisition was imposed, notwithstanding the pendency
of ELSI's pending appeal of the order (9), Raytheon and Machlett had no reasonabie prospect
of ever recovering management and control of ELSI, and had no alternative but to declare
bankruptcy (1°).
It also follows from the same principle and authority that, where interference with management
and control constitutes a taking, the scope of the taking is determined by the extent of
actual interference. The purported scope of the seizure, and the extent to which title to assets
is ultimately transferred to the government, are immaterial. In Certain German Interests in
Polish Upper Silesia, for exampie, the Permanent Court held that, by seizing a nitrate factory,
the Polish Government had also expropriated the patents and contract rights of the management
(7) Awd. N. ITL-55-129-3, pp. 42-43.
( 8) Awd. N. 245-335-2, p. II.
(9) A dose parallel may be found in the claim of Sabine G. Helbig, in which the Foreign Claims Settlement
Commission of the United States held that the taking had occurred when the property was seized by the Hungarian
Office of the Commissioner for Abandoned Property, notwithstanding the fact that a partially successful appeal
of that action was not decided unti! almost one year later. The Commission reasoned that << [t]he fact that the
authorities subsequently ordered that a portion of the property be returned to claimant, which order was never
executed, does not constitute a change in the date when the property was actually taken from claimant •>. In the
Matter of the Claim of Sabine G. Helbig, Claim N. Hung.-20590, Decision N. Hung.-941 (1958), Foreign Claims
Settlement Commission of the United States, Tenth Semiannual Report to the Congress, p. 51 at p. 52 (1959).
(H) I t is also well-established that governmental action to bring about a forced sale at less than fair market
value constitutes a taking, irrespective of whether the purchaser is an official entity. See, e.g., CHRISTIE, op. cit.,
at p. 327; E. LAUTERPACHT, << The Drafting of Treaties for the Protection of Investment •, in The Encouragement
and Protection of lnvestment in Developing Countries, p. 18 at p. 30 (International and Comparative Law Quarterly
Supplemental Publication N. 3) (1962); D. F. VAGTS, « Coercion and Foreign Investment Rearrangements •,
72 American]ournal of lnternational Law, p. 17 (1978); B. WssToN, << Constructive Takings' under lnternational
Law: A Modest Foray into the Problem of ' Creeping Expropriation' •, 16 Virginia J ournal of International Law,
p. 103 at pp. 133-148 (1975); B. WoRTLEY, Expropriation in Public lnternational Law, pp. 1-2, 127 (1959);
R. HIGGINS, op. cit., at p. 326; M. H. MULLER, « Compensation for Nationalization: A North-South Dialogue •>,
19 Columbia]ournal of Trausnational Law, p. 35 at p. 36 N. 6 (1981); Société du Chemin de Fer Ottoman de]affa
à ]erusalem et Prolongements v. United Kingdom, described in J. G. Wetter and S. M. Schwebel, «Some LittleKnown
Cases on Concessions •>, 40 British Yearbook of lnternational Law, p. 183 at p. 222 (1964); Case of Gowen
fS Copeland {United States of America V. Venezuela}, 4 J.B. MoORE, lnternational Arbitrations to Wlzich the
United States Has Been a Party, p. 3354 (1898) (« History of lnternational Arbitrations •>); Zwack v. Kraus Eros.
fS Co., 237 F. zd 255 {zd Cir. 1956) aff'g 133 F. Supp. 929 (Southern District of New York 1955); Firma Wichert
v. Wichert, Annua[ Digest and Reports of Public lnternational Law Cases, p. 23, (H. Lauterpacht, ed. 1948) (Switzerland
Federa! Tribuna!); << OECD Draft Convention on the Protection of Foreign Property >, op. cit., a t
pp. 125-126.
MEMORIA DEL GOVERNO U.S.A. 47
company (11). Similarly, in the Norwegian Shipowners' Claims case, the United States daimed
that it had requisitioned only partially completed ships, but was found to have expropriated
the contracts for completed ships, with which it interfered (12). More recently, in Starrett Housing
Corp. v. Islamic Republic of Iran, the Iran-United States Claims Tribunal found that in expropriating
the subsidiaries' physical assets, Iran incurred liability not only for the value of those
assets but also for the value of a construction project to be carried out by the subsidiary, the
profit which the daimant would have received in management fees and the loans daimant made
to the subsidiary for the purposes of the project (13). Similarly, in Revere the measure of loss
was Revere's total net investment in the Jamaican subsidiary, even though Revere formally
retained ownership, as Jamaica's interference with effective control of the enterprise necessarily
affected the entire operation (14
).
The requisition was thus a taking of all of ELSI's assets, even though the requisition order
did nòt expressly seize, nor did EL TEL ultimately acquire, all of these assets.
Accordingly, the United States submits that the requisition was a permanent taking of
Raytheon and Machlett's property interests in ELSI, within the meaning of Artide V(2) of
the Treaty.
SECTION 2. - Absence of Due Process.
The first protection set forth by Artide V(2) of the Treaty is the protection afforded by
« due process of law ». The meaning of « due process >> here is the due process required by
international law (15). The purpose of this international minimum standard is:
« to secure protection against arbitrary and unjust treatment in any particular in which
the Govemment of a country does not accord its own nationals as liberai treatment as that
which is recognized by intemational law (16) >>.
As discussed above, the process by which this taking was accomplished was not in accordance
with goveming standards of either domestic or intemational law. The requisition
without which this acquisition would not have been accomplished, was not only an « arbitrary
and discriminatory >> measure in contravention of the standards of treatment required by the
Treaty, but was actually contrary to Italian domestic law.
Moreover, Raytheon and Machlett were denied effective legai recourse against the requisition
order by the Prefect's exceptional delay of some sixteen months in ruling on their appeal.
As set forth in Chapter V, Section 1, injra, this unwarranted delay constituted a denial of
justice under international law.
The means by which the taking of ELSI's assets was accomplished thus did not meet
international minimum standards of due process, as required by Artide V(2) of the Treaty.
(11) Certain German lnterests in Polish Upper Silesia, op. cit., at p. 541. As the cases cited in N. Io relating
to « forced sales • demonstrate, it is immaterial whether the government itself ultimately acquires ali, or any, of the
expropriated assets.
(12) Norwegian Shipowners' Claims, op. cit., at p. 334·
(13) Starrett Housing Corp. v. lslamic Republic of Iran, op. cit., at pp. IS4-IS6.
(1 4) Revere, op, cit., at p. 296. See N. s, supra.
(15) See R. R. WILSON, << Property-Protection Provisions in United States Commercia! Treaties >, 45 American
J ournal of International Law, p. 83 at p. 99 (I95I); R. R. WILSON, The lnternational Law Standard in Treaties of
the United States, pp. IOI, 247 (1953).
(16) Memorandum of the So!icitor of the State Department discussing the meaning of a similar promise of
due process protection in a 1933 United States-Germany commercia! treaty, quoted in R. R. Wilson, « PropertyProtection
Provisions in United States Commercia! Treaties », op. cit., at p. 99, N. 84 (195I). See also, e.g., The
United States of America on behalf of Harry Roberts, Claimant v. The United Mexican States, Opinions of the Com·
missioners under the Convention concluded September 8, I9Z3 between the United States and Mexico, p. 100 at p. 105
(1927); The United States of America on behalf of George W. Hopkins v. United Mexican States, ibid., p. 42 at
p. 47; The United States of America on behalf of L. F. H. Neer and Pauline E. Neer, Claimants v. The United
Mexican States, ibid., p. 71 at p. 73; C. EAGLETON, Responsibility of States in International Law, pp. 83-84 (I928);
M. WHITEMAN, I Damages in International Law, pp. 22-23 (I937); E. BORCHARD, « The Minimum Standard of
Treatment of Aliens », 38 Michigan Law Review, p. 445 at p. 447 (1940); L. SoHN and R. BAXTER, Revised Harvard
Draft Convention, op. cit., at pp. 236-237. See also, authorities cited at Chapter V, n. 3·
48 RASSEGNA DELL'AVVOCATURA DELLO STATO
SECTION 3· - Absence of ]ust Compensation.
lt is a basic and well settled principle of international law that a State which takes the
property of an alien must afford « full n or « just n compensation for w ha t has been taken (17
).
This principle is affirmed in Artide V(2) of the FCN Treaty, which specifies that property
shall not be taken « without the prompt payment of just and effective compensation (18
) », Just
compensation ordinarily entails payment of the fair market value of the property taken, measured
at the time of the taking (19), excluding any diminution in value caused by the government action
against it, or the perceived risk thereof (20
).
In the Norwegian Shipowners' Claims, for example, « just compensation n was awarded
equivalent to the « real market value n of certain shipbuilding contracts (21
). More recently, the
Iran-United States Claims Tribunal has applied the «just compensation » clause of the 1955
Treaty of Amity between those two countries as requiring compensation equal to the fair market
value of property taken, defined as :
« the amount which a willing buyer would have paid a willing seller for the shares of a
going concern, disregarding any diminution of value due to the nationalization itself or
the anticipation thereof, and excluding consideration of events thereafter that might have
increased or decreased the value of the shares (22
) n.
At least where the taking is wrongful, moreover, as for instance when it violates a treaty
obligation, the compensation owed is not limited to the actual market value of the property
(17) See, e.g., Delagoa Bay Railway (United States of America and United Kingdom v. Portugal), summarized
in J. B. MooRE, op. cit., vol. 2, at p. I896; Factory at Chorzow, Merits, Judgment N. I3, I928, P.C.I.]., Series A
N. I7, pp. 677-678 (<• Chorzow Factory, Merits »); SEDCO, Inc. v. National Iranian Oil Co., Awd. N. ITL 59-
I29-3, p. II (27 Mar. I968); AGIP S.p.a. v. Government of the Popular Republic of the Congo, 67 International Law
Reports, p. 3I9 at p. 339; AMCO Asia Corporation v. Indonesia, 24 International Legai Materials, p. I022 at p. I037
(I985); I. BROWNLIE, Principles of Public International Law, p. 538 (I979); B. CLAGETT, << The Expropriation Issue
before the Iran-United States Claims Tribuna!: Is 'Just Compensation' Required by International Law or Not' •>,
I6 Law and Policy in International Business, p. 8I3 at p. 838 (I984).
(18) In United States practice, the terms « just >> and « prompt, adequate and effective » compensation are
used interchangeably. For example, in correspondence with the Mexican government setting forth the prompt,
adequate and effective standard, Secretary of State Cordell Hull used that phrase and the term « just compensation
» interchangeably. See G. H. HACKWORTH, 3 Digest of International Law, p. 654 (I942). United States courts
have also regarded the terms as synonymous. See, e.g., Banco Nacional de Cuba v. Chase Manhattan Bank, 505 F.
Supp. 412 (S.D.N.Y. I98o), aff'd as modijied, 658 F. 2d 875 (2d Cir. 1981). In the most recent public summary
of the internationallegal principles applicable to expropriation, the Department of State, through the Legai Adviser,
interpreted similar language in the 1955 Treaty of Amity with Iran in this fashion. See <<Memorandum of the
Department of State Lega! Adviser on the Application of the Treaty of Amity to Expropriations in Iran», 22 International
Legal Materials, p. I406-I407 (1983). See also, e.g., B. CLAGETT, op. cit., at pp. 84I-843.
(19) See, e.g., Chorzow Factory, Merits, op. cit., at p. 677; Norwegian Shipowners' Claims, op.cit. at p. 334;
Spanish-Moroccan Claims, 2 Reports of International Arbitrai Awards, p. 6I5; Lighthouse Arbitration, 23 International
Law Reports, p. 299 at p. 30I (1956); ITT Industries, I ne. v. The Islamic Republic of Iran, op. cit.; American
International Group, Inc. v. The Islamic Republic of Iran, Awd. N. 93-2-3, (I9 Dee. I983); 4 Iran-United States
Claims Tribuna! Reports, p. 96 at p. 102, (1983-III); Starrett Housing Corp. v. The Islamic Republic of Iran, op. cit.;
As discussed in Chapter VI, injra, full compensation also should include interest.
(20) See, e.g., American International Group v. The Islamic Republic of Iran, op. ci t., at pp. Io6-1o7; Artide
Io(2) of the Revised Harvard Draft Convention which describes just compensation for a taking of property « in
terms of the fair market value of the property ... unaffected by this or other takings or by conduct attributable to
the State and designed to depress the value of the property in anticipation of the taking •>; F. V. GARcfA-AMADOR,
L. SoHN and R. BAXTER, op.cit., p. I33 at p. 203 (1974); SEDCO, Inc. v. National Iranian Oil Co., Awd. N.
ITL 55-I29-3, p. 42 (28 Oct. 1985); ITT Industries, Inc. v. Islamic Republic of Iran, op. cit., at p. 355 (Aldrich,
concurring); American Law Institute, Second Restatement, sec. I88, comment b; CLAGETT, op. cit., at pp. 862-
863; R. LILLICH, « The Valuation of Nationalized Property by the Foreign Claims Settlement Commission >>, in
1 The Valuation of Nationalized Property in International Law, p. 95 at p. 97, N. 13 (R. Lillich ed. I972); MiiLLER,
op. cit., at p. 43; C. 0LMSTEAD, << Nationalization of Foreign Property Interests, Particularly Those Subject to
Agreement With the State>>, 32 New York University Law Review, p. 1122 at p. 1133 (1957); I. FoiGHEL, Nationalization
and Compensation, p. 250 (1964).
(21) Op. cit., at pp. 332, 339·
(22) INA Corporation v. The Government of the Islamic Republic of Iran, Awd. N. x84-161-I (13 Aug. I985),
at p. 3I. See also, American International Group, Inc. v. The Islamic Republic of Iran, op. cit., at p. Io2; Thomas
Earl Payne and The Government of the Islamic Republic of Iran, op. cit.
MEMORIA DEL GOVERNO U.S.A. 49
taken. Foliowing from the generai principle, elaborateci at greater length in Chapter VI, that
compensation for a wrongful act should correspond to restitutio in integrum, compensation for
a wrongful taking should redress ali of the injuries suffered as a result of the taking. In the
Chorzow Factory case, for example, the Permanent Court of lntemational Justice found Poland's
seizure of the factory to have been in violation of treaty obligations and therefore « wrongful »
as a matter of intemational law (23). The Court concluded that:
<< It foliows that the compensation due to the German Govemment is not necessarily
limited to the value of the undertaking at the moment of dispossession, plus interest to the
date of payment (24) »,
This principle is stili valid today. In TOPCO, for example, sole arbitrator Professor Dupuy
noted that: ·
« restitutio in integrum being in spite of everything the basic principle, it is this principle
which (in conformity with the rule laid down by the Permanent Court of lnternational
J ustice in the Chorzow Factory case ... ) will serve as the reference for calculating the amo un t
of a possible pecuniary indemnity ... (25) ».
Even in LIAMCO v. Libya, which is noteworthy among recent cases for the limited measure
of compensation applied (26), sole arbitrator Dr. Mahmassani unequivocably affirmed the
continuing validity of authorities following the Chorzow Factory principle in cases where a taking
is wrongful :
« The forementioned [authorities], whether in theoretical juristic opinion or in case law,
apply undoubtedly to cases of wrongful taking of property (27) ».
In the present case, therefore, the compensation provided for the taking of ELSI's assets
should have corresponded to restitutio in integrum, as discussed in further detail in Chapter VI,
injra. It is manifest that such full compensation was not provided. The Government of Italy
did not even pay fair market value for the property which it ultimately acquired, much less
for the whole of ELSI's assets which were taken.
For purposes of compensation for the taking of ELSI, ELSI should be valued as a going
concem as of I Aprii 1968. Notwithstanding the precarious financial situation which had led
the shareholders to decide to liquidate, ELSI remained an ongoing enterprise which had, in
addition to certain tangible assets, signifì.cant intangible assets which placed the fair market
value of the company appreciably above that of the physical assets standing alone. These
intangible assets included established customer and supplier relationships, developed and fully
functioning methods and processes, access to ali necessary patents, licenses, technical assistance,
and other technology, and an established name and reputation for quality products (28
).
(28) Chorzow Factory, Merits, op. cit., at p. 677.
(24) lbid.
(25) Texaco Overseas Petroleum Co./California Asiatic Oil Co. v. Government of the Libyan Arab Republic,
(Award on the Merits), 17 International Legai Materials, p. 1 at p. 35 (1977).
(26) Clagett, op. cit., at p. 858.
(27) Libyan American Oil Company (LIAMCO) v. Government of the Libyan Arab Republic, reprinted in 20
International Legai Materials, p. 1 at p. 70 (1981). See also, e.g., BROWNLIE, op.cit., at p. 539; D. P. O'CoNNELL,
2 lnternational Law, p. 1205 (1965); S. FRIEDMAN, Expropriation in International Law, p. 218 (1953); Chorzow
Factory, Merits, op.cit., at p. 47; M. H. MENDELSON, << Agora: What Price Expropriation? Compensation for Expropriation
>>; The Case Law, 79 American]ournal of lnternational Law, p. 414 at p. 416 (I985); G. WHITE, Nationalization
of Foreign Property, p. I54 (I96I). Authorities also recognize that breach of a stabilization clause in a
private contract gives rise to a<< special right of compensation >> for the party wronged. E. }IMÉNEZ DE ARÉcHAGA,
« International Law in the Past Third of a Century », I 59 Recueil des cours, p. I at p. 306 (I978-I); S. CHOWDHURY,
« Permanent Sovereignty over Natural Resources >>,in Permanent Sovereignty over Natura! Resources in International
Law, p. 2 at p. 39 (K. Hossain & S. Chowdhury eds. I98o-I984); F. V. GARcfA-AMADOR, The Changing Law of
International Claims, pp. 39I-395 (I984).
(28) Supra, pp. 6-7 and IO-II.
50 RASSEGNA DELL'AVVOCATURA DELLO STATO
Such intangible assets are of significant value to potential purchasers. As stated by Mr.
Scopelliti, former Chief Financial Officer and Controller of Raytheon's European management
subsidiary:
« In my experience, companies are often willing to pay a considerable sum simply for the
name, technology, and established customers of an electronics business, in addition to the
tangible assets. It is not unusual for buyers of going concerns in the electronics industry
to pay a price in excess of twice their book value (2 9) »,
Knowing this, Raytheon and Machlett had decided, in the liquidation, to preserve these
going concern aspects of ELSI's business, in order to sell it for its maximum value (30).
International tribunals have recognized that such intangible assets are valuable assets,
which must be considered in determining compensation owed for takeovers of companies. In
Chorzow Factory, for example, the Permanent Court of International Justice defined the
« undertaking », for purposes of valuation, as « including lands, buildings, equipment, stocks,
available processes, supply and delivery contracts, goodwill and future prospects (31) ». Similarly,
in American International Group, Inc. v. The Islamic Republic of Iran, the Iran - United States
Claims Tribuna! held that:
« the appropriate method is to value the company as a going concern, taking into account
not only the net book value of its assets but also such elements as goodwill and likely future
profitability, ... (32) ».
Under the particular circumstances of this case, and in view of the difficulty of independently
estimating at this time ELSI's fair market value as a going concern almost twenty years ago,
the United States submits that a fair measure of that value is given by the aggregate book value
of ELSI's assets as of 31 March 1968. This book value does not include ELSI's intangible
assets as a going concern, and the book values of other assets which are included are not, ipso
facto, fair market values (33). Taken as a whole, however, these omissions and adjustments counterbalance
each other, so that in this case book value is a fair measure of compensation (u). As
stated by Raytheon's former Vice-President and Controller, Mr. Arthur Schene:
« The aggregate book valuation of the assets represent a fair measure of their value on a
going coricern basis. Any downward adjustments in the valuation of specific assets would
have been more than offset by a reasonable amount of goodwill and the upward adjustment
of other assets. For example, had IRI moved in in 1968 and taken over the operation with
their ability to open up markets, at least full asset value should have been realized by
them (35) »,
In short, as of I Aprii 1968, Italy expropriated ELSI as a going concern. Raytheon and
Machlett planned to liquidate it as a going concern, and Italy planned to operate it as a going
concern. Italy's method of expropriation, however, served as a means to avoid paying full
campensation for ELSI's assets at going concern value.
(29) Annex I 7, para. 9·
(30) Supra, pp. Io-II; Annex IS, para. so.
(31) Chorzow Factory, Merits, op. cit., at p. 5I (Emphasis added).
( 32) American International Group, Inc. v. The Islamic Republic of Iran, Award N. 93-2-3, op. cit., at p. 2I.
( 33) In principle, <• book value >) does not reflect going concern or fair market value, because it does not take
into account the capacity of an asset to produce future income. Compensation at book value is therefore ordinarily
considerably less than full compensation. C. F. Amerasinghe, for example, describes book value as << the usual
minimum >) in state practice. C. F. AMERASINGHE, << The Quantum of Compensation for Nationalized Property •,
in 3 The Valuation of Nationalized Property in International Law, p. 9I at p. 126 (R. Lillich, ed. 1985). In this
particular case, however, in view of the considerations set forth above, book value is in fact a fair measure of going
concern value.
( 34) The only other contemporaneous estimate of the market value of ELSI's assets is the minimum liquidation
value, which had been prepared on a << quick sale >) basis, deliberately omitting intangible assets and understating
others. Supra, p. I 1. It should be considered a assured minimum value and does not represent a viable
alternative to book value as an approximation of going concern value.
(85) Annex 13, para. I5,
MEMORIA DEL GOVERNO U.S.A. 51
As of 30 March 1968, ELSI's book value was 17.05 billion lire (36). The Trustee ultimately
received, however, less than only 6.4 billion lire (US$ro,240,ooo) for ELSI's assets (37
). ltaly
itself paid only s'i.~htly more than 4 billion lire (US$6,4oo,ooo) for the assets which it ultimately
acquired - assets which had a book value of r2 billion lire (US$r9,20o,ooo) (38
). The value
of other assets, including substantial accounts receivable which were never collected, was lost
in the requisition and bankruptcy process. In addition, because the expropriation was accomplished
by wrongful actions in violation of the Treaty and Supplement, just compensation in
this case must include not only compensation for the value of property taken, but also for the
other damages resulting from the wrongful actions. As discussed in Chapter VI, infra, this
includes in particular substantial legai expenses incurred by Raytheon in connection with the
bankruptcy, in defending against ltalian court actions by ereditar banks, and in pursuing its
claim for redress. Thus, there can be no doubt that Raytheon and lVIachlett were denied payment
of fair market value for the property which was effectively taken on I Aprii 1968 by the requisition.
Accordingly, the United States submits that Italy has taken Raytheon and Machlett's interests
in ELSI, without due process or payment of just compensation, in violation of Artide
V(2) of the Treaty.
(36) Annex 13, para. 15. See also, Annex 30, Attach ment B, Schedule A.
(37) See Annex 13, Schedule CI.
(38) lbid. It is difficult to determine precisely from the available information how many of ELSI's tangible
assets were left in the plant by the time Italy completed its acquisition. However, it appears that Italy acquired,
in addition to the plant and equipment, nearly al! of the remaining inventory. As~ shown in Schedule CI,
« inventory & includes work in process and finished goods as well as materials and supplies.
CHAPTER V
FAILURE TO PROVIDE PROTECTION AND SECURITY
SECTION x. - Delay in Ruling on the Challenge to the Requisition Order.
When the Government of Italy requisitioned ELSI's plant and equipment on I Aprii
I968, ELSI promptly appealed to the Prefect of Palermo to set aside this order. The Prefect,
however, did not issue his ruling until 22 August I969. In the meantime, ELSI had gone bankrupt
and the Government of Italy had completed the purchase of ELSI's plant and equipment.
As discussed above, this delay in ruling was an arbitrary and discriminatory measure which
impaired Raytheon's and Machlett's investment rights and interests. Under the circumstances,
moreover this delay constituted a denial of justice - more specifically, a denial of procedura!
justice (l) - in violation of paragraphs (I) and (3) of Artide V of the Treaty (2).
Artide V(r) of the Treaty states in pertinent part:
" The nationals of each High Contracting Party shall receive, within the territories of the
other High Contracting Party, the most constant protection and security for their persons
and property, and shall enjoy in this respect the full protection and security required by international
law » (Emphasis added).
This explicit recognition and adoption of the international law minimum standard of the
treatment due to aliens (3) is enhanced by Artide V(3), which specifies that the protection and
security referred to in Artide V( I), assuming" compliance with applicable laws and regulations »,
shall be no less than that due under national or most-favored-nation standards of treatment.
Together, Artides V(I) and V(3) obligate the Government of Italy to afford to United States
nationals the international standard, the most-favored-nation standard, or the national standard
of protection of property - whichever is highest.
It is well established that, as a matter of generai internationallaw, unreasonable or unwarranted
delay in ruling o n a case violates the international standard of treatment. In the I 896 decisi o n
in the Fabiani case, for example, the President of the Swiss Confederation, acting as sole arbitrator,
found that:
" U pon examining the generai principles of international la w concerning the denial of
justice, that is to say the rules common to most legai systems or laid down by doctrine,
(l) The concept of <1 denial of procedura! justice » includes injury resulting from a denial of procedura! faimess,
and due process in relation to judicial proceedings. See, e.g., The American Law Institute Second Restatement
sec. r8r (1965). (See also Tent. Draft N. 7, sec. 7II, comment a).
(2) This denial of procedura! justice is also further evidence that Italy's actions were arbitrary in violation
of Artide I of the Treaty Supplement. See Chapter II, supra.
( 3) The existence of such an international standard of treatment was reaffirmed most recently by this Court
in its Order of 15 December 1979 in the Hostages Case, which refers to <l the treatment due to [nationals] under
generai rules of international law as aliens within the territory of the foreign state ». United States Diplomatic
and Consular Staff in Tehran, Provisional Measures, Order of 15 December 1979, I.C.3. Reports 1979, p. 7 at p. 14,
See also, e.g., Certain German Interests in Polish Upper Silesia, Merits, judgment N. 7, 1926, P.C.I.]., Series A,
No. 7, p. 510 at pp. 523-524; E. RooT, <l The Basis for Protection to Citizens Residing Abroad >>, 4 American
]ournal of International Law, p. 517 at p. 527 (1910); C. EAGLETON, Responsibility of States in International Law,
p. 83-84 (1928); M. WHITEMAN, I Damages in International Law, pp. 21-22 (1937); E. BoRCHARD, « The ' Minimum
Standard' of the Treatment of Aliens >>, 38 Michigan Law Review, pp. 445 et seq. (1940); A. H. RoTH, The Minimum
Standar.d of International Law Applied to Aliens, pp. 122-123 (1949); Revised Harvard Draft Conven'ion, reprinted
in F. V. GARCIA-AMADOR, L. SOHN and R. BAXTER, Recent Codijication of the Law of State Responsibility for Injuries
to Aliens, pp. 236-237 (1974).
MEMORIA DEL GOVERNO U.S.A. 53
one concludes that denial of justice indudes not only the refusal of a judicial authority
to exercise its functions, ... but also persistent delays on its part in rendering judgment (4) >>.
As · Freeman condudes from the numerous arbitrai awards in support of this point in his
definitive. work, The International Responsibility of States for Denial of J ustice :
<< <;\llpable delay on the part of the courts in disposing of cases involving foreigners is one
of the. most typical instances of denial of justice and as .such engages the State's international
responsibility. This point has long been settled.... In effect, ever since the era of private
reprisals it has been axiomatic that unreasonable delays are properly to be assimilated to
absolute denials of .access (Il) ».
Ultimately, the premise that a delay in ruling can amount to a denial of justice rests on their
equivalence in fact. As Freeman notes:
<< i t is obvious that the failure to conduct proceedings with reasonable diligence and despatch
may produce the same dire effects for the daimant as though he had been denied a judicial
remedy altogether (6) ».
The delay of the Prefect in ruling on ELSI's appeal of the requisition of its assets constitutes
a culpable denial ofjustice by this standard. Judged by its practical effect, it constituted a denial
of any judi:cial remedy. When the Prefect finally ruled in ELSI's favor on 22 August 1969,
seventeen months after the appeal was filed, the Government of Italy had completed its acquisition
of ELSI's plartt and equipment. Even though the ruling was ultimately in ELSI's favor, it
was too late to have any remedial effect. Not only had any possibility of a voluntary, orderly
liquidation been extinguished long before, but also there remained no chance that the ruling
might affect the acquisition of ELSI's assets through the bankruptcy (7).
The delay in ruling appears, moreover, to be of an exceptional nature not justified by any
legitimate consideration. Aprompt ruling on such an appeal was not only possible, but customary.
In all previous cases of which the United States is aware, in which the x865 requisition law had
been invoked, the Prefect of the relevant jurisdiction had promptly quashed the requisition (B).
ELSI's appeal did not present any special complications justifying this exceptional delay, nor
is · any reasonable explanation for it apparent. The only condusion which can be drawn under
the circumstances is that this delay was unwarranted and unreasonable, either as the result
of negligent or willful action.
In condusion, the United States submits that the delay in ruling on this appeal constituted
a failure to accord the << :tnost constant protection and security » and « the full protection and
security required by international law » as required by Artide V( x). Moreover, because the
delay was far in excess of the delay experienced in prior suits involving companies owned by
Italian nationals, it also constituted a failure to accord a national standard of protection, as
required by Artide V(3).
SECTION 2. - Failure to Afford Protection to ELSI's Plant and Premises.
As discussed above, once ELSI's plant and equipment had .bèen requisitioned, ELSI's
employees began an occupation of the premises that continued, so far as can be determined,
(4) Translation. Award of the President of the Swiss Confederation in the case of Fabiani, in J, B. MoORE,
5 History and Digest of the International Arbitrations to which the United States Has Been a Party, p. 4878 at
p. 4895 (1898).
( 6) A. V. FREEMAN, The International Responsibility of States for Denialof ]ustice, p. 242 (1938). See also,
e.g., The United States of America on behalf of B. E. Chattin, Claimant v. The United Mexican States, Opinions of
Commissioners, p. 422 at p. 432 (1927); C. DE VrsscHER, <<Le déni de justice en droit international », in 52 Recueil
des cours, p. 362 at p. 397 (1935); G. ScHWARZENBERGER, I International Law, p. 6zx (3rd ed., 1957); RoussEAU,
5 Droit international public, p. 69 (1983); and American Law lnstitute, Second Restatement, sec. x8x(h).
(6) FREEMAN, op. cit., at p. 244.
( 7) Supra, p. 21. As noted at p. 17, supra, the Prefect was personally involved in negotiations between IRI
and the Trustee.
(B) In most other cases, the requisition was quashed in a matter of days and in no case more than thirty days.
In this case, the Prefect ruled more than sixteen months after the appeal was filed. Annex 26, para. 10.
54 RASSEGNA DELL'AVVOCATURA DELLO STATO
up to the re-opening of the plant by EL TEL. This occupation, combined with the idleness
of the plant during the requisition, had at least two injurious consequences: i t resulted in a
deterioration of the plant and related materia! and equipment, and it impeded the Trustee's
e:fforts to dispose of the plant (9).
The occupation appears to have had the tacit approvai of local authorities, who made no
effort to prevent orto end it, or otherwise to protect the premises (10). Either the legai custodians
of the plant - fìrst the Mayor, under the requisition, and subsequently the bankruptcy authorities
- did not seek, or the police did not provide, the protection which previously had been
provided. This failure to a:fford protection constituted a violation of Artide V( I) of the Treaty.
As discussed above, Artide V(r) of the Treaty establishes Italy's obligation to provide
" the most constant protection and security » to the property of United States nationals, and in
particular « the full protection and security required by international law ». One well-established
aspect of the international standard of treatment is that States must use " due diligence » to
prevent wrongful injuries to the person or property of aliens within their territory. If a State
fails to use due diligence to prevent such injury, then it is responsible for this omission and is
liable for the ensuing darnages (11).
The obligation of a State to exercise " due diligence » does not require that it prevent any
injury whatsoever. Rather, the obligation is generally understood to require that a State take
reasonable actions within its power to avoid injury when it is, or should be, aware that a risk
of injury exists (12). The precise degree of care that is <( reasonable » or "due» depends in part
on the circumstances (13). Where, however, a State entirely fails to use the means at its disposal
to provide protection, there can be no doubt that adequate protection has not been provided.
Thus, for example, in the Hostages Case, this Court determined that Iran had breached its
obligation to protect foreign nationals, based on the fìnding that Iran was aware of the need
for action and had failed to use the means at its disposal to comply with its obligations (14).
Similarly in this case, Italy should be charged with knowledge of the need for action to
protect the plant and found to have failed to use the means at its disposal to provide appropriate
protection. The occupation began only after the Mayor - an Italian government official -
had assumed custody of the plant. Italian officials had been following ELSI's situation dosely
and were well aware of the threat of occupation before it occurred. Prior to the requisition,
the police protected the plant, keeping strikers o:ff the premises and allowing only persons with
legitimate purposes to enter. The requisition was issued in part to temper the expected outcry
from the workers over the actual dosing of the plant. Italian officials thus foresaw the situation
worsening, yet at the same time they actually decreased their physical protection of the plant e5).
Having deprived Raytheon of the right and ability to protect its own property, Italy had
a special duty to protect them against hostile actions (16). Moreover, having itself assumed custody
( 9) Supra, p. r 3; Ann,ex 79, p. 3; see also Annex 26, paras. r7-r8.
(lO) The failure of Italian authorities to afford protection after the requisition unti! at least the date ELSI
filed a petition in bankruptcy is addressed in the Affidavit of Mr. Merluzzo, Annex 21, paras. 20 and 23. Raytheon
and Machlett have little direct knowledge of events in Palermo after the bankruptcy. According to the later statements
of Avv. Biscanti and the Trustee, however, as reflected in Annexes 26 and 79, it appears that the occupation
continued uninterrupted unti! EL TEL acquired the plant.
(11) See, e.g., Case of the Alabama and her Tender, the Tuscaloosa, summarized in MooRE, vol. 5, op.cit., p. 4144
at p. 4160; E. BORCHARD, Diplomatic Protection of Citizens Abroad, p. 217 (I9IS); EAGLETON, op. cit., at p. 88;
RoussEAU, op. cit., at pp. 74-75; I Oppenheim's International Law, pp. 365-367, 8th ed. by H. Lauterpacht (I955);
R. LILLICH and J. PAXMAN, <<State Responsibility for Injuries to Aliens Occasioned by Terrorist Activities •>, 26
The American University Law Review (I977), p. 2I7, at pp. 225-231 and 240-245; GARCIA-AMADOR, op.cit., p. 27;
American Law Institute, Second Restatement, sec. I83; commentary to Artide I I of International Law Commission
Draft Articles, II Yearbook of International Law, I975, p. 70-82.
(1 2) See, e.g., authorities cited at N. II, supra.
(13) See, e.g., EAGLETON, op. cit., at p. 88, GARCÌA-AMADOR, op. cit., at p. 27.
(14) United States Diplomatic and Consular Staff in Tehran, ]udgment, I. C.]. Reports I98o, p. 3 at pp. 32-33.
The Court also referred to Iran's awareness of its obligations. Where a treaty obligation is at issue, however, a
State must normally be presumed to be aware of its obligations. See also, e.g., William E. Chapman (USA)
v. United Mexican States, 4 Reports of International Arbitrai Awards, p. 632 at p. 639; BoRCHARD, op.cit., at p. 2I3;
authorities cited at N. II, supra.
(15) Supra, p. I3; Annex 2I, paras. 20-21.
(16) Cf. Case of Enrique Rau, summariz<ld in M. WHITEMAN, op. cit., vol. r, p. 26 at p. 27.
MEMORIA DEL GOVERNO U.S.A. 55
of the plant, Italy was responsible for its maintenance and care. lnstead of enhancing plant
security un der the requisition, however, I talian officials allowed the occupation to be gin an d
continue without interference and made no apparent effort to protect the premises from the
injurious effects of occupation.
Thus, following the requisition, governmental authorities failed to meet even minimum
standards of protection for the property in question. Italy failed to use the meaos at its disposal
to continue to keep plant premises free of unauthorized persons, or so far as appears, to preserve
and maintain the plant and equipment in any way. Accordingly, the United States submits
that the Government of Italy has failed to provide the requisite protection to ELSI's premises
in violation of its obligations under Artide V(x) of the Treaty.
CHAPTER VI
THE COMPENSATION DUE TO THE UNITED STATES
SECTION 1. - The Duty to Pay Compensation.
It is a fundamentai principie of internationai Iaw that a State which has breached its internationai
obligations incurs a duty to make reparation to the injured State (1). This generai
principie applies, inter alia, to obiigations assumed by treaty. As the Permanent Court of lnternationai
Justice stated in the Chorzow Factory case, « [i]t is a principie of internationaiiaw that
the breach of an engagement invoives an obiigation to make reparation in an adequate form (2) ».
The Permanent Court regarded « reparation as the corollary of the vioiation of the obligations
resulting from an engagement between States (3) ». Even absent an express provision in the
internationai agreement providing for reparation in the event of breach, the offending State is
obiigated to make reparation. As the Permanent Court stated in Chorzow, « Reparation ... is
the indispensabie compiement of a faiiure to appiy a convention and there is no necessity for
this to be stated in the convention itseif (4) ».
This Court has reaffirmed the principie that a State is entitled to reparation for the vioiation
of its treaty rights on severai occasions. In the United States Diplomatic and Consular Staff
in Tehran case, for exampie, the Court heid that the United States was entitled to reparation
from Iran for the Iatter's breach of its treaty obiigations:
« [T]he Court fìnds that Iran, by committing successive and continuing breaches of the
obligations Iaid upon it by the Vienna Conventions of 1961 and 1963 on Dipiomatic and
Consuiar Reiations, the Treaty of Amity, Economie Reiations, and Consuiar Rights of
1955, and the applicabie ruies of generai internationai Iaw, has incurred responsibility
(l) As defined by Jiménez de Aréchaga, « reparation is the generic term which describes the various methods
available to a State for discharging or releasing itself from ... responsibility. The forms of reparation may consist
in restitution, indemnity or satisfaction ». E. }IMÉNEZ DE ARÉCHAGA, << International Law in the Past Third of a
Century », I 59, Recueil des cours, p. I at p. z8s (I978). In the Corfu Channel case, this Court stated that it follows
from the establishment of the responsibility of a State for the breach of an international obligation << that compensation
is due>>. Corfu Channel, Merits,]udgment, I.C.j. Reports 1949, p. 4, at pp. 23-24. See also, e.g., Reparation
for Injuries Suffered in the Service ofthe United Nations, Advisory Opinion, I.C.j. Reports 1949, p. I74, at p. 184;
United States Diplomatic and Consular Staff in Tehran, judgment, I.C.J. Reports 1980, p. 3 at pp. 41-42; Artide I
and commentary thereto of Part I of the International Law Commission's Draft Artides on State Responsibility,
II Yearbook oj the International Law Commission, 1973, pp. 173-176, and Artide 6(2) of Part 2 of the draft articles,
as proposed by the Special Rapporteur, II Yearbook of the International Law Commission, 1984 (Part Two), p. IOo,
N. 322; American Law Institute, Second Restatement secs. I64, 165, 168 (1965); Garcia-Amador's Draft Articles
on State Responsibility, in F. V. GARcfA-AMADOR, L. SoHN and R. BAXTER, Recent Codijication of the Law of State
Responsibility for Injuries to Aliens, p. 86 (1974); Revised Harvard Draft Convention, ibid., at p. I43·
(2) Factory at Chorzow, furisdiction, Judgment N. 8, 1927, P.C.I.]., Series A, N. 9, p. 21 (<< Chorzow Factory,
Jurisdiction >>). See also, e.g., Interpretation of Peace Treaties With Bulgaria, Hungary andRomania, Second Phase,
Advisory Opinion, I.C.j. Reports 1950, p. 221 at p. 228; Phosphates in Morocco, judgment, 1938, P.C.I.]., Series
A/B, N. 74, p. Io, at p. 28; Artide I of Chapter I of the International Law Commission's Draft Artides on State
Responsibility, II Yearbook oj the International Law Commission, I973, pp. I73-I76; Artide 17, II Yearbook of
the International Law Commission, 1980 (Part Two), p. 32; Artide 5(2) (a) of Part 2 Report of the International
Law Commission, 1985, pp. 53-54, and proposed Artide 6(2), II Yearbook oj the International Law Commission,
1984 (Part Two), p. xoo, N. 322.
(3) Chorzow Factory, Merits, P.C.I.]., Series A., N. I7, p. 27.
(4) Chorzow Factory, Jurisdiction, op. cit., at p. 21.
(5) United States Diplomatic and Consular Staff in Tehran, op. cit., pp. 41-42.
MEMORIA DEL GOVERNO U.S.A. 57
towards the United States. As to the consequences of this finding, it clearly entails an
obligation on the part of the Iranian State to make reparation for the injury thereby caused
to the United States (5
) "·
This principle has been repeatedly recognized by decisions of other international fora (Il),
by international commentators (7), and in efforts to codify international law (B).
SECTION 2. - The Measure of Compensation.
A) Compensation may be measured by the injury to Raytheon and Machlett.
While the State on the international piane always represents its own interests, the compensation
tò which it is entitled for breach of a treaty obligation can be measured not only by
injuries suffered directly by the State, but also by ìnjuries to its nationals as a result of the
wrongful action. This principle was confirmed also by the Permanent Court in the Chorzow
Factory case. In determining the measure of damages due the German Government for Poland's
expropriation of German nationals' property in violation of its treaty obligations, the Court
stated:
<< It is a principle ofinternationallaw that the reparation of a wrong [to a State] may consist
in an indemnity corresponding to the damage which the nationals of the injured State
have suffered as a result of the act which is contrary to internationallaw .... The reparation
due. by a State to another does not however change its character by reason of the fact that
it takes the form of an indemnity for the calculation of which the damage suffered by a
private person is taken as the measure.... Rights or interests of an individuai, the violation
of which rights causes damage, are always in a different plane to rights belonging to a State,
which rights may also be infringed by the same act. The damage suffered by an individuai
is néver therefore identica! in kind with that which will be suffered by a State; it can only
afford a convenient scale for the calculatìon of the reparation due to the State (9
) "·
International arbitrators and commentators have similarly recognized that damage to the
national as a result of a State's treaty violations may serve as a measure of the compensation
owed to the injured State. In the Forests of Rhodope case, for example, the arbitrator held that
Bulgaria's expropriation of Greek nationals' property in Rhodopia violated the Treaty of
Neuilly (1°). In determining the proper measure of compensation due Greece, the arbitrator
held that << [t]he damage suffered by the Greek nationals furnishes an equitable measure of the
reparation due to the Greek government (11). As noted by Schwarzenberger, while «[t]he damage
su:ffered by the State is not necessarily limited to that of the individuai ... this may o:ffer a convenient
measure of the minimum of damage for which reparation is due (12
) "·
In these cases, as in the present case, the treaty provisions in question had only an indirect
bearing on the direct financial rights of the respective governments, and were aimed rather
at the protection of the parties' respective nationals. The United States accordingly submits
(6) See, e.g., Affaire des ForOts du Rhodope Centrai (Fond}, 3 Reports of lnternational Arbitrai Awards, p. 1405
at p. 1436; Award Concerning the Claim of George]. Salem, z Report$ of lnternational Arbitrai Awards, p. 1165
at p. 1194·
(7) See, e.g., x Oppenheim's lnternational Law, sec. I56 (8th ed., by H. Lauterpacht I955); A. V. FREEMAN,
The lnternational Responsibility of States for Denial of] ustice, p. 57Z (1938); A. D. McNAIR, z Law of Treaties,
pp. 539-540, 574 (I96I),
(B) See, e.g., authorities cited at N. I, supra.
( 9} Chorzow Factory, Merits, op. cit., at pp. z7-z8.
(10) I933-I934 lnternational Law Reports, pp. 9I et seq.
(11) Jbid., p. lO I;
(12) G. ScHWARZENBERGER, I lnternational Law, p. I4I (3d. ed. 1957). Freeman agrees that « the degree of
public injury - or rather the reparation sought for the violation of a public right - is determined by the extent
of the private loss ~. FREEMAN, op. cit., at p. 576.
58 RASSEGNA DELL'AVVOCATURA DELLO STATO
that the Iosses suffered by Raytheon and Machiett as a result of Itaiy's vioiation of the Treaty
are the most appropriate and oniy convenient measure of damages to the United States for
vioiation of its rights under the Treaty in this case (13).
B) All of the injuries suffered by Raytheon -and Machlett should be included in the measure of compensation.
-
1. - The Genera l Principle
The proper measure of compensation is that which redresses ali of the injuries occasioned
by the commission of the internationai wrong. The Permanent Court enunciateci this basic
principie in the Chorzow Factory case:
" The essentiai principie contained in the actuai notion of an illegai act - a principie which
seems to be estabiished by internationai practice and in particuiar by decisions of arbitrai
tribunais - is that reparation must, as far as possibie, wipe out all the consequences of the
illegai act and reestabiish the situation which wouid, in all probabiiity, have existed if that
act had not been committed (14) n.
A State may discharge its duty to make reparation by impiementing measures designed to
reestablish the situation prior to the wrongfui act or omission, i.e. restitutio in integrum <16>.
Where, however, it is not possibie to restore the state of facts that wouid have existed if the
uniawfui act had not been committed, or such restoration does not fully redress the injury
caused by the State's uniawfui act, damages are awarded in lieu of restitution or as a suppiement
thereto (16). As stated by the Permanent Court:
" Restitution in kind, or, if this is not possibie, payment of a sum corresponding to the
vaiue which restitution in kind wouid bear; the award, if need be, of damages for Ioss
sustained which wouid not be covered by restitution in kind or payment in piace of it -
such are the principies which shouid serve to determine the amount of compensation due
for an act contrary to internationai Iaw (17) "·
This principie has been affirmed and applied repeatediy by pubiic internationai tribunais (18)
and private internationai arbitrai bodies (19). The award in the Fabiani case, for exampie, was
(13) As used here throughout, << the damages suffered by Raytheon ~. refers not only to Raytheon's direct
financialloss, but also to some US$ 55I,300 in losses suffered by its wholly-owned subsidiary, Raytheon Service
Company, as detailed in Annexes I3 and I4.
(14) Chorzow Factory, Merits, op. cit., at p. .
( 16) Texaco Overseas Petroleum Co.JCalifornia Asiatic Oil Co. v. Government of the Libyan Arab Republic
(Award on the Merits) (<< TOPCO v. Libya ~), I7 International Legai Materials, p. I at p. 36 (I977).
(16) TOPCO v. Libya, op. cit. at p. 36. See also, e.g., F. V. GARcfA-AMADOR, 2 The Changing Law of lntet·national
Claims, p. s8o (I984); Claim of Thomas W. Mather, Surviving Partner of Mather & Glover, summarized
in M. WHITEMAN, 3 Damages in International Law, p. 202I (I943).
(17) Chorzow Factory, Merits, op. cit., at p. 47· The application of this principle in cases of expropriation is
discussed at p. 46, supra.
(18) See, e.g., Norwegian Shipowners' Claims, I Reports of International Arbitrai Awards, p. 308, at p. 338;
Martini Case, IO Reports of International Arbitrai Awards, p. 644, at pp. 665-669; Opinion in the << Lusitania ''
Cases, 7 Reports of lnternational Arbi'tral Awards, p. 32, at p. 39; Cheek Case, J. B. MooRE, 5 History of International
Arbitràtions, p. so68, at p. 5071 (1898); Claim of Frances !rene Roberts, Administratrix of the Estate and Sole Heir
at Law of William Quirk, Deceased, summarized in WHITEMAN, op. cit., at p. 1821; Claim of Robert H. May v.
Guatemala, Foreign Relations of the United States, p. 648, at p. 674 (I90o); Claim of Peter Harmony, by his Attorney,
Leonard S. Suarez, and Assignees, summarized in Whiteman, op.cit., at p. 2021; Case of Patrick Cootey, summarized
i11 Moore, op.cit., vol. 3, at p. 2770; W alter Fletcher Smith Claim, 2 Reports of International Arbitrai Awards, p. 915.
(19) For recent international arbitrations involving States and private parties, see, e.g., AGIP Company v.
Popular Republic of the Congo (<< AGIP ~}, 67 International Law Reports, p. 3I9, at p. 339; American lndependent
Oil Co. (AMINOIL) v. The Government of the State of Kuwait (« AMINOIL v. Kuwait >>), 2I lnternational Legai
Materials, p. 976, at p. 1031 (I982); TOPCO v. Libya, op.cit.; BP Exploration Co. (Libya Ltd.) v. Government
of the Libyan Arab Republic, 53 International Law Reports, p. 297, at p. 347 (1974); Libyan American Oil Co. v.
Government of the Libyan Arab Republic, 20 International Legai Materials, p. I, at p. 7I (I977); AMCO Asia CGTp.
v. The Republic of Indonesia, 24 International Legai Materials, p. 1022, at p. 1037 (I985).
MEMORIA DEL GOVERNO U.S;A. 59
premised on facts similar in this respect to tbe ones in this case (20
). In Fabiani, Venezuelan
authorities refused to execute the terms of a private arbitrai award against certain Venezuelan
nationals in favor of the claimant. Fabiani was forced to declare bankruptcy because he did
not have the benefit of money that would have been transferred to him had the goverliment
enforced ~arlier • the award. Tbe award in the Fabiani case included the value of ali. property
an,d uncollecte!l note$ that F'abiani :would bave. realized had.the foreign judgments been executed
against hi$ debtor, the experises be incurred seeking to execute the arbitrai award, and the
person,alJnjury causeg by the denial of ju$tice whicb brought. about his hankruptcy. The
bankl'uPtCiy, the ce~sationof Fabiani's commerciai operations, and his financial embarra$sment
ali vv~re cqn,sìdereg>tlJ.e << direct consequence of the denials. of justice, since Fabiani was thrown
into b!tnkrùptcy a t Maracaibo .. : for the failure of sums rriuch lower than those which the execution
of the arbhraLdecision would bave granted him (21
) "·
A.uthoritative comlllentators, as well, bave consistently recogriized that an award of damages
should compenljlate for all }O$$eS or injury caused by a State' s wrongful acts. As Garcia-Amador
explains: · ·
« While restitution merely restores the property or right of which the alien in question has
been deprived, an indemnity· is intended to compensate him for all the other consequences
ofthe act or omission contrary to international Iaw .... Por ali these reason [sic], 'damages'
are, in fact, the only form of reparation which makes it possible in ali situations to abide
by the principle ... that ' full ' reparation must be made for an injury caused by an act or
omission contrary to international law (22) ».
All damages are compensable, provided only that they are proximately caused by the
injurious acts. According to Reuter, « The injury for which reparation is due is that which is
tied by a chain of causality to the wrongful act (23
) "· As Yntema explains:
«(A) Whenever an internatìonalliability arises, there is a duty to make complete compensation
and therefore for ali the prejudicial consequences of the occurrence giving rise to
the liability, whether the damage thus ensuing is direct or indirect .. (B) The only Iimitations
upon this duty spring from evidential or equitable considerations: (1) The damage must
be shown to be a. consequence of the occurrence. (2) I t must be reasonably capable of
estimation. (3) The compensation must be reasonably adjusted to the particular circumstances
of the individuai case (24) n.
In the present case, full reparation cannot be achieved through restitutio in integrum. The
positions of the parties bave changed so dramatically that restoration of the state of facts that
existed prior to the Government of ltaly's wrongful intervention is simply not possible.
Accordingly, the Government of Italy should pay compensation in the full amount of the losses
sustained by Raytheon and Machlett as a result of its wrongful conduct, as detailed below.
(2°) Case of Antoine Fabiani, summarized in WHITEMAN, op. cit., at pp. 1785-1789.
(21) Ibid. at pp. 1787-1788. In discussing the Fabiani case, Freeman noted that « the generai result of the case
appears, in the large, to be not inconsistent with the view expressed by the World Cottrt [in the Chorzow Factory
case] to the effect that the State's duty of reparation is one of a restitutio naturalis, that is to say, the re-establishment
of the situation which in al! likelihood would have existed if the delict had not been ccitninitted >>.
FREEMAN, op. cit., at pp. 580:...581.
( 22) GARcfA-AMADOR, op. cit., at p. 584. See also, D. P. O'CONNELL, 2 International Law, p. 1204 .(1965);
ScHWARZENBERGER, op.cit., at pp. 654 and 6ss; EAGLETON, op.cit., at p. 182; ÙLIVER, «Lega! Remedies and Sanctions
»,in International Law of State Responsibility for Injuries to Aliens, p. 61 at p. 710 (R. Lillich, ed. and contrib.
1983); FREEMAN, op. cit., at p. 576; proposed draft Art. 6 of the International Law Commission's Draft Articles on
State Responsibility, Il Yearbook of the International Law Commission, I984 (Part Two), p. roo, N. 322.
(23) Translation. P. REUTER, Droit internationt;~l public, p. z66 (1958). As Professar Reuter notes, the use
of the terms « direct » and <t indirect >> is a <t vague » and <t insufficient >> means of attempting to distinguish between
consequences which are and are not so directly re!ated to the wrongful act as to be compensable. Ibid.
(24) H. E. YNTEMA, « The Treaties With Germany and Compensation for War Damage >>, 24·Columbia Lazv
Review, p. 153 (1924). See also, e.g., }IMÉNEZ DE ARÉCHAc;A, « International Responsibility >>, in Manual of Public
International Law, p. 531 at pp. 56g,...569 (M. Sorenson,. ed. 1968); C. EAGLRTON, « Measure of .Damages in International
Law », 39 Yale Law }ourrral p. 52 at p. 75 (1929) ..
60 RASSEGNA DELL'AVVOCATURA DELLO STATO
2. - The Specific Types of Injury
(a) Financial Losses with Respect to Loan Guarantee Payments, Return of Investment, and Open
Accòunts.
As shown above, a principal objective of the requisition was to prevent Raytheon and
Machlett from disposing of ELSI's assets through the planned liquidation. The Government
of ltaly wanted to acquire the assets itself and was not prepared to pay for them as of 1 April
1968. The requisition met the immediate political need of responding to the local outcry
against the plant's closing, while giving the Government of Italy the opportunity to plan its
acquisition strategy. Given ELSI's financial condition, the direct and foreseeable consequence
of the requisition order was ELSI's bankruptcy. Even the President of the Sicilian Region
acknowledged that ELSI was then left with no alternative but to file for bankruptcy.
Having caused ELSI to declare bankruptcy when it would otherwise have proceeded to
liquidate its assets and seek settlements with its creditors, the Italian Government is responsible
for losses incurred by ELSI's owners as a result of the involuntary change in the manner of
disposing of ELSI's assets.
The bankruptcy realized much less from the sale of ELSI's assets than would have been
received from an orderly liquidation. As shown in the following table, the proceeds from an
TABLE
LIQUIDATION VS. BANKRUPTCY PROCEEDS (l)
PROCEEDES FOR DISTRIBUTION ....
Payment of Creditors:
Preferred ................... .
Secured ................... .
Unsecured - Raytheon
Unsecured - Other ......... .
ToTAL ..................... .
Administration and Liquidation
Costs ..................... .
TOTAL PAYMENTS ........... .
NET PROCEEDS ............... .
(Lire in Millions)
Liquidation
at Book
Value
17,053·5
1,036.8
3,819·5
1,143·8
10,292·4
16,292·5
370.0
16,662.5
391.0
NET PROCEEDS (Cost) to Raytheon and Machlett:
Net Proceeds ............... .
Guaranteed Loans/Interest ... .
Open Accounts ............. .
ToTAL (million lire) ......... .
TOTAL (U.S. dollars)
391.0
-o-
-o-
391.0
$625,6oo (2
)
Liquidation at
Estimated Min.
Value
10,838.8
1,036.8
3,819·5
510.8
5,10!.7
370.0
10,838.8
-o-
-o(
3,16o.6)
( 633.0)
(3,793.6)
($6,o82,6oo) (3)
Actual
Bankruptcy
Proceeds
6,373·8
1,964·7
3,702.1
-o-
33·4
5,700.2
673.6
6,373·8
-o-
-o-
(5,787.6)
(1,143.8)
(6,93!.4)
($II,II3,6oo) (4)
(l) Data taken from Annex 13, Schedules E, F, and Ix and Annex 30, Attachment B, except conversion
from lire to dollars, as noted belo w.
(2) Conversion given at Annex. 13, Schedule G4.
(3) Conversion given at Annex·x3,.Schedule 12 (guaranteed loans and interest) and Schedule J (open accounts.)
(4) Conversion given at Annex 13, Schedule xx (guaranteed loans and interest) and Schedule J (open accounts.)
MEMORIA DEL GOVERNO U.S.A. 61
orderly liquidation of ELSI's assets at book value (as a fair measure of their going concern value)
would have been sufficieht to pay off all of ELSI's creditors, including amounts owed to Raytheon
on open accounts, and still return 391 million lire (US$625,6oo) to Raytheon and Machlett as
a small return of theìr investinent. Even had the liquìdation realized no more than the estimateci
minimum liquidati<> n · value, Ra:ytheoh would have received some payment o n open accounts
and a significant portion of ELSI's guaranteed loans would have been paid from the proceeds
ofELSI's assets. lnstea:d, under the bankruptcy, Raytheon lost the full value of the open accounts
and, more importantly, was required to pay ali of the guaranteed loans, thus incurring some
6,93!.4 millior:i lire (US$II,Iij,6oo) in additional losses. The resulting damage to Raytheon
andi Machlett, therefore, as compared with liquidation at going concern value, is 7,322.4 million
lire (US$xi,739,200).
Raytheon and Machlett incurred these losses as a result of the Government of Italy's
wrongful intervention. The losses resulted directly from the Government of Italy's actions
in violation of the Treaty, and therefore should be included in calculating the compensation
due the United States for such violations (2 5).
It should be noted that the Treaty explicitly recognizes as a protected « investment » not
only di:rect contributions to capitai but also related fìnancial contributions such as guarantees
àrtd adva:nces of funds. As Artide I of the Supplement specifies, corporations of either party:
« shall not be subjected .to arbitrary or discriminatory measures ... resulting particularly
in ... impairing their other legally acquired rights and interests in such enterprises or in
the investm!mts which they have made, whether in the form of funds (loans, shares or
otherwise), niaterials., equipment, services, processes, patents, techniques, or otherwise >>.
Thus, the guarantees and the open accounts, as well as the direct return of capitai which
Raytheon and Machlett lost, are protected interests - being an « investment » which was made
« iii the form of loans, funds, or otherwise , - and must be considered in awarding compensation
for violation of the Treaty (26).
(b) Legal Expenses in Connection with Bankruptcy and Dejense Against Italian Bank Suits
A further direct consequence of the Government of Italy's actions in violation of the Treaty
was that Raytheon incurred substantial. outside legal expenses in connection with the bankruptcy
and in defending against suits brought in Italian courts by certain government-owned
and government-controlled ereditar banks. As discussed above, in the aftermath of the requisition
and bankruptcy of ELSI, five Italian government banks brought suit against Raytheon
(25) In accordance with the basic principle that compensation should seek to restore the situation wbicb would
bave existed without tbe wrongful act, compensation should be awarded in United States dollars. See, e.g.,
Morrison-Knudsen Pacific, Ltd. v. Ministry of Roads and Transportation, 143-127-3 (24 July 1984) at p. 35; Craig
v. Ministry of Energy of Iran, Awd. N. 71-346-3 (2 Sep. 1983) at pp. 17-18. Raytbeon and Macblett are United
States companies, wbose principal business currency is dollars. Raytheon's loan guarantee payments were met
by purcbasing lire with dollars, as were its legai expenses in defending tbe creditor claims and other costs. The
losses were thus incurred in dollars. Moreover, in view of the changing currency values since tbe time of loss, only
if compensation is calculated in dollars can it accurately reflect the actuallosses witbout distortion caused by subsequent
monetary fluctuations.
By the same token, compensation for tbe portion of open accounts owed to Raytheon whicb it was precluded
from recovering sbould be measured in dollars, converted at the official rate of exchange in effect at tbe time. Had
any of th.ese payments been. received, they would bave been promptly converted to dollars and repatriated. The
loss was suffered and should now be measured in dollars.
(26) Similar losses bave been recognized in arbitrai awards in tbe absence of a treaty. For example, in the
Cerruti case, whicb arose wben Colombia seized the assets of an Italian national and those of a company in wbich
he was a partner, tbe arbitrator required Colombia to assume the outstanding debts of the partnership for which
Cerruti could be held personally liable. Case of Cerruti, summarized in MooRE, op. cit., vol. 2, at pp. 2117 et seq.
The arbitrator in effect acted to prevent the passing-on to the investor of company debts, such as the guarantees
ip. the present case.
In the Shufeldt case, which concerned the breach of a concession agreement with Guatemala, Guatemala
was found liable for, inter alia, reimbursement to the concessionaire of amounts advanced to his laborers which
were uncollected at the time of breach. Shufeldt Claim, 2 Reports of International Arbitrai Awards, pp. 1083 et seq.
62 RASSEGNA DELL'AVVOCATURA DELLO STATO
for payment of certain of ELSI's debts which Raytheon had not guaranteed. Italian courts
subsequently dismissed ali of the lawsuits as groundless, but only after severa! years of litigation.
These lawsuits would not have been filed had ELSI been able to liquidate in an orderlymanner,
since the banks would have been paid in full or, at worst, would have settled their debts with
ELSI. The evidence indicates, moreover, that these suits were not only a foreseeable consequence
of the Government's actions, but part of its plan to shift the costs of its actions to
Raytheon. The President of the Sicilian Region had advised Raytheon even before the requisition
that such suits would be brought (27).
As detailed in Annex 40 and Annex 13, Schedule K, Raytheon incurred US$us,638·35
of outside legal expenses in connection with the bankruptcy and US$766,936.77 in defending
against these lawsuits. As part of the foreseeable consequential damages stemming from ltaly's
wrongful intervention in ELSI, these amounts should be included in the compensation to be
awarded (28).
(c) Costs Incurred by Raytheon In Pursuing Its Claim.
As also detailed in Annex 40 and Annex 13, Schedule K, Raytheon incurred outside legal
and related expenses of some US$57,226.38 in pursuing its claim against the Government of
Italy for its actions against ELSI. Therefore, compensation in this case should include this
amount, for such costs are a loss which would not have occurred but for Italy's wrongful conduct.
lnternational arbitrai tribunals frequently have allowed recovery for the costs incurred
in seeking international reparation. In the Salvador Commerciai Company case, for example,
the award included amounts which the claimant had expended both prior to the intervention
of the United States on his behalf and after United States' espousal of the claim (29). Similarly,
in the Shufeldt case, the arbitrator awarded the claimant the expenses it had incurred in trying
to come to a settlement with the Guatemalan Government (3°). In the Poggioli case, the award
included compensation for the claimant's travel expenses in submitting the claim to the legation
and the Venezuelan Government (3 1).
Thus the full amount of damages suffered by Raytheon and Machlett is US$625,6oo for
loss of investment, US$II,739,200 for losses resulting from open accounts and payment of
guaranteed loans, and US$939,800 for legal expenses incurred by Raytheon in relation to bankruptcy
proceedings, in defending against related litigation, and in pursuing its claims, for a
total of US$I2,679,ooo, plus interest, computed as described below.
SECTION 3·- The Award of Interest.
A) Interest should be awarded to compensate for the loss of USE of money over time.
The principle that compensation should redress the injuries caused by the respondent's
wrongful actions entails, as a corollary, that interest be awarded to compensate for the loss of
use of money over time.
(27) Supra, pp. IJ-·I4.
(28) In the Case of Cerruti, op. cit., in order to preserve the full amount of compensation for the property
taken, the Government of Colombia was required to pay litigation costs incurred by Cerruti in defending against
private creditors seeking to recover from him personally debts of the company whose assets had been seized.
The arbitrator noted that Colombia had <<by its acts destroyed [Cerruti's] means for liquidating [company] debts ...
for which he may be held personally liable >>. Ibid., at p. 2121. Similarly in this case, to ensure full recovery
by Raytheon of amounts owed for the unlawful taking of its property, it too should be reimbursed for litigation
costs which resulted from the taking. The creditors that brought suit, moreover, were Italian government banks,
acting pursuant to a government pianto increase Raytheon's losses from its ELSI operation to the maximum extent
possible. These losses were much more directly the consequence of wrongful government action than those which
Colombia was required to assume in Cerruti.
(29) Claim of << Salvador Commerciai Company » et al., rs Reports of International Arbitrai Awards, p. 467
at p. 469.
(30) 2 Reports of International Arbitrai Awards, p. uor.
(31) ro Reports of International Arbitrai Awards, p. 669 at p. 69r.
MEMORIA DEL GOVERNO U.S.A. 63
International law commentators agree that just compensation to an injured party requires
the payment of interest on its loss, as «a necessary part of a just national indemnification (32) "·
Lillich states « [i]nterest as part of an award by an international tribuna! ... is recognized by
customary international law ... as an element of damages inherent in just compensation (33) "·
Similarly, Eagleton notes that « [t]he award of interest is usually considered to be merely a part
of the duty to make full reparation (34
) "·
lnternational tribunals and commissions have long viewed interest as a vita! element of
compensation. In The Russian Indemnity Case, for example, the Permanent Court of Arbitration
state d that:
« all interest-damages are always reparation, compensation for culpability .... Legai interest
allowed a creditor for a sum of money .. . is the le gal compensation for the delinquency
of a tardy debtor exactly as interest-damages or interest allowed in the case of ... the nonfulfillment
of an obligation, are compensation ... (35) >>.
The Permanent Court of International Justice awarded interest in 1923 in the Wimbledon
case (36) and further expressed agreement with the proposition that compensation for a taking
must include interest in the Chorzow Factory case (3'). Similarly, in the Illinois Centrai Railroad
Company, the Mexican-United States Claims Commission held that interest « must be regarded
as a proper element of compensation (38) >>,
More contemporary cases consistently reaffirm this principle. In 1962, for example, the
Foreign Claims Settlement Commission of the United States, citing the opinions of mixed
clairns commissions and views of authoritative commentators, concluded that an award of interest
« is not only in conformity with principles of international law ... but is also required by equity
and justice ... (39) "· The Iran-United States Claims Tribuna! also has ruled consistently that
principles of international law entitle a successful claimant to interest. As stated in the leading
Tribuna! award in McCollough fsJ Company, Inc. v. The Ministry oj Post, Telegraph and Telephone
et al.:
« The first principle [which can be deduced from international practice] is that under norma!
circumstances, and especially iri commerciai cases, interest is allocated on the amounts
awarded as damages in order to compensate for the delay with which the payment to the
successful party is made (40) >>,
(32) J. B. MooRE, 6 Digest of International Law, p. I029 (I9o6), quoting J. D. Davis, Treaty Notes, in United
States Treaty Volume (x776-I887).
(33) R. LILLICH, « Interest in the Law of International Claims >>, Essays in Honor of Voitto Saario and Toivo
Sainio, p. SI at p. 59 (I983).
(34) C. EAGLETON, The Responsibility of States in International Law, p. 203 (I 928). See genemlly, J. H. RALSTON,
The Law and Procedure of International Tribunals, pp. I27-I36 (I92S); M. WHITEMAN, op. cit., pp. I9I3 et seq.
(I943); LILLICH, op.cit., at pp. SI-59; G. WETTER, « Interest as an Element of Damages in the Arbitrai Process •>,
5 International Financial Law Review, pp. 20 et seq. (Dee. 1986); Artide 38(x) of the Revised Harvard Draft Convention,
F. V. GARCIA-AMADOR, L. SoHN and R. BAXTER, Recent Codification of the Law of State Responsibility
for Injuries to Aliens, p. 341 (1974).
(35) The Russian Indemnity Case (I9I2), I Hague Court Reporter, p. 297 at p. 3I3, Perm Ct. Arb. (I9I6),
reprinted in 7 American journal of International Law, p. I78 at p. I9I (I9I3)· In this case, however, the Court
found that Russia had waived its claim to interest, I Hague Court Reporter, p. 323.
(36) S.S.« Wimbledon », judgments, I923, P.C.I.j., Series A, N. I, p. IS at p. 33· In this case, the Permanent
Court awarded interest from the date of award on the ground that this was << the moment when the amount of the
sum due has been fixed and the obligation to pay established >>. Ibid.
(37) In Chorzow Factory, Merits, the Permanent Court viewed the reparation of the value of the property
taken plus interest as the minimum to which a claimant deprived of its property is entitled. Op. cit., at p. 47·
As discussed below, in this case the Court found that just compensation would include other damages as well,
since the expropriation was contrary to international law.
( 38) Illinois Centrai Railroad Co. (USA) v. United Mexican States, 4 Reports of International Arbitrai Awards,
p. I34 at p. I37·
(39) In the Matter of the Claim of john Hedio Proach, Decision N. P0-652, Foreign Claims Settlement Commission
of the United States, Decisions and Annotations, p. 549, at p. 552 (I968). See also, e.g., cases cited at N. 58,
infra.
(40) Award N. 225-89-3 (22 Apr. I986), pp. 37-38. See also, e.g., cases cited at N. 59 and N. 6I, infra
64 RASSEGNA DELL'AVVOCATURA DELLO STATO
The United States accordingly submits that interest should be awarded in this case in full
compensation for Raytheon's loss of use of money over time as a result of Italy's actions in
violation of the Treaty.
B). - Interest should be awarded at the United States prime rate.
As shown in the preceding section, the purpose behind an award of interest is to compensate
a claimant for the loss of use of its money from the date of the injury and to thereby make the
claimant whole. The rate chosen therefore should be that which, as nearly as possible, equals
the amount of the claimant's actuallosses. "The rate of interest is determined according to the
circumstances, the object being to determine a just compensation for the wrong (41
) >l. Or, as
D. P. O'Connell suggested, the proper inquiry should be:" [W]hat could the claimant reasonably
have expected had he had the use of the property (42)? )),
This approach has led international tribunals to the choice of different specific rates of
interest in different cases. Among the various rates of interest employed have been: the interest
rate prevailing in the country of the claimant's residence (43), a fair rate in light of prevailing world
financial conditions (44), and that prevailing at the piace where the claim arose (45
). In choosing
the appropriate financial market and interest rate, international commissions have been guided
by the essential purpose of an award of interest - to fairly compensate the injured party for
the loss of use of its money (46).
The principle of full compensation generally dictates, in commerciai cases, the choice of
a commercially reasonable rate of interest which fairly compensates for the loss of use of funds.
As stated by Lillich, " Since the purpose of interest is to provide just compensation to claimants,
the rate of interest must reflect the economie realities of the times (47
) )), This conclusion is not
new. In the Wimbledon case, for example, the Permanent Court took into account" the present
financial situation of the world >>, especially including " the conditions prevailing for public
loans )) in choosing a rate of interest (48).
In more recent times, with domestic interest rates on occasion reaching all-time highs,
the practice of international tribunals reflects more particular emphasis on and consistent appli~
cation of this principle. As noted by the lran-United States Claims Tribuna!, " The international
awards which do not allocate interest or which fix very low rates are rather dated or concern
non-commerciai disputes between governments (49
) >>.
Contemporary international practice does not offer detailed guidance on which particular
" commercially reasonable rate >> should be chosen to reflect fairly the financial injury caused
by the loss of use of money over time (50
). Where an actual rate of loss is claimed, for example,
(41) EAGLETON, op. cit., at p. 205.
(42) O'CONNELL, op. cit., at p. 1213.
(43) See, e.g., S.S. Wimbledon, op. cit., at p. 32.
(44) See, e.g., The << Macedonian >> (United States of America v. Chile), J. B. MooRE, 2 History and Digest of
International Arbitrations, p. 1466 (1898).
(45) See, e.g., Puerto Cabello and Valencia Railway Company Case, 9 Reports of International Arbitrai Awards,
p. 510 at pp. 526-527; BoRCHARD, op. cit., at pp. 429-430. In older expropriation cases, and in contract disputes
which are decided according to lex loci contractus, a local statutory rate of interest frequently has been chosen
See, e.g., LILLICH, op. cit., at p. 58.
(46) See, e.g., }. H. RALSTON, International Arbitrai Law and Procedure, pp. 127-136 and cases cited therein.
(47) LILLICH, op. cit., at p. 56.
(48) S.S. Wimbledon, op. cit., at p. 32·
(49) McCollough & Company, !ne. v. The Ministry of Post, Telegraph and Telephone et al., Awd. N. 225-89-3,
P· 35 (22 Apr. 1986).
(50) See, e.g., the survey of recent international private arbitral awards in 111cCollough, op. cit., at pp. 35-37.
The Chamber in McCollough concludes that the circumstances which may be taken into consideration are
<• unlimited >>. Ibid., at p. 38. This case, however, takes an unusually broad view of << relevant factors >>, including
arbitrator << discretion »; i t may be questioned whether including such factors does not amount to a decision ex
aequo et bono rather than in accordance with principles of law. I t should be noted as well that McCollough considers
cases which are determined under contractual provisions or lex loci contractus rather than international law. The
recent cases cited in McCollough in which the choice of a rate of interest is not decided under national law, with
the exception of the Revere case, award interest at commercially reasonable rates ranging from 9 to I 8 %. In
MEMORIA DEL GOVERNO U.S.A. 65
that the claimant was forced to borrow money a t a specifìc rate, that rate may be used (0l), Where
an<< actual » rate ìs not sought or awarded, however, one of two approaches is generally taken.
Eìther a prevailing standard fìnancial rate may be chosen, selected in light of the fìnancial context
and drcumstances of theinjured party, or a rate which is judgedto be generallyreasonable,
or << fain; !or cofumercial :transactions may be chosen (52). In Syh1ania, the Iran-United States
Cl~ms il'ripl,lnal deddf)d thatinjtlry to Un:iteg. States corporations, as a generai rule, was most
{ajrly mea§:U,tf)<i. by ~t. Vn~ted States. marl.iet. rate. (53
).
In this case, the United States submits that the United States average annual prime .rate
should be tised (54). The injury bere consists of United States dollar losses incurred by Raytheon,
a United States company. Had it not been for the wrongful intervention of the Government
o.t Italy w hl eh is the · àubject of this · claitn; · Raytheon would have retained ·in the U nited States
some U$$9·3. million which it spent to pay ELSI's glJ.aranteed loans and some US$ 94o,ooo
V.:ll!chit spèl'lt for legiù expenses. I11 addition, it wotild have been able to repatriate some
US$~.5 mi111on ·!or all1oun:ts. dlJ.e on. open accounts an d surplus . proceeds of liquidation. The
relevant fìnancial market for measuring the loss is thus that faced by Raytheon in the United
States.. .'J'he prill1e rate, which is «the interest rate ~harged for the very best credi t of short
term.tna:titJ:Ìt)f (55)>çd:sthe rate used [by United States banksJ àS a base to detèrmine rates on
Ioans Jo [d:>,eirl most credhworthycustomers » at any give:ii point in time (56). The prime rate
~hu,s re:llect~ :the minimun1 c(>st ofmoney to Raytheon in the United, States market(57
). The
average prirne rate over the relevant period was approximately IO per cent .. I t is a (( fair rate))
which is consistent with both generai approaches to the choice of an interest rate, whe~ea specìfìc
« actual » rate is l'lot . claimed.
Benvenuti, cqmmercial rates are chosen even though the decision nominally is governed by local law. In the
Revere case, the Tribuna! found that the applicable arbitration rules precluded an award of interest, except for nonpayment
of the arbitration award •• · See; AMINOIL 'IJ, K.uwait, op. cit., · at p. 104~; Benvenuti et Bonfant s.r.l. v.
The Gcvernment of the People's Republic of tbe pongp.(« Benvenuti v. Congo>>), 21 International Legai Materials,
p. 740, at p. 762 (r982); Norwegian Agent v. Belgian Shipowner, 8 Yearbook o/Commerciai Arbitration, p. 94 (1983);
Revere Copper and Brass, I ne. v. Overseas Private Investment Corporation, 17 lnternational· Legai Materials, p. 1321
at p. 1367 (1978); Saudi Arabian Hotel Company v. lnsurance Company of a European Country, ro Yearbook of
Commerciai Arbitration, p. 41 (1985); St.ellar Chartering f.§J Brokerage, ]ne. Time-Chartered. Qwners of the M/V
Co,ntinerlial Trader (USA) v •. Rijn, Maas en Zeé SCheepvaartkantoor, Charterers (Netherlands) (<< Stellar v. Rijn,
Maa$ en Zee »), 7 Yearbook of Commerciai Arbitration; p. 147 at p. 149 (1982). ·
(61) See, e. g., Dames f.§J •Moore v. The lslamic Republic of Iran, Awd. N. 97-54-3, 4lran-United States Claims
Tribuna/; Reports, P• 212 (1983-lii); WETTER, op. cit>
. (52) The Iran-United $tates Claims Trib.unal, faced with a large number of simi!ar cases, generally ordered
simply a« fair·rate >> of ro-12 %. This may be a<< fair rate» for the specific èase or a unifori:n « fair rate». See
also, e.g., Saudi Arabian Hotel Company v. lnsurance Company of a European Country, op. cit.; Norwegian Agent
v. Belgian Shipowner, op. cit.; Benvenuti v. Congo, op. cit. These rates were presumably chosen by the panels in
light of specific relevant t:ates. . . . ...
(53) Sylvania Technical Systeins, lnc. v. The Governinént of the lslamic Republic of Han (« Sylvania >>), Awd
N; r8o-64-1 {27 June 1'985). See also, e.g., LII,LICH, op. cit., at p. 59; AGIP, op. cit.; Stellar v; Rijn; Maas en
Zee, op. cit. In Sylvania, the Chainber chose an investment rate - average rates of interest paid ·on six-month
certificates of deposit - rather than a borr6wing rate because it decided to formulate a uniform rule which could
fairly reflect injury in al! cases; lbid., at pp. 3 I-34· See discussion in WETTER, op. cit., at p. 21.
(54) The actual prime rate changes from time to time during any given year, making calculations over a number
of years éxtremely cumbersome. Thé yearly average prime rate is therefore suggested as a more convenient and
fairly equivalent measurefor interestover longer periods of time. This is given in Annex 96, which was obtained
from the United States Federa! Resetve System Board of Governors.
{56) G. MUNN, Encyclopedia of Banking and Finance, p. 778 {8th ed. by F. L. Garcia 1983).
(66) Sylvania, op. cit., at p. 32, N. 6.
{07) As noted at N. 53 supra, in some cases international tribunals have used an investment rather than a
borrowing rate. However, unless a specific investment loss is claimed, i t is more difficult to choose an appropriate
investment rate. The rates of return on investments vary widely, from the low rates paid on bank savings accounts
to the very high rates possible from successful aggressive investments. Since Raytheon, like most major corporations,
relies significantly on borrowing for its financing, a standardized borrowing rate is both an appropriate and a more
reliable measure in this case.
66 RASSEGNA DELL'AVVOCATURA DELLO STATO
C). - Interest should be calculated from the date of injury to the date of payment of the award,
and compounded annually.
It is generally accepted that interest should be calculated from the date of injury until the
date of payment of the award (58). This follows from the principle that interest is paid in order
to compensate the injured party for the loss of use of its money. The date of injury is determined
in light of what would have occurred, absent the wrongful actions causing the injury. Thus,
with respect to Raytheon's losses for guarantee payments and other actual payments, the date
of injury is the date of payment. With respect to losses on open accounts, i t is the date on which
Raytheon would have received payment on these open accounts if it had been allowed to proceed
with the liquidation pian. For the sake of simplicity, however, the date of injury which has
been used for purposes of calculating interest is the end of the calendar year in which the injury
occurred (59).
By application of the same principle - that interest should compensate for the loss of use
of money - interest should be compounded on an annual basis. While compound interest
has not been uniformly sought or awarded, in a commerciai dispute such as this one it is unquestionably
part of a commercially reasonable rate. As stated in the Fabiani case:
" One has to recognize that Fabiani could have invested in his enterprises, in an interest
bearing way, the simple interest on the amounts of money that had been allocateci in the
arbitrai award, .... The compounding of interest is authorized in the field of current accounts
and of similar operations since the legislator presumes that in commerce money does not
remain unproductive (6") ».
In the AMINOIL case, interest was also awarded on a compound basis (61).
Commentators reaffirm that compound interest should be awarded where appropriate
to compensate for actual loss. As F. A. Mann has recently stated:
" Is it open to the court to hold the plaintiff entitled to compound interest in respect of
damages awarded to him ? In theory the answer should once again be in the affirmative (62) ».
W etter adds :
" It is submitted that the issue as to whether or not compound interest is permissible as
an element of damages must be resolved with reference to the ultimate legai rationale for
awarding interest (63) ».
The United States accordingly submits that the award of compound interest is appropriate
in this case. Raytheon itself is a business enterprise that was generating earnings. Moreover,
Raytheon, like most major corporations, relies significantly on debt financing. If Raytheon
had not suffered financiallosses as a result of Italy's wrongful actions, these funds would either
have generated additional earnings or would have been used to repay debt. These funds therefore
(5 ~) See, e.g. AGIP, op. cit., at p. 343; Delagoa Bay and East African Railway Company in LA FoNTAINE,
Pasicrisie lnternationale, p. 544 (1902); Katherine A. MacMurdo Case, ibid., at p. 397· An excellent collection of
earlier State practice is found in WHITEMAN, op.cit., at pp. 1963-1975. See also, e.g., EAGLETON, op.cit., at p. 205;
LILLICH, op. cit., at pp. 55-57. Some earlier decisions by international tribunals included interest only unti! the
date of the award on the theory that it had no authority to allow interest for a period of time beyotJ.d that of its
existence. See RALSTON, op.cit., at p. 87, sec. 170. As the lnternational Court of Justice is a permanent body,
however, an award of interest unti! the date the award is paid would not be an act beyond the power of the Court.
See, e.g., S.S. Wimbledon, op. cit. The lran-United States Claims Tribuna! has also routinely awarded interest
up to the date of payment. See, e.g., Sylvania, op. cit., at p. 34; Woodward-Clyde Consultants v. The Government
of the Republic of Iran, et al., Awd. N. 73-67-3, 3 Iran-United States Claims Tribuna[ Reports, p. 239 at p. 251
(1983-II).
( 59) Annex 13, Schedules Gz and Hz.
(60) Translation. Antoine Fabiani, op. cit., at p. 183.
(6 1) AMINOIL v. Kuwait, op. cit.
( 62) A. MANN, << On lnterest, Compound Interest and Damages >>, 101 The Law Quarterly Review, p. 30
at p. 44 (1985).
(63) WETTER, op. cit., at p. 72.
MEMORIA DEL GOVERNO U.S.A. 67
would bave generated eitber interest earnings or interest savings, whicb in turn would bave been
devoted to a profitable use. Tbe calculation of interest must tberefore be compounded in order
to reflect tbe extent of actual injury from tbeir loss.
In conclusion, in order to provide compensation wbicb reflects tbe extent of injury caused,
tbe United States submits tbat tbe Court sbould award interest at tbe average annual United
States prime rate, compounded annually, from tbe date of tbe injury to tbe date compensation
is paid.
SUBMISSIONS
Accordingly, the United States submits to the Court that it is entitled to a declaration and
judgment that:
(a) Italy - by engaging in the acts and omissions described above, which prevented Raytheon
and Machlett, United States corporations, from liquidating the assets of their whollyowned
Italian corporation ELSI and caused the latter's bankruptcy, and by its subsequent actions
and omissions - violated the international legai obligations which it undertook by the
Treaty of Friendship, Commerce and Navigation between the two countries, and the Supplement
thereto, and in particular, violated:
- Artide III(2), in that Italy's actions and omissions prevented Raytheon and Machlett
from exercising their right to manage and control an Italian corporation;
- Artide V (r) and (3), in that Italy's actions and omissions constituted a failure to provide
the full protection and security as required by the Treaty and by international law;
- Artide V (2), in that Italy's actions and omissions constituted a taking of Raytheon's and
Machlett's interests in property without just compensation and due process of law;
- Artide VII, in that these actions and omissions denied Raytheon and Machlett the right
to dispose of their interests in immovable property on terms no less favorable than an Italian
corporation would enjoy on a reciproca! basis;
- Artide I of the Supplement, in that the treatment afforded Raytheon and Machlett was
both arbitrary and discriminatory, prevented their effective control and management of ELSI,
and also impaired their other legally acquired rights and interescs;
(b) that, owing to these violations of the Treaty and Supplement, singly and in combination,
the United States is entitled to compensation in an amount equal to the full amount of the damage
suffered by Raytheon and Machlett as a consequence, induding their losses on investment,
guaranteed loans, and open accounts, the legai expenses incurred by Raytheon in connection
with the bankruptcy, in defending against related litigation and in pursuing its daim, and interest
on such amounts computed at the United States prime rate from the date of loss to the
date of payment of the award, compunded on an annual basis; an d
(c) that Italy accordingly should pay to the United States the amount of US$ r2,679,ooo,
plus interest, computed as described above.
ABRAHAM D. SOFAER
Agent of the United States of America
ARNOLD I. BuRNs
Deputy Attorney General
Department of ] ustice
TABLE OF ANNEXES
I. - Treaty of Friendship, Cornmerce and Navigation between the United States of America
and the Italian Republic, signed at Rome, 2 February I948, entered into force, 26 July
I949· T.I.A.S. I965; 79 UNTS I7I.
2. - Agreement Supplementing the Treaty of Friendship, Commerce and Navigation of 2
February I948, signed at Washington, 26 September 1951, entered into force, 2 March
I961. T.I.A.S. 4685; 404 UNTS 326.
3· - Chamber of Deputies, Parliamentary Proceedings, Documents - Bills and Reports, N.
246-A, page 4, Presented to the Office of the President on 2 March I949·
4· - Senate of the Republic, Legislature III, 29Ist Session, Assembly, page 13758, I9 July
1960.
5· - Map of Italy, highlighting the Mezzogiorno Region.
6. - The Foreign Investor's Digest of Italian Corporate Law, pages 245-254 (I963).
7· - Raytheon Company Certificate of Good Standing, State of Delaware, dated 22 December
I986.
8. Introductory pages from I985 Raytheon Company Annual Report.
9· - Affidavit of Charles F. Adams, Finance Cornmittee Chairman and Director, Raytheon
Company, dated I7 April 1987.
I o. - Manufacturing an d Sales Agreement between Raytheon Manufacturing Company an d
Fabbrica Italiana Raddrizzatori Apparecchi Radiologici, dated I8 July I952.
II. - Letter of Participation from Raytheon Manufacturing Company to Elettronica Sicula,
S.p.A., dated 21 October I955, revised I5 March I956.
12. - Selected United States Dollar-Italian Lire Conversion Rates from The Wall Street]ournal
(for dates 29 March I968, 19 April 1968, 29 April 1968, 30 }une I97I) and The Washington
Post (for dates I April I968, I I July 1969, 24 January I974).
I3. - Affidavit of Arthur Schene, former Vice President-Controller of Raytheon Company,
dated I7 April 1987.
I4. - Affidavit of Herbert Deithcher, Vice President and Treasurer, Raytheon Company, dated
6 January I987.
I5. - Affidavit of }ohn D. Clare, former Chairman, Raytheon Europe International Company,
dated IO January I987.
I6. - The Machlett Laboratories, Inc., Certificate of Good Standing, State of Connecticut,
dated 26 December I986.
I7. - Affidavit of }oseph A. Scopelliti, former Chief Financial Officer and Controller, Raytheon
Company, dateci I April 1987.
I8. - «A New Industry in an Ancient Land "• Raytheon:-ELSI S.p.A., Brochure, October
1963.
I9. - Sales brochure, Raytheon-ELSI S.p.A.
20. - Aerial photograph of Elettronica Sicula S.p.A. plant in Palermo, Sicily, 1962.
21. - Affidavit of Rico A. Merluzzo, former Director of Planning, Raytheon-ELSI S.p.A.,
dated 17 April I987.
22. - << Project for the Financing and Reorganisation of the Company "• I967 Report prepared
by Raytheon-ELSI S.p.A.
70 RASSEGNA DELL'AVVOCATURA DELLO STATO
23. - Quarterly Economie Review Annua[ Supplement, The Economist Intelligence Unit (1967).
24. - I.R.I., Istituto per la ricostruzione Industriale, 1967 Annua[ Report, pages 38-39, 65
(1968).
25. - The State As Entrepreneur, (S. Holland ed. 1972), pages 45-49, s6-6o.
26. - Affidavit of Avv. Giuseppe Biscanti, Studio Legale Biscanti, Rome, dated II December
1986.
27. - Affidavit of Joseph Oppenheim, former Chairman of the Board, Raytheon-ELSI S.p.A.,
dated 22 September 1971.
28. - Affidavit of Charles H. Resnick, Generai Counsel, Raytheon Company, dated 8 September
1971.
29. - Affidavit of Avv. Giuseppe Bisconti, Studio Legale Bisconti, Rome, dated 20 August
1971.
30. - Affidavit of Dominic A. Nett, former Controller, Raytheon-ELSI S.p.A., dated 17
Aprii 1987.
31. - Minutes of Raytheon-ELSI S.p.A., Board of Directors Meeting, 16 March 1968.
32. - Minutes of Raytheon-ELSI S.p.A., Shareholders Meeting, 28 March 1968.
33· - Requisition Decree, Mayor of the Municipality of Palermo, I Aprii 1968.
34· - Artide 7 of Law of 20 March x86s, N. 2248, Attachment E.
35· - Presidential Decree of 29 October 1955, N. 6.
36. - Appeal by Raytheon-ELSI S.p.A., to the Prefect of Palermo of Requisition Decree of
the Mayor of Palermo, dated 19 Aprii 1968.
37· - Minutes of Meeting in Palermo between Messrs. Joseph Oppenheim, Howard Hensleigh,
Stanley Hillyer and President Carollo of Sicily, 19/20 Aprii 1968.
38. - Memorandum from the President of the Sicilian Region, 20 Aprii 1968.
39· - Letter from Joseph Oppenheim, Chairman of the Board, Raytheon-ELSI S.p.A., to
Hon. Vincenzo Carollo, President of the Sicilian Region, dated 26 Aprii 1968.
40. - Affidavit of Charles H. Resnick, Generai Counsel, Raytheon Company, dated 19 January
1987.
41. - Artide 217 of the Bankruptcy Law of Italy, Royal Decree of x6 March 1942, N. 267.
42. - Minutes of Meeting of Raytheon-ELSI S.p.A., Board of Directors, 25 Aprii 1968.
43· - Raytheon-ELSI S.p.A., Petition for Bankruptcy to the Civil and Criminal Tribuna! of
Palermo, dated 26 Aprii 1968.
44· - Raytheon-ELSI S.p.A., Judgment of Bankruptcy, Civil and Criminal Tribuna! of Palermo,
decided 7 May 1968, deposited 16 May 1968, registered 27 May 1968.
45· - Documents filed in the Civil and Criminal Tribuna! of Palermo designating Giuseppe
Siracusa Trustee in Bankruptcy and selecting the creditors committee in the bankruptcy
of Raytheon-ELSI, S.p.A., dated 4 June 1968.
46. - Address by Minister of Industry, Commerce, and Crafts Andreotti to the Italian Parliament,
dated 25 July 1968.
47· - Press Release by the Government of Italy, dated 13 November 1968.
48. - Photograph of entrance to Elettronica Sicula S.p.A. plant in Palermo, Sicily, 1962.
49· - Photograph of entrance to Raytheon-ELSI plant in Palermo, Sicily, November 1968.
so. - "I.R.I. Breaks Its Promise- 2oo Workers Remain Jobless », L'Ora, s/6 December 1968.
sr. - Notice of Auction to be held 18 January 1969, Corriere Della Sera, II December 1968.
52. - Minutes of 18 January 1969 Auction of ELSI's Assets.
53· - « CGIL: The Undertakings for ELSI Are Not Being Fulfilled », Giornale di Sicilia,
8 December 1968, page 6.
MEMORIA DEL GOVERNO U.S.A. 71
54· - « ELSI: Agreement reached for Workers "• Giornale di Sicilia, 30 January 1969, page 2.
SS· - « The ' EX' [Employees] of ELSI Protest in Rome "• Giornale di Sicilia, 30 January 1969,
page 5·
56. - « ELSI: Conclusive Meeting in the Prefecture "• Giornale di Sicilia, 19 March 1969, page
14.
57· - Notice of Auction to be held 22 March 1969, The New York Times, 5 March 1969, page
28.
58. - Minutes of 22 March 1969 Auction of ELSI's Assets.
59· - «' There Was an Agreement' Says Carollo "• Giornale di Sicilia, 6 Aprii 1969.
6o. - Minutes of Raytheon-ELSI S.p.A., Creditors Committee Meeting, 29 March 1969·
61. - Submission by Trusteee in Bankruptcy Giuseppe Siracusa to the Civil and Criminal Court
of Palermo, dated 3 Aprii 1969.
62. - Brief to Civil and Criminal Tribuna! of Palermo from Avv. Giuseppe Bisconti, dated 8
Aprii 1969.
63. - Submission to Civil and Criminal Tribuna! of Palermo by Avv. Giuseppe Bisconti, dated
10 Aprii 1969.
64. - Decree of the Civil and Criminal Tribuna! of Palermo, dated 9 May 1969.
6s. - Minutes of Creditors Committee Meeting, Raytheon-ELSI S.p.A., dated 2 May 1969.
66. - Notice of Auction to be held 3 May 1969, The New York Times, 8 Aprii 1969, page 71"
67. - Minutes of 3 May 1969 Auction of ELSI's Assets.
68. - Submission to the Civil Court of Palermo by ELTEL S.p.A., dated 16 Aprii 1969.
69. - Submission to the Civil and Criminal Tribuna! of Palermo by Trustee Giuseppe Siracusa,
dated 3 May 1969, subsequent order by the Tribuna!, dated 5 May 1969.
70. - Submission to the Civil Court of Palermo by EL TEL S.p.A., dated 27 May 1969.
71. - Minutes of Creditors Committee Meeting, Raytheon-ELSI S.p.A., 6 June 1969.
72. - Notice of Auction to be held on 12 July 1969.
73· - Letter from Joseph Oppenheim, Vice President, Raytheon Company, to Industria Elettronica
Telecomunicazioni S.p.A., dated 26 June 1969.
74· - Transcript of Bankruptcy Hearing, Civil and Criminal Court of Palermo, 13 July 1969.
75· - I.R.I., Istituto per la ricostruzione Industriale, 1985 Yearbook, pages 260-264.
76. - Judgment of Prefect of Palermo, dated 22 August 1969.
77. - Council of State Opinion Regarding Appeal by Mayor of Palermo, 19 November 1971.
78. - Ruling by President of Italy Dismissing Appeal by Mayor of Palermo, dated 22 Aprii
1972, registered 19 May 1972.
79· - Lawsuit for damages fiied by the Trustee against the Minister of the Interior and the
Mayor of Palermo, dated 16 June 1970.
So. - Judgment of the Court of Palermo, decided 2 February 1973, filed 29 March 1973, registered
4 Aprii 1973.
81. - Judgment of the Court of Appeals of Palermo, registered 24 January 1974.
82. - Judgment of the Supreme Court of Appeals, dated 26 Aprii 1975.
83. - Certificate of Good Standing, State of Delaware, Raytheon Service Company, dated
22 December 1986.
84. - Proof of Raytheon Company's 100% ownership of Raytheon Service Company, dated
8 October 1986.
85. - Senate of the Republic, Bills and Reports- 1948-1949, N. 344-A, Report of the Majority,
page 2, Sent to the Office of the President on 28 May 1949.
72 RASSEGNA DELL'AVVOCATURA DELLO STATO
86. - Commerciai Treaties: Hearings Before the Special Subcommittee on Commerciai Treaties
and Consular Conventions, Committee on Foreign Relations, United States Senate,
82d Congress, 2d Session (1952).
87. - «Commerciai Treaty Program of the United States », Department of State Publication
6565, Commerciai Policy Series r63 (January 1958).
88. - Letter of the Secretary of State dated 25 January 1952, contained in the Message from the
President of the United States transmitting the Supplementary Agreement, Senate Print
Executive H, 82nd Congress, 2nd Session, page 2.
89. - Senate of the Republic, Parliamentary Proceedings, Legislature III, Bills and Reports
- Documents; 1958-r96o, N. 931-A, page 2, sent to the Office of the President on r8
July 1960.
90. - Chamber of Deputies, Parliamentary Proceedings, Legislature III, Documents- Bills and
Reports, N. 537, page 3, presented to the Office of the President on 8 November 1958.
91. United States Code, Title 5, Sec. 706 (2) (A) (1982).
92. Delaware Code Annotateci, Title 8, Secs. 271, 275 (1983 and Supp. 1986).
93· Connecticut Generai Statute, Annotateci, Secs. 33-372, 33-375 (West 1958 and Supp.
1986).
94· Delaware Code Annotateci, Title ro, Secs. 6ror-6II5 (1975).
95· Italian Criminal Code, Secs. 508, 6r4, 6r5, 633, 634.
96. Table of United States prime rates covering the period from January 1964 to March
I987.
COUNTER - MEMORIAL
SUBMITTED BY ITALY
(CASE CONCERNING ELETTRONICA SICULA S.P.A. - ELSI)
16 NOVEMBER 1987

INTRODUCTION
In the present proceedings the Government of the United States has attempted to show
that the ltalian Government is responsible for a number of violations of internationallaw, particularly
of the provisions contained in the Treaty of Friendship, Commerce and Navigation between
Italy and the United States of 2 February 1948 and the Agreement supplementing the
Treaty of 26 September 1951. lt is daimed that the alleged violations caused damage to two
United States companies, the Raytheon Company and Machlett Laboratoires lnc., on behalf
of whom the Government of the United States has brought the present action.
In answer to the Memoria! submitted by the Government of the United States on 15 May
1987, the Italian Government submits the present Counter-Memorial.
One of the purposes of this Counter-Memorial is to refute the reconstruction of the facts
presented by the Government of the United States (Part l).
This part is followed by some considerations concerning the jurisdiction of the International
Court of Justice (Part Il) and the admissibility of the United States daims (Part III). In Part
III the Italian Government lodges an objection on admissibility, which, in the defendant Government's
view, should lead to the rejection of the daims.
However, the Italian Government, in order not to hinder the rapid administration of international
justice, dedares that it would favour the condusion of an agreement between the parties,
under Artide 79, paragraph 8, of the Rules of Court, that the objection should be heard and
determined within the framework of the merits.
Part IV of the Counter-Memorial deals with points of law relating to the substance of the
allegations made by the Government of the United States. In practice, this consists of the interpretation
of the above-mentioned 1948 Treaty and 1951 Supplementing Agreement and the
problems related to their correct application.
Lastly, Part V of the present Counter-Memorial deals with issues that may be of interest
only in the case of some of the daims made by the Government of the United States being upheld
by the Court. This Part centers around the methods used to calculate the damage suffered
and the evaluation of such damage.
In accordance with Artide 49, paragraph 2, of the Rules of Court, the Counter-Memorial
finally indudes the submissions that the Italian Government respectfully presents to the Court.

PARTI
STATEMENT OF FACTS
x. Necessity to provide an objective account of the facts which are relevant to the case.
The statement of facts contained · in the Memoria! submitted by the Government of the
United States shows a greatmany inaccuracies, gaps and tendentious interpretations. I t is therefore
necé11sary to run over all the relevant circumstances · of the case in order to pro vide a· more
complete ·an d abové an· more·· accurate account.
2. ELSI's problems from I962 to I967 ,· the substantial financial aid given by Italian authorities;
From 1962,. the year in whiel!. ,Raytheon became ELSI's controlling shareholder, ELSI proveci
to be a constant loss-maker, incapable of competing with other companies in the sector. As
a:lso the annéx:es to the claìmant Government's Memoria! show (l); ELSI's accumulateci losses
reached Lire 326;90o,ooo in 1962, Lire 1,228,6oo,ooo in 1963, Lire 284,70o,ooo in 1964, Lire
36t;ooo,ooo in 1965, Lire 2,0o7,ooo,ooo in 1966, and the record figure of Lire 2,681,3oo,ooo
in 1967.
Certainly ELSI's difficu:lties were not due to the fact that it was a foreign-owned company (Il).
ELSl's main coxnpetitors ·in • Italy were in fact also non-Italian corripanies; namely, Philips, a
Dutch company; Siemens, à German company, and Thomas Houston, a French company. The
reason why ELSI continued to lose its market shares was due solely to the fact that the competitors
managed to offer the same or even supetior-quality products a t considerably lovirer prices · (3),
And that is not all. Unlike its non-Italian competitors, ELSI was always able to count on
substantial financial aid from the Italiart Government. Back in 1956, when Raytheon nrst becarne
a shareholder in ELSI, it successfully requested the Sicìlìan Regional Government to take
a 33·3 % stake on the company, and obtained a ten-year Iow-interest loan of Lire 700 million
from the Regional Governmerit through ìts financial company, IRFIS (4). Between 1956 and·
1966, ELSI was granted further low-interest Ioans totalling Lire 6,ooo million, of which Lire
3;500 million were given in the last four years when the coi:npany was wholly controlled• by
Raytheon: (5
). This does not take account of all the other grants of various kinds, such · as the
tax relief for the merger with the former group company, SELIT, in 1965 (6). This shows that
the treatment meted out to ELSI by Italian authorities was anything but discriminatory.
(l) Cf. Memoria! submitted by the United States of America (Case concerning Elettronica. Sicula S.p.a. -
(ELSI)) (hereinafter referred to 11s «·Memoria!&}, Annex 13, Schedule BI.
(2) Contrary to what Raytheon managers claim, according to what is said in the Memoria!, pp. 7-8.
(3) For an explicit admission in this regard on the part of ELSI management, see « Project for the Financing
and Reorganization of the Company - 1967 Report prepared by Raytheon Elsi S.p.a. t (hereinafter referred
to as « 1967 Report t}, Memoria!, Annex zz, p. 7· ·
( 4} See Letter-agreement of zi October 1956: Memoria!, Annex II.
(6) See for these fìgures « 1967 Report •,. p. 35·
(6) See documenta N. 31, containing the minutes of the meeting of the ELSI Board of Directors, at which the
merger decision was taken.
6
78 RASSEGNA DELL'AVVOCATURA DELLO STATO
3· The basic reasons underlying the economie weakness of ELSI.
The truth is that ELSI had been a loss-maker from the very beginning. The bulk of its products
were cathode tubes and semi-conductors (1), and it is common knowledge that if products
of this kind are to make a profit, they must be manufactured in the immediate vicinity of the
raw materials suppliers (particularly the producers of glass tubes) and of the customers for the
finished products (the radio and TV manufacturers). But ELSI had been set up at Palermo, far
away from the large industriai settlements in the North of Italy, with the result that, only because
of the extra cost of transportation, the prices of its products were at least IO % higher
than those of its competitors (8). Moreover, some products were being manufactured using
methods that were manifestly outdated. This is the case of the semi-conductors, whose production
line (which ELSI had purchased directly from Raytheon) was technologically obsolete
already at the time it was installed (9). Other products did not bave reliable market outlets, or
their market was dwindling to nothing. For example, sales of microwave tubes depended very
largely on sporadic military orders. The cathode-ray tubes, which were solely for black-and
-white television sets, were losing their prospective purchases because in the mid-6o's, ltaly
was about to introduce colour television (1°).
Ali of this was taking piace with manifestly disproportionate labour costs. In 1960, the
company employed 530 people, rising to over I,ooo in 1967. Training costs were initialiy amply
offset by the lower wages paid to workers in Sicily, but when wages in the area began to draw
level with those of the rest of the country, the company's labour costs grew out of ali pro
portion (11).
4· Raytheon's initial apathy towards ELSI; the high cost of its technical assistance.
There can be no doubt that many of ELSI's problems could have been avoided if Raytheon
had shown greater concem about ELSI's fate. But it did not. The very decision of acquiring a
participation in ELSI was taken on the spur of the moment, rather than as the results of a clearly
thought-out pian (12), and even afterwards, as far as its investments in Italy were concemed, Raytheon
continued to concentrate its attention on SELENIA. This company, which was controlied
by Raytheon jointly with FINMECCANICA-IRI and FIAT, manufactured sophisticated military
equipment with satisfactory commerciai results (13), while ELSI was ignored for many years.
The company continued to be managed by two ltalian technicians- Carlo Calosi and Aldo
Profumo, as President and Managing Director, respectively- who had already been employed
by the former owners: this despite the fact that under their management the company had only
recorded losses. Tom Philips, the President of Raytheon from 1964, was reported as having
said on the subject of the managerial choices made by the two Italian executives: « [ ... ] It seemed
that more emphasis was being placed on the social, or rather the societal importance of operations
in Sicily than on their need to retum profits to their investors » (14). Calasi an d Profumo were
not, however, dismissed from their posts until 1967 when Raytheon's top management finaliy
realized the desperate straits in which ELSI found itself. But it was too late by then, and ali
the former President of Raytheon, Charles Adams, could do was to let off steam with Calasi:
« You have made a terrible mess of things! » (15).
(7) For the exact figures see the « 1967 Report », pp. 2o-21.
(B) See Memoria!, Annex 15, p. s; OTTO J. ScoTT, The Creative Ordeal: The Story of Raytheo11, New York
1974. p. 364.
(9) See Affidavit of Ing. Busacca (Document N. 44).
(10) See in this connection the hardly reassuring analyses and predictions made by the ELSI management
itself in the « 1967 Report », pp. 9 and 24.
(Il) See, in this connection, the « 1967 Report », pp. 16-17.
(12) As ScoTT, op. cit., pp. 246-247, shows, it was owing to ELSI's delay in paying the royalties due to Raytheon
that the latter eventually accepted the proposal to convert its loans into shares of what at the time was only
an insignificant Palermo-based company.
(13) For these data, see ScoTT, op. cit., pp. 328-329 and 331-332.
(H) ScoTT, op. cit., p. 346.
(16) ScoTT, op. cit., p. 365.
CONTROMEMORIA DEL GOVERNO ITALIANO 79
In reality, the company was not only being run at a loss, but was managed on the verge of
illegality. It was not without reason that the expert witness for the bankruptcy, Giuseppe Mercadimte,
said that ELSI's standard practice was to artificiaily inctease the sales volume (probably
with aview to showing the parent colJ1pany in the United States positive results) (18). The bankruptcy
receiver; Mr. Siracusa, commenting Ori Giuseppe Mercadante's report, put the company's
insolvericy down • to the cavalier way i t · had been managed an d to the « poor organization an d
mistaken polìcies of the coìritrierciai department ,; (17).
Raytheon's apathy towards ELSI is demonstrated above ali by its very low capitai investment
in the cotnpany. In the period 1962-66, Raytheon's investments in equity in ELSI totalled a
bare 3,6oo million.
The inadequacy of these investments to meet the needs of the company is pròved by the
tacts thltt in 1966, with a share capitai of only Lire 4,ooo million, ELSI had outstanding debts
totalling Lìre xs,910 million ofwhich only Lire 4,230 million were guatanteed by Raytheon (18).
This· excessìve indebtedness naturally gave rise· to huge interest charges: Lire 839 million in
1965, Lire86s million in rè)66 and Lire g6o million in 1967. Figures of this magnitude would
bave caused a crisis in any company, but in ELSI's case the debt burden was absolutely out
of aH proportion, consideting that the company's sales during that same period nevet exceeded
Lire 8,ooo miliion, and that the item « operating profits/losses >> (sales minus production costs,
after deduction of interest charges) in the 1967 balance sheet showed a loss of Lire 1,721 million
(19).
· Moreover, while Raytheon left ELSI under-capitalized, it did not hesitate to charge very
high ratei! for the technicai assistance it supplied to its subsidiary, right to the very end, in the
period t965.;.;.67, ELSl had to pay about 8oo million. a year for « updating, preparation, studies
and other work >>, and yet during the same period a further 6so million was paid for « group
assistance royalties, and technical consultancies >> (2°).
In conclusion, there seems to be good reason for the highly criticai judgment of the expert
witness Mr. Mercadante on the subject of Raytheon's attitude to ELSI during ali those years:
«[• .. ] There are grounds for believing that the parent company, which provided assistance to
its subsidiary upon remuneration had ampie time to realize that the subsidiary's indebtedhess
was swelling progressively and growing out of ali propottion to the volume of production, and
we are surprised that the parent company di d no t see i t fit to bring the subsidiary within more
reaiistic limits » (21).
S· The I967 repQrt and the searchfor an Italian partner.
At the beginning of 1967, ELSI's accrued losses had far exceeded one third of the share
capitai, with the result that under Artide 2446 ofthe Italian Civil Code, ELSI had to reduce its
equity from Lire 4,ooo to 1,500 million. It was only at this point that Raytheon finaily decided
to act.
A delegation, headed by the Raytheon President, Tom Philips, went to Palermo, and the
first thing they did was to replace Carlo Calosi with John Clare as President of ELSl and to
appoint Justin J. Guidi as the second managing director of ELSI, alongside Aldo Profumo.
At the reqUest of the parent company, ELSI's new management prepared the « Project for
the Financing and Reorganization of the Company- 1967 Report », in which they thoroughly
analyzed the causes of the crisis and the possibilities of pulling out of it. The prospects that
lay ahead were dramatic. The report made no bones about the fact that, if one had left the company
to its own devices, its days were practicaily numbered: << Given the current product base,
the current level of spending and the increasing adverse pressures mentioned above, heavy
(16) See Document N. 36, pp. 20-:n.
(17) See Document N. 40, p. 4·
(18) « 1967 Report », p. 35, and ibidem, Appendix B2.
(19) Memoria!, Annex 13, Schedule B3.
(20) See Documimt N. 36 pp. 15 and 27.
(21) See ibidem, p. 29.
80 RASSEGNA DELL~AVVOCATURA DELLO STATO
losses will continue and in all probability increase ... » (p. 36); « The current product and people
structure of Raytheon Elsi does not produce desirable results., and in fact continued operations
on the current basis is quite unsound » (p. 37). The only chance of survival was indicated to
be an intervention by Italian authorities to the effect that, inter alia, (a) ESPI (Ente Siciliano per
la Produzione Industriale) would irnmediately invest in ELSI Lire 6,ooo million as additional
capitalization of the company; (b) the centrai Government would guarantee that over the next
four years ELSI would receive government procurement orders for not less than Lire s,ooo million;
(c) the personnel would be given retraining courses organized at the expense of the Sicilian
Regional Government; (d) the centrai Government would undertake to do what it could so that
ELSI could obtain all the other financial facilities available under current legislation for the
development of Southern Italy (pp. 37-39).
On being informed of the gravity of the situation, the Italian authorities immediately stated
their readiness to examine the possibility of a solution acceptable to everyone in joint consultation
with the ELSI management. In no way did they reject altogether the suggestion of public
intervention on behalf of the ailing company. It was simply a question of defining the terms of
intervention, since it was unthinkable that all of ELSI's demands might be accepted. The Sicilian
Region Government irnmediately pointed out that the financial contribution it was being
asked to make exceeded its resources, and that at all events, it would acquire a direct stake in
ELSI only if it was joined by another partner, possibly a company of the IRI group. Raytheon
had itself already been in touch with some companies on its own account. But IRI's response
was decidedly negative. IRI was studying the possibility of enhancing its own companies' presence
in the electronics sector, and it was therefore not at all interested in helping ELSI which
- at least according to the restructuring plans elaborated by the company's managementwould
have inevitably become their direct competitor (for further details, see infra, paragraph 18).
6. ELSI's financial difficulties and the labour disputes: I967-68.
Meanwhile, ELSI's difficulties went from bad to worse. The balance sheet of 30 September
1967 closed with a loss of Lire 2,681 million, with the result that less than one year after the last
reduction, the company's share capitai should have been reduced once again because of losses.
The company directors, who, under Artide 2446 of the Italian Civil Code, should have asked
the shareholders already before the end of the fiscal year « to take the appropriate steps », did
nothing of the sort even after that date: and yet the losses continued to increase also in the las t
quarter of 1967 and the first quarter of 1968. According to the estimates of Raytheon's expert
accountant, on 31 March 1968 ELSI had accrued losses of Lire 3,750 million (22). This being
so, ELSI's management clearly failed to comply with its duties under ltalian law to protect the
company's creditors (not to mention its shareholders!) in the event of persistent losses totalling
over one third of the share capitai (23).
ELSI's financial difficulties were compounded by serious labour disputes during that same
period. Already in }une 1967, because of the uncertain market prospects and the need to cut
its exorbitant production costs, the company had announced the shedding of 300 jobs. Faced
with the inevitable protests on the part of the trade unions and the threat of a solidarity strike
by all the workforce which would have brought production to a complete halt, the Sicilian Regiona!
Government immediately carne to ELSI's rescue. An agreement was concluded under
which the company agreed not to dismiss all the 300 employees, but merely to lay off temporarily
168 of them, and the Regional Government undertook to pay the wages of the laid-off workers
until they were able to resume work (24). Fora few months, peace was restaured in the factory,
but at the beginning of 1968, when it became clear that not only would the company never be
able to take back the laid-off workers, but also that its days were numbered, serious union unrest
resumed. In January and February 1968, the days on which the whole workforce, or specific
(22) Memoria!, Annex 13, Schedule BI.
(23) For the full text of artide 2446, Civil Code, see Documents N. 19.
(24) The claim of the Raytheon Co. and Machlett Laboratories, lnc. against the Government of Italy in connection
with Raytheon-Elsi S.p.A. (hereinafter referred to as « The Claim »).
CONTROMEMORIA DEL GOVERNO ITALIANO 81
departments, were on strike were more numerous than those of norma! activity. In early March,
the company decided to dismiss the I 68 laid-off workers.
The reaction of the workforce was immediate. On 4 March 1968, the company's workforce
was called out on an indefinite strike, and a sit-in on the factory premises began (25).
To have an idea of the generai situation at ELSI at that time, it should be borne in mind
that even before the workers' si t-in, precisely on 2 March 1968, ali that remained of the company's
administration, including its accounting records, was transferred wholesale to a small regional
office in Milan (26), and thereafter the Board no longer met at the Palermo headquarters, but
began instead to meet in Rome. After January 1968 the accounts for the company's operations
were no longer kept properly, and when Arthur Schene, the Vice-President of Raytheon's Board
of Auditors was summoned urgently to I taly in early Aprii to draw up the balance sheet for the
liquidation of the company, he had to work on the basis of records that had been kept only up
to 31 December I967 (27). Only afterwards, in their petition for bankruptcy, did the directors
try to explain this further example of malpractice which - incidentally - is a criminal offence
under the Italian Bankruptcy Act (28). The reasons advanced for having been prevented from
keeping the accounts properly were- in order of appearance- the Christmas and the New
Year's holidays, the earthquake that struck part of Sicily in J anuary, and the strikes ... (99).
7. The decision to liquidate ELSI : the actual prospects of an « orderly liquidation ».
On 16 March 1968, the Board of ELSI, «in view of the continuous deterioration of the company's
financial situation >> decided to put the company into liquidation. More specifically, << production
was to be discontinued immediately, whereas commerciai activities and employment
contracts were to be terminated on March 29, 1968 ,, (30).
According to the United States Government, this decision was taken by ELSI's two shareholders
with the view of beginning an « orderly », or as it is elsewhere described, « voluntary >>
liquidation of the company, «in order to minimize their losses ». The claimant Government also
contends that only after the Mayor of Palermo had requisitioned the factory the company's
financial conditions worsened to such a degree that banckruptcy became inevitab'e (3 1
).
But this is far from the truth. ELSI's decision to halt production immediately and to stop
any commerciai activities within two weeks, was by no means a free choice: it was a matter of
absolute necessity. On 7 March 1968, Raytheon formally notified ELSI that, even though it
had noted that « ( ... ) Raytheon-Elsi requires additional equity capitai in order to continue
its operations ( ... ), Raytheon company cannot obblig1te itself further and must decline to
subscribe to any further stock which might be issued by Raytheon-Elsi or to guarantee any
additional loans which might be made by others to Raytheon-Elsi » (32). ELSI was therefore
certain that it could no longer count on Raytheon for even the slightest help. And since its
coffers had dried up a long time earlier, the only way to meet its commitments shortly falling
due for payment was to liquidate its assets.
After ali, this had been bluntly anticipated by the President of ELSI, John D. Clare, at a
meeting on 20 February 1968 with the President of the Sicilian Regional Government, Vincenzo
Carollo. According to the full version of the minutes of that meeting, drafted by ELSI, and
(25) See Memoria!, Annex 81, p. 20 (containing the decision ofthe Court of Appeal of Palermo of 24 January
1974); see also << The Claim »,p. 29, where reference is made to «complete strike ... which was never settled >;a further
explicit admission in this connections is made in the explicative report of ELSI Board of Directors, attached
to the petition in bankruptcy, see Document N. 32.
(26) See Memoria!, Annex 30, containing a statement to this effect by Domenico A. NETt, an ELSI Auditor.
(27) See Memoria!, Annex 13, pp. 8-9.
(28) Compare Articles 216-217 of the ltalian Bankruptcy Act, the full text of which is contained in Document
N. 21.
(29) See Explanatory Report on the petition in bankruptcy (Document N. 32).
(30) See Memoria!, Annex 31, p. 4·
(31) See Memoria!, p. xo et seq.
(32) See Charles F. AnAMs's letter to John D. CLARE, attached as Exhibit III-13 to « The Claim •, but omitted
in the Annexes to the Memoria!.
82 RASSEGNA DELL'AVVOCATURA DELLO STATO
annexed as Exhibit II-IS to « The Claim n, « [ ••• ] CFA [Charles F. Adams, ed.] stressed that
ELSI cannot survive without immediate cash help, which Raytheon cannot provide. JDC
[John D. Clare, ed.] drew a precise time chart showing (a) Feb. 23 - Board meeting; (b) Feb.
26-29- ìnevitable bank crisis; (c) March 8- we run out of money and shut the plant ». Surprisingly,
the text of the minutes that appears as Annex I s to the Memoria!, Exihbit B, has
been altered, and the words quoted above have been replaced by the insignificant words « Both
CFA and JDC stressed again the urgency of the situation ».
Moreover, the conclusive evidence that the liquidation of ELSI, which was decided by
the Board on I6 March I968, was anything but « orderly n, is given by the company's balance
sheet at that date. On JI March I968, the company had outstanding debts totalling Lire I6,292
million, of which Lire 4,8ss million was owìng to preferential creditors, and Lire II,4JS million
to unsecu:r;ed creditors (33). To meet these debts, the company had assets whose book value
was Lire I7,0SJ million, but whose quicksale value had been calculated by ELSI's expert
accountants as no more than Lire Io,838 million (84).
Even supposing, for the sake of argument, that everything had gone as planned by ELSI,
namely, that the sale of the assets had made Lire I0,838 million (3 5), after deducting the amount
needed to pay the preferential creditors, the remainder would only have been sufficient to pay
so % of the unsecured creditors! But if this is so, it is patently evident that what is now presented
as an orderly and voluntary liquidation, decided by the shareholders in order to avoid further
losses, was in reality a desperate attempt on the part of an insolvent company to avoid bankruptcy
by having its creditors accept an amicable settlement.
The ELSI management were perfectly well aware of the real meaning of the decision taken
on I6 March I968: « With the proceeds of the sale it was ELSI's intention to satisfy ali the creditors
in an amicable way '' (36). lndeed, they also knew perfectly well that in order to succeed
in their endeavour they had to obtain at least the tacit approvai of ali the creditors. If only one
creditor had demanded to be paid immediately and in full, bankruptcy would have been unavoidable.
This is why the liquidation pian provided for the full payment not only of the preferential
creditors but also of the mass of small creditors: as it was stated, the danger was that « [ ••• ] a
small irresponsible creditor would take precipitous action which would raise formidable
obstacles in the way of orderly liquidation ,, (37).
Such a risk apparently represented a sort of nightmare for Raytheon : indeed, despite the
fact that it had formally announced that it would never pay ELSI an extra lira, it immediately
arranged to pay ELSI Lire I so million to silence the more unruly among the small creditors (38).
But the large creditors, who were being asked to accept so % of the amount owed them,
were six banks which had outstanding claims of about 9,ooo million against ELSI, of which
just over a half was guaranteed by Raytheon (39). In the Memoria! of the United States Government
one reads that « Raytheon reasonably anticipateci, however, that the bank creditors with
large unsecured, unguaranteed loans would quickly settle their claims at no more than so %
of this value as part of the orderly liquidation, as such a settlement would guarantee prompt
and substantial payment, as compared with receiving little or nothìng in bankruptcy n (40). There
(33) Memoria!, Annex 13, Schedule F.
(84) Memoria!, p. 6o. For an indication of the criteria followed for the determination of the « quick-sale value •,
see Memoria!, Annex 17, p. 4 et seq., whereas fora comparison between the different items in the balance sheet and
in their estimate quick-sale value, see ibidem, Exhibit A.
( 35) The hypothesis that the « book value ~ of 17,053 million could be realized is not even worth being taken
into consideration, although the United States Government is now claiming that it was the most likely one (Memoria!,
pp. II and 6o-6x). Not only at the time all ELSI (and Raytheon) plans and calculations were based on the
« quick-sale value » (See, in this connection, Charles F. ADAM's Affidaviti, Memoria!, Annex 9, p. x o; Arthur
SCHENE's Affidavit, Annex 13, p. 7, Joseph A. SCOPELLITI's Affidavit, Annex 17 p. 8), but also in the Raytheon and
Machlett claim of 1974 against the Italian govemment this was the value which had been chosen for the computing
of damages.
(36) See << The Claim », p. 33·
(37) See << The Claim •, p. 33·
(3R) See Memoria!, Annex 17, p. 8.
(39) For the exact figures, see Memoria!, Annex 13, Schedule E.
(40) See Memoria!, p. u.
CONTROMEMORIA DEL GOVERNO ITALIANO 83
is no telling whether ELSI's directors really were so sure that they would be able to reach an
immediate agreement with the banks: the fact is, that on I Aprii 1968, not knowing what the
Mayor of Palermo was about to decree, the parties held yet another meeting which carne to nothing
(41). Yet the passage just quoted from the Memorial is mentioned not only because it alleges
that an agreement between ELSI and the banks was a foregone conclusion, but also because
i t openly states that the banks had everything to gain by being content wi1h ·so % of their loans
because « such a settlement would guarantee prompt and substantial payment, as compared
with receiving little or nothing in bankruptcy »l This statement clearly implies that from the very
moment in which the « orderly » liquidation of ELSI had been decided, the only real prospect
for the company was either bankruptcy or an << amicable settlement » with the creditors. And
ali the parties were perfectly well aware of this: ELSI, Raytheon and the banksl
8. The requisition of ELSI's plant and equipment; its legal basis, nature,jùstification and effects.
On I Aprii 1968,theMayor ofPalermo ordered that the plant and equipment owned byELSI
be requisitioned for a period of six months (42). This decision is the main point on whièh the
charges made by the Government of the United States against the Italian authorities are hinged.
It therefore appears necessary to darify the nature, the content and the effects of the Mayor's
decree.
We shall begin by pointing out that under Italian law the legai basis of the decree is Artide
7 of Law N. 2248 of 20 March I86s, Annex E (the so-called administrative litigation law) (43).
The artide ·in· question states that << when because of grave public necessity, the administrative
authorities must dispose of private property without delay ... the administrative authorities
will proceed by means of a decree indicating the reasons, without prejudice to the rights of the
parties >>. This means that the administrative authorities are empowered to « dispose of private
property » an d therefore also to · take requisition measures, provided that this is justifìed by a
state of <<grave public necessity » and of urgency (there is the need to act « without delay »);
however, the parties must be ultimately compensateci.
If the private property concemed consists of immovable property and it has been requisitioned
in accordance with the above-mentioned law, there can only be a « requisition in use » ('4
).
As a rule, the extension of the requisition measure will depend on the duration of the state of
necessity: in any case, the decree itself must be accompartied by an indication of a time limi t
(in the case in hand, this was six months) which may be further extended upon expiry. Within
this time limit, the authority can use the immovable property, but cannot acquire it or sell it
to others. All this is implicit in the terms « without prejudice to the rights of the parties »;
The difference between requisition in use an d expropriation is dear: expropriation deprives
the private individuai of his right of ownership, which is transferered to the administrative authority
expropriating the property. On the other hand, requisition in use deprives the owner only
of the use of the property over a certain period of time. Under ltalian law, expropriation is regulated
by specifì.c legislation, notably Law N. 2359 of 25 June x865 (on compulsory expropriation
in the public interest), and is also covered by a provision in the Constitution (Artide 42,
paragraph 3, according to which «private property, in such cases as are provided for by law
an d upon payment of compensation, may be expropriated for reasons of public interest »); requisition
in use, on the other han d, is covered by the above-mentioned Artide 7 of La w N.
2248 of 20 March x865.
Three aspects of the content of the decree issued on I Aprii 1968 by the Mayor of Palermo
deserve special mention: the provisions explicitly referred to, the detailed reasons given and
the measures actually taken. With regard to the fì.rst aspect, it is noteworthy that the decree
referred not only to the above-mentioned Artide 7 of Law N. 2248 of 20 March x865, Annex
E, but also to Artide 69 of the regionallegislation governing local authorities, namely Legisla-
(41) See << The Claim &, pp. 34-35.
(42) See Memoria!, Annex 33·
(48) See Memoria!, Annex 34·
(44) See SANDULLI, Manuale di diritto amministrativo, 13th ed., Naples 1982, P• 789,
84 RASSEGNA DELL'AVVOCATURA DELLO STATO
tive Decree N. 6 of 29 October 1955 of the President of the Sicilian Region (4ll). Under the
heading of 11 orders based on emergencies and urgency », the latter provision (paragraph I) states
that 11 the .Mayor issues emergency and · urgent orders in matters of civil works, local poli ce and
health for reasons of public health and safety ». It thus underlines and defines the Mayor's
powers also to take, inter alia, urgent measures in local police matters for reasons of public safety.
The Mayor's authority to dispose. of private property on this basis was considered to be 11 unchallengeable
» (11 indubitabile ») by the Prefect of Palermo when he was called upon to rule on
the appeal taken by ELSI against the requisition decree we are examining (46). The decree was
justified on a number of circumstances: in the first piace the decision by ELSI to shut down
its plant and dismiss about one thousand employees, a decision that was followed by the strikes
called by trade:unions with the support of public.opinion. Other relevant considerations were
the damage to local economy, the strong interest shown by the press and the danger of law and
order. being perturbed .. All these circumstances .led the Mayor to form the opinion that the
condÌ.tions of grave public necessity and urgency specified in particular in Artide 7 of Law
N. 2248 of2o March 1865 actually existed in the ELSI case.
As already seen, the decree · issued by the Mayor of Palermo provided for the requisition,
for the duration of six months and 11 except as may be necessary to extend such period, and without
prejudice for the rights of the parties concerned and of third parties », of the plant and equipment
owned by ELSI. The sal:ne decree acknowledged the right of the company to be paid
compensation for the requisition, although the assessment of such compensation was deferred
to a subsequent order. ·
The requisition decree did not deal with the measures to be taken for the purpose of the
temporary management of the plant; provision for this was made by the Mayor immediately
afterwards by means of separate orders. · On 6 Aprii 1968, the Mayor issued a special order
· entrusting the management of the plant to Mr. Aldo Profumo, the managing director of ELSI,
also 11 for the purpose of avoiding damage to the equipment and machinery due to the cessation
of all activities.including maintenance ,, (47). After Mr. Profumo refused to accept this appointment
and to carry out the tasks assigned to him in the interest of ELSI, on 16 Aprii the Mayor wrote
to Mr. Silvio Laurin, the senior company director, to notify him that 11 ( ... ) in view of the continuing
absence of Ing. Profumo, to whom the management of the requisitioned plant had been
entrusted, I hereby appoint you to replace him temporarily in the same capacity with the same
powers, functions and limitations. The choice of yourself is justified by the need ( ... ) to ensure
the coordination of management activities to safeguard the interests of government authorities
and .the rights of third parties ,, (48). Mr. Laurin accepted the appointment. The Mayor also
appointed Mr. Armando Celone and Mr. Nicolò Maggio as bis representatives to enforce his
orders in the factory (49).
9· Precedents concerning the requisition of plants ordered by other ltalian local authorities
(I950-I986).
An examination of Italian judicial decisions concerning the requisition of industriai plants
during the years 1950-1986 indicates that the requisition of plants was not episodic in
nature but was often used to protect existing jobs in plants facing the threat of closure.
Under the circumstances, its purpose .was that of preventing the financial difficulties of certain
companies from having negative repercussions on workers' employment. Emblematic in this
regard is the well-known 11 Marzotto affair », which.arose out of the decree to requisition a plant
of Marzotto S.p.A. of Valdagno issued by the. Mayor of Pisa on 25 June 1968 (60). Another such
case is that of a plant of S.p.A. Torrington, a company in liquidation which was requisitioned
(46) See Memoria!, Annex 35·
(46) See Memoria!, Annex 76.
(47) See Document 34·
(48) See Document 35.
(49) See Document 33·
(60) See decision N. 3o86 Q{ the Court .of GassatiQn of 23 October 1974 (Document N. 23).
CONTROMEMORIA DEL GOVERNO ITALIANO 85
by the Mayor of Genoa in order to prevent it from being dosed down and the employees from
losing their jobs (51). A third case is that of a plant belonging to the Italiana Zuccheri company,
which was requisitioned for 90 days by the Mayor of Chieti on 16 July 1974 and handed over
to the Abruzzo Development Agency, which was given the task of managing it so as to avoid
the suspension of activity and thus to safeguard job stability (52).
Also worth mentioning are the cases of Soc. SITE, whose plant was requisitioned by
order of the Mayor of Padua on 29 September 1974 just as it was about to be dosed down (53)
and Soc. Manifattura dell'Adda. The latter company's plant was requisitioned by the Mayor
of Berbenno di Valtellina in order to ensure the continuity of its productive activity, which
was considered to be essential for the economy of.the area (54).
On other occasions requisition of a company plant has been ordered so as to ward off the
negative . repercussions on the economy an d la w an d order caused by prolonged suspension of
the company's productive activities. This is the cases of Soc. Terites and Soc. San Marco,
whose plants were requisitioned in order to.safeguard the future activity of the plant in the interest
of local employment and of law and order (55). Then there is the .case of the plant of Soc.
SIDELM, requisitioned by the Mayor of Brindisi on 14 September 1974 for reasons of
law and order and to ensure the continuity of productive activity in a plant considered essential
for the economy of the area and the public interest (56), and that ofthe Felice Fossati cotton milis,
which was requisitioned by the Mayor of Sondrio on 2 February 1975 in order to ward off the
threat to law and order due to the plant dosing down (57). The best known case is stili, however,
that of Soc. Eridania, whose plant was requisitioned by the Mayor of Cremona in order to avoid
damage to the economy of the area and the threat to law and order caused by the company's
plans to dose down the plant.
A similar decree was issued against Soc. Eridania Zuccherifici Nazionali shortly afterwards,
on 5 December 1968, by the Mayor of Ferrara (68).
The above-mentioned cases show that the requisition of the ELSI plant was by no means
an isolated event, let alone the result of persecution of a company controlled by United States
shareholders. In fact, it is dear that the authority given to the Mayor by Artide 7 of La w N.
2248 of 20 March 1865, Annex E, has very often been used in similar cases to that of ELSI.
10. Compensation for the damage caused by the requisition.
l t has already been pointed out that the requisition decree of the Mayor of Palermo recognized
the principle that ELSI was entitled to compensation. It is true that this recognition
was not followed by any action by the Mayor to determine the amount of such compensation.
However, it should be borne in tnind that some days after the requisition (that is, on 19 Aprii
1968) ELSI lodged an appealwith the Prefect of Palermo, daiming that the decree was illegitimate
(69
). After the favourable decision of the Prefect on 29 December 1969, the bankruptcy
receiver sued the Ministry of the Interior before the Tribuna! of Palermo on 29 December 1969,
daiming damages for the requisition (60). This claim was rejected by a decision of 2 February
( 51) See decision N. 72 òf the Council of State, Section IV, of 7 February 1978 (Document N. 29).
(52) See decision N. 198 of the Abruzzo Tribunale Amministrativo Regionale of 30 December 1976 (Document
N. 24).
( 63) See decision N. 208 of the Council of State, Section IV, of 25 February 1975 (Document N. 26).
(64) See decision N. 210 of the Lombardy Tribunale Amministrativo Regionale of 30 July 1975 (Document
N. 27).
(66) See respectively decisions by the Prefect of Milan of 12 November 1971, Il Foro Italiano - Repertorio
(1972}, Requisizione, N. 7, and by the Prefect of Cremona of 28 November 1975, ibidem (1976), Requisizione, N. 23.
( 66) See decision N. 3 of the Apulia Tribunale Amministrativo Regionale of 28 January 1975 (Document
N. 25).
(67) See decision N. 21 of Council of State, Section IV, of 18 January 1977 (Document N. 28).
(68) On these cases, see respectively decisions by the Prefect of Cremona on 8 December 1968 (Foro ItalianoRepertorio
(1969), Requisizione, N. 7 and by the Prefect of Ferrara, quoted in the decision No. 405 of Council of
State, Section IV, of 8 April 1975, 99 Il Foro Italiano (1976) III-14.
(59) See Memorial, Annex 36.
(60) See Memorial, Annex 79·
86 RASSEGNA DELL'AVVOCATURA DELLO STATO
I973 (61
) but this decision was reversed by the Court of Appeal of Palermo on 23 November
I973 (62
). The latter decision was upheld by the Court of Cassation on 26 Aprii I976 (63).
Thus, the receiver in the ELSI bankruptcy succeeded in obtaining compensation for the
damage caused by the requisition. The damages actually awarded amounted to 5 % of the
value of the requisitioned property, as assessed by the bankruptcy evaluator (exactly, Lire
I I4,0I4,7I I). Clearly, the claim for damages was based on the premise that the measure was illegitimate,
while compensation in the strict sense only applies to the case of a legitimate requisition
decree. The Court of Appeal of Palermo, in the above-mentioned decision of 23 November
I973, correctly pointed out that «in application of principles of law that have never been questioned,
any impediment to the enjoyment of private property is by itself an economie sacrifice and
as such gives entitlement to the payment of adequate compensation, when carried out legitimately
(e.g. occupation, requisition, etc.) and to the payment of damages when it is illegitimate »,
I I. Requisition and occupation of ELSI's plant; the impact of requisition on the prospect of an
« orderly liquidation » ; requisition and bankruptcy petition.
Let us now consider three points in which the version of the facts given by the claimant
Government is based on a complete misrepresentation. These points are the problem of the
relationship in time between the requisition of ELSI's plant and its occupation by ELSI's
employees, the question of the effects that the requisition had on the prospect of an orderly
liquidation of the company and the issue of whether the requisition actualiy caused the bankruptcy.
With regard to the first point, it must be recalled that the plant had been occupied by the
employees since early March I968, and not only after the requisition (64). The claimant Government's
allegation that the Italian authorities behaved in such a way as, if not actualiy to encourage
the occupation, at least to make it possible and subsequently to tolerate it (65), is far from being
true.
The only action which one way or another succeeded in calming down the ELSI employees,
who were exasperated by the company's decision to cease ali activity and dismiss ali its workforce,
was the requisition decreed by the Mayor. Rightly or wrongly the employees saw this
as an affective way of safeguarding their position. This is why, after the requisition, the occupation
quickly took on a purely symbolic character with ali the workers now feeling directly responsible
for everything that happened inside the factory. It is a fact that - as expressly stated
also in the above-mentioned decision by the Tribunal of Palermo on 2 February I973 - the
occupation not only caused no ascertained damage to the equipment and materia! located in the
factory but did not even prevent the regular performance of the winding-up operations.
With regard to the company's « orderly >> liquidation pian and the effects of the requisition
on it, it must be pointed out from the outset that ELSI was already insolvent when the requisition
decree was issued. The company, whose assets in the estimation of its own management
had a quick-sale value of no more than Lire I0,500 million, had accumulated more than Lire
I6,ooo million in debts. Mter its two shareholders refused to contribute further capitai, the
company was forced to liquidate part of its assets to meet its commitments when they feli due.
As both Raytheon and Machlett were tostate in their I974 claim against the Italian Government:
« At the end of the month of March Ig68, the situation relating to ELSI was as foliows: ( ... )
ELSI had run out of money and had no prospect of receiving funds except from the sale of
assets ( ... ). Substantial payments were due from ELSI, the maturities of which had not been
extended >> (
66).
(61) See Memoria!, Annex So.
(62) See Memoria!, Annex 81.
(63) See Memoria!, Annex Sz.
(64) See supra, paragraph 6. The claimant Government's contention that « the occupation began only after
the Mayor - an Italian government official - had assumed custody of the plant ~ (Memoria!, p. 54) contradicts
evidence.
(65) See Memoria!, p.p. 53 54 et seq.
(66) « The Claim ~. pp. 35-36.
CONTROMEMORIA DEL GOVERNO ITALIANO 87
The « orderly » liquidation decided by the Board of Directors on I6 March 1968 was therefore
only a bluff. An « orderly )) and voluntary liquidation presupposes that the company has
sufficient assets to fully satisfy its creditors (67).
In the case of ELSI it was common knowledge from the outset that in the best possible
case the unsecured creditors would receive only so % satisfaction: had one of them refused
the settlement and requested full payment, bankruptcy would have inevitably ensued. Under
these circumstances, the ELSI management was under an obligation, also according to criminal
law, either to file for bankntptcy orto formally propose an amicable settlement to ali the creditors.
The truth is that ELSI had actually been in a state of virtual liquidation already from the
beginning of the year (and its plant had been occupied by the employees ever since early March).
If it was not possible to sell on the open market all or part of its assets at the prices fixed in the
company's cc orderly )) liquidation pian, the fault did not lie with the Mayor's requisition, which
was issued only on I Aprii 1968. The fact is that even before this event no one was willing to
purchase at those prices the assets of a company which was dearly insolvent.
In any case, it must be ruled out that the bankruptcy was a consequence of the requisition,
as is daimed by the Government of the United States (68). In this connection, it may be sufficient
to recall the statement of the Court of Appeal of Palermo in the above-mentioned decision
of 23 November 1973: cc The fact that the Company was insolvent during the time immediately
prior to the Mayor's intervention - in connection with which we recall the many and noisy
demonstrations which this gave rise to, as we are reminded by the Court - is sufficient to rule
out any causai link between the subsequent requisitioning order and the Company's bankruptcy
and that the Company's state of insolvency was decisive and sufficient cause for its failure (Artide
s, Bankruptcy Law) )) (69).
12. The appeal against the requisition decree.
The requisition decree of I Aprii 1968 was appealed against by ELSI to the Prefect of
Palermo 18 days later (on 19 Aprii 1968). A much shorter time was to pass between this appeal
and the bankruptcy petition, filed with the Court of Palermo by the company on 25 Aprii. Therefore,
while the appeal against the decree was pending, the bankruptcy proceedings were opened.
At the same time increasing e:fforts were made to find a definitive solution to the problems of
the company. It can therefore be said that, from the month of Aprii 1968 onwards, three parailei
events were in progress: the appeal proceedings against the requisition decree, the bankruptcy
of the company, and the rescue operation in which IRI became more and more involved. We
shall describe each of these events, taking the interactions between them into account.
13. The decision taken by the Prefect of Palermo on the appeal.
The ELSI appeal to the Prefect of Palermo requested the setting aside of the requisition
decreee. It was daimed on the one band that the laws oh which the requisition was based (Artide
7 of Law N. 2248 of 20 March 1865, Annex E; Artide 69 of the Legislative Decree N. 6
of the President of the Sicilian Region of 29 October 1955) had been violated and, on the other,
that the Mayor had misused his powers. It should be noted that the Prefect's decision of 22
August 1969 rejected the arguments concerning the first issue and thus ruled that the abovementioned
laws had been correctly applied. In particular, the Prefect pointed that cc it is undisputed,
in case-law and legai doctrine, that the Public Administration is empowered by the
(67) See Articles 6 and 160 of the Italian Bankruptcy Law (Document N. 21) according to which it is primarily
up to the insolvent enterprise itself to request the declaration of its bankruptcy or alternatively to propose an amicab!
e settlement to the creditors. Accordingly, Art. 217 N. 4 of the same law states that the debtor shall be sentenced
from 6 months to 2 years of imprisonment if he has aggravated the economie situation by abstaining from
petitioning for the declaration of bankruptcy or by other serious negligence.
(68) See Memoria!, p.p. 39-40.
(69) Memoria!, Annex 8 I, p. 14. Artide 5 of the above--mentioned Bankruptcy Law states: « Any entrepreneur
in a state of insolvency sha!l be declared bankrupt. The state of insolvency is revealed by cases of default or by other
externa! facts which indicate that the debtor is no longer able to meet his obligations regularly ».
88 RASSEGNA DELL'AVVOCATURA DELLO STATO
above-mentioned Artide 7 to dispose of the private property whenever the necessity exists
to face a situation of actual and imminent danger for a public interest (public health, public
order, etc .... ) and therefore the grounds of an urgent emergency are given ».
However, the Prefect ruled that the decree appealed against was nevertheless illegitimate
since, in his view, « the purpose to which the requisition was directed could not be actually
achieved by the order "; in other words, the Mayor had not taken account of the fact that the
company could not continue its activity unless there were interventions capable of solving its
financial and industriai problems. This was the only reason why the Prefect upheld the appeal
and set the requisition decree aside.
14. The delay Qj the Prefect's decision.
One of the charges made by the Government of the United States against the Prefect's
decision is that it was delayed. It was in fact delivered 16 months after the appeal taken by
ELSI. The daimant Government contends that this delay was quite unusual for normal Italian
practice and that at the time the requisition was dedared illegitimate, it had already irremediably
produced its effects (1°).
With regard to Italian practice the Government of the United States relies on an affidavit
by the legal counsel of Raytheon (71), to the effect that the average time taken by prefects to
decide upon appeals against requisition orders issued by mayors is about one month. The
Chief of Staff of the I talian Ministry of the Interior has instead dedared that the average time
is about one year (12).
Quite apart from this, three significant circumstances must be pointed out. In the first place,
it must be recalled that, in accordance with Artide s, paragraph s, of the Consolidated Law
N. 383 of 3 March 1934 (Municipal and Provincia! Law), « [a]fter 120 days from the date of
the filing of the appeal without the authority with which the appeal has been filed having ruled
on the said appeal, the appellant may request the authority, after notifying it by means of a
petition, that the appeal be ruled upon (13). In the case in hand a request was made to the Prefect
only on 9 July 1969 and the appeal was decided upon about a month and a half later. In
the second piace it should be pointed out that the requisition had already ceased to have any
effect on 30 September 1968, i.e. at the date of expiry of its normal term of six months. By this
date the effects of the requisition and those of the bankruptcy, dedared on 16 May 1969, had
already long overlapped as far as the availability of the plant and its equipment were concerned.
Therefore even if the Prefect had decided on the appeal against the requisition within
a month, ELSI would not have anyway been able to make free use of the requisitioned property.
Furthermore, if the requisition was to be regarded as the cause of the bankruptcy, as the daimant
Government contends, the relevant delay in the Prefect's decision did not go beyond the seven
days elapsing between the presentation of the appeal to the Prefect (18 Aprii) and the date when
the bankruptcy petition was filed (25 Aprii). In fact, from the point of view of the availability
of the plant it would have obviously been of no use to succeed in an appeal to the Prefect after
the bankruptcy petition had been filed.
Lastly, it must be emphasized that the Prefect's. decision had the only effect that it was
actually capable of producing, i.e. it created the preliminary conditions needed for the receiver
in the bankruptcy proceedings to take action against the Ministry of the Interior before the
Tribuna! of Palermo for the purpose of daiming damages for unlawful requisition. This daim
was brought four months later, on 29 December 1969, and, as has already been mentioned, was
successful (14).
( 70) See Memorial, p. 53·
(71) See Memoria!, p. 21.
(72) See Document N. 30.
(73) See Document N. 20.
(74) See Memoria!, Annexes 79-82.
CONTROMl!MORIA DEL GOVERNO ITALIANO 89
15. The episodes characterizing the bankruptcy proceedings : zg68-zg6g.
Let us now examine the episodes characterizing the bankruptcy, which opened, as we
bave seen, with the decision of the Tribuna! of Palermo of 16 May 1968 upholding the
petition fìled by ~LSI on 25 . A.pril.
By way of introduction,. it i~ to be recalled that, under Italian Iaw, the judicial authorities
co11cerned with bankrul)tcy proceedings (i.e. the bankruptcy court and the delegated judge)
bave the statut()ry aìm of e!lSuring the best possible satisfaction of the interests of ali the creditors
through the liqitidation of the bat1krupt's assets. For bis part, the receiver, in bis capacity of
public official, acts as a close c.ollaborator of the delegated judge. ·
· The Government of the United States casts some doubts about the objectivity of the authorities
dealing with the ELSI b~ktuptcy. It further contends that the Italian Government
<< c:l.iscouragedprivate biqde~:s, boycottedthe aucticms itself, and worked out special arrangements
for a piecemeal tak~rQvet: directly with the bankruptcy authorities )) (15).
In act\lal fact, three of the a'Uctions called by the delegated judge (held on 18 January 1969,
22 March 1969 and 3 May 1969, respectively) were unattended and only at the fourth auction
(held on x2 July 1969) did ELTEL, a ri.ew company of the IRI-STET group, make a bid, which
was accepted in the absence of any other bidders. This in no way implies that irregularities
were committed by Italian authorities. Any bidders interested were invited to participate as
is shown by the fact that extensive publicity was given to individuai sales announcements published
also inthe foreign press (see the. advertisements in Corriere della Sera, Sole-24 Ore, Il Globo,
Fi'nancial Times, The New York Times, Fran/ifurter Allgemeine Zeitung, Le Monde, Le Soir,
De Telegraaj, Nihoneiza Sl#mbun (16
).
At the beginning of Aprii 1969, that is between the second and the third auction, the delegated
judge of the bankruptcy court, at the request of the receiver and with the S\lpport of the
majority of members of the creditors committee, authorized the lease of the ELSI plant to
EL TEL for a .period of eighteen months. Raytheon contended that the lease represented a prejudice
to the creditors because i t made in fact impossible a sale to third parties other than EL TEL
of the plant or ofindividual separateJines (77). llowever, the Tribuna! of Palermo, in rejecting
this conteri.tion, did not fail to point out that the lease was actually advantageous for the creditors
since, far from making the sale of the plant impossible, it actually made the sale easier, in that
EL TEL was uiider obligation to maintain the plant in perfect · efficiency and to carry out ali
the repairs and replacements due to normal wear and tear (18). No appeal against this decision
of the Tribuna! of Palermo was taken by Raytheon.
16. The sale oj the supplies and of the ELSI plant.
On 5 May 1969 the bankruptcy judge authorized the sale to EL TEL of the materia! existing
on the production lines at the price of Lire 105 million. The Government of the United
States now describes this operation as a sell-out, by arguing that the price paid by EL TEL
amounted to barely 48 % of the inventory value of the materia! in question (19). However, it
fails to consider that while judicial valuator Mr. Di Benedetto had indeed assigned an inventory
value of Lire 2i7 milHon to the materia! iriquestion, ELSI itself had previously valued it at
ori.ly Lire 193 million {80). Furthermore, it must not be overlooked that the receiver himself,
in bis request for sale authoi:ization, pointed out that the materia! was more than one year old
and therefore hard to market, and that its removal from the production line would further reduce
its value (81). Lastly, ifthe operation was truly so sU:spect, why did Raytheon merely express
(75) See Memoria!, p. 41.
(76) See « The Claim », Exhibit III-19, not attached to the Memoria!.
(77) See Memoria!, Annex 62.
(78) See Memoria!, Annex 64, p. 3·
(79) See Memoria!, pp. 19 and 42.
(BO) See « The Claim *• p. 57·
(Bl) See Memoria!, Annex 69.
90 RASSEGNA DELL'AVVOCATURA DELLO STATO
its reservations at the meeting of the creditors' committee and not appeal to the court against
the authorization given by the delegated judge ?
On 12 July 1969 the fourth auction for the sale of the ELSI plant was held. The plant
and equipment were put up for sale at the starting price of Lire 3,200 million, and the supplies,
excluding raw materials and finished products, together with the semi-finished products for
semiconductor production, at the starting price of Lire 8oo million.
The only bidder at the auction was EL TEL, to whom the whole lot was adjudicated for a
total price of Lire 4,oo6 million. According to the claimant Government this was a ridiculously
low price that EL TEL allegedly managed to impo$e by virtue · of the fact that i t was already in
renting of the plant. Allegedly, the Italian Government thus achieved its aim of having IRI
purchase the ELSI assets « without paying a freely market-determined price » (82). In this connection,
i t is necessary to clarify a gross misunderstanding. At the stage that matters had reached
(as this was the fourth auction aftel' the first three had been unattended) it was out of the question
that the sale of the plant could take piace according to a « freely market-determined price »:
the question is therefore not to see whether EL TEL had purchased « at less than fair market
price » or at a « reduced price » (88) but only whether the price paid could be considered reasonable
in the circumstances.
17. The value of the property in question and the price paid by ELTEL.
The first thing to establish is the value of the property in question, according to the various
previous estimates. The claimant Government refers to an alleged « book value >> of Lire 12,ooo
million (84), although this is a totally unreliable figure. This value is based on the Iast balance
sheet drawn up by ELSI more than one year earlìer (31 March 1968) and without the support
of regular accounting. Furthertriore, it refers, in addition to the plant and equipment, to all
the supplies existing at the time, while the supplies acquired by EL TEL at the auction were
very limited, as many articles had been previously sold by the receiver and also the remainder
was exclusive of ali raw matedals and finished products, as well as semi-finished products for
semiconductors. Only two estimated can be taken into consideration with reference to the value
of the assets in question: the quicksale value, worked out by the ELSI management itself before
deciding to wind up the compail.y and the judicial evaluation carried out by Ing. Puglisi on 12
October 1968 (85).
If we take either of these two estimates as a reference, the value of the assets actually purchased
by EL TEL basically corresponds to the price adjudicated at the auction.
Ali that remain to be done at this point is to examine the prices set in the various individuai
auctions and to see how the final figures were arrived at. The starting price set for the first
auction was Lire 4,650 million (for plant and equipment alone). For the second auction the
starting price was fixed at Lire 6,223 million (Lire 4,ooo million for the plant, and Lire 2,223
million for the supplies). A few days earlier, EL TEL had sent the bankruptcy judge a documented
valuation made by the Siemens technical office, giving the current value of the ELSI plant
and equipment as not exceeding Lire 2,770 million (86). The judge maintained the previously
fixed price and the auction was unattended. The starting price for the third auction was fixed
at Lire s,ooo million (Lire 3,200 million for the plantand Lire 1,8oo for the supplies). ELTEL
made it known that it was willing to pay the requested price for the plant, but that in no case
was i t willing to bid for the supplies, which it considered quite useless (87). The delegated judge
nevertheless remained firm in his decision to auction off plant and supplies. The third auction
(82) Memoria!, p. 20.
(BR) Memoria!, respectively pp. 41 and 43·
(84) Memoria!, pp. so-sr. ' .
(85) See « The Claim >>, Exhibit II-41, not attached to the Memoria!.
(86) See Considerations by SIT-Siemens of 5 March, 1969, contained in << The Claim >>, Exhibit lll-32,
omitted in the annexes to the Memoria!.
(87) See the petition of x6 Aprii 1969 annexed to « The Claim », Exhibit lll-33, omitted in the annexes to the
Memoria!.
CONTROMEMORIA DEL GOVERNO ITALIANO 91
was also unattended. ELTEL relented and, on 27 May 1969, informed the delegated judge
that it would be prepared to purchase the entire lot at a price of Lire 4,ooo million (88). Mter
requesting and obtaining the approvai of the receiver and the creditors (among the latter, only
the Raytheon representative expressed strong reservations), the delegated judge set the starting
price for the fourth auction at Lire 4,ooo million (Lire 3,200 for the plant and Lire 8oo for the
supplies). It should be noted that this price only .apparently coincided with that offered by
EL TEL, as the latter referred to all the supplies · contained in the stores, while the lot auctioned
by the judge excluded ali the raw materials and finished products, as well as semi-finished products
for semiconductors. Nevertheless Raytheon appealed to the Court against the delegated
judge's order, but its appeal was rejected by the Court on 20 }une 1969 (89).
In view of the above considerations it can be concluded that the price paid by EL TEL at
the bankruptcy auction was perfectly reasonable. In this context, i t may be recalled that, in the
1974 Claim put forward against the Italian Government by the applicant Government on behalf
of Raytheon and Machlett, it was contended that the price paid by ELTEL was only 300, or
a t most soo, million Lire less than the estimated realization value of the property in question (90).
This is an understandable difference considering that EL TEL was purchasing at a fourth bankruptcy
auction, after three auctions had been unattended!
18. The role played by IRI from I967 to March I968.
It may be useful to add some explanations concerning the role played on several occasions
by IRI in the attempt to rescue ELSI.
A fact of considerable interest for a correct understanding of the matter is that IRI (Istituto
per la Ricostruzione Industriale) is a public enterprise which has numerous interests in private
companies. By law it must act in accordance with the principle of profitability (see Artide
3 of Law N. 1589 of 22 December 1956) and enjoys full managerial freedom. Naturally, its
legai personality is distinct from that of the State. Only in exceptional circumstances, when it
is a matter of protecting generai interests such as the safeguarding of employment, can the Government
give IRI some directives (e.g. the purchase of unprofitable companies). However,
even in such cases the decisions ma:de by IRI are attributable to IRI itself and not to the State.
In the case in hand, the suggestion that IRI should intervene was first made by Raytheon.
It should be recalled in this connection that, bacause of the serious crisis affecting its Palermo
subsidiary, as early as Sprìng 1967 Raytheon had requested that IRI should purchase an interest
in ELSI and thus help to improve its situation. The request was rejected for a very simple
reason. According to the reorganization pian drawn up at that time by the new ELSI management,
the company was to expand mainly in the telecommunications sector, that is, in a sector
in which severa} companies belonging to the IRI group were already operating. ELSI would
therefore have become a direct competitor (91). IRI's response in early 1968 was to take a firm
stimce: '' IRI and Finmeccanica point out that in this new ELSI report there seems to be little
justification for modifying the opinion on the ELSI situation which they expressed at the previous
meeting with Raytheon. The financial support to be provided by the proposed new capitai
of 6 billion Lire is not in itself sufficiertt to improve significantly the basic operating position of
the company, which remains in an extremely serious condition notwithstanding the praiseworthy
efforts made by Raytheon to achieve a sound hasis of operations ( ... ) IRI and Finmeccanica point
out that within the IRI Group there were no concrete possibilities of ensuring a direct market
(88) See Memoria!, Annex 70.
(89) See copy of « The Claim ~ and decree annexed to « The Claim & as Exhibit 38, but later omitted.
(90) « The Claim &, p. 66.
( 91) See « 1967 Report *• which expressly states, at p. 25: << The third possible group, which would certainly
represent the major build up of new products, could come from government-owned agencies in Italy ( ... ). As
an example, a large part of the communications equipment for the ltalian PTT and the concessionary companies
is manufactured by IRI Companies ( ... ). There is certainly every reason why future telephone switching and
other communications equipment for use in Sicily and Southern Italy could and should be made in Sicily in Raytheon
Elsi ».
92 RASSEGNA DELL'AVVOCATURA DELLO STATO
outlet for Raytheon-Elsi's production. The only exceptions to this statement concem areas
of marginai interest, or areas in which other IRI companies, which already have substantial
problems of their own to be solved, are currently operating ( ... ) » (92). I t is true that IRI did not
exclude the possibility of a reappraisal some time in the future. « However, IRI desires to point
out that, even though- with great regret- it cannot accept Raytheon's request at this time,
it remains possibile that a later request by Raytheon might receive more favorable consideration
( ••• ) » (93). Nevertheless, this was said out of pure courtesy, and is explained by the excellent relations
till then prevailing between IRI and Raytheon.
At the time, the Italian Govemment refrained from putting pressure on IRI to obtain its
involvement. The situation changed considerably after ELSI's decision to cease its activity and
to liquidate its assets. ELSI's desperate financial straits clearly indicated that only a large-scale
intervention could avoid collapse with the consequent loss of more than one thousand jobs
Since the Sicilian Region had immediately stated the condition that any financial aid on its part
would be dependent on IRI participation in the rescue operation, the centrai Government now
made it clear that it would do everything to convince IRI to accept.
It should be noted, however, that if the Italian Govemment had really intended to have
IRI buy up the ELSI factory cheaply, the easiest way to do so would have been to reject Raytheon's
desperate requests for funds and to let ELSI's financial conditions to deteriorate until
bankruptcy became inevitable. And if, as was actually to happen, the shareholders of the company
refused to come to terms with reality, bankruptcy could easily have been requested by one of the
creditor banks.
Instead, the behaviour of the Italian Government was quite the opposite: it immediately
declared its availability to come to ELSI's help and even when the ELSI shareholders tried to
force its hand, ignoring the company's longstanding insolvency, and pretending to carry out
an orderly liquidation, it continued to seek a solution which would be acceptable for all concerned.
This would indeed have been a peculiar attitude to adopt for someone pursuing the diabolica!
aim of trying to take property for the benefit of IRI! Nor could it be claimed that the first
step in this direction was the order to requisition the factory, which was alleged to have caused
ELSI's bankruptcy and ali the ensuing events. The first reason for this is, as already said, that
it was not the requisition order which caused ELSI to go bankrupt as the company was already
insolvent. In the second piace the requisition was evidently a simple emergency measure, taken
mainly for the purpose of avoiding any possible disorders due to the dismissal of ELSI employees
decided by the company management on the previous day. Moreover, the fact that all parties
concerned considered it to be little more than a temporary nuisance is shown by the fact that
negotiations for the public rescue of ELSI continued without slackening even afterwards and
that ELSI itself allowed 19 days to go by before lodging an appeal against the Mayor's decree.
The truth is that the impossibility of reaching an agreement concerning the timing and
procedure of IRI action in favour of ELSI, which was then recommended by all concerned,
was not the fault of the Italian authorities but of Raytheon. Raytheon was perfectly aware that
the Italian authorities would never accept that ELSI's activities ceased overnight, leaving more
than one thousand employees jobless. Taking advantage of this fact, Raytheon continued to
act as though the ELSI crisis was none of its business and as though it was the concern of the
Italian authorities to provide for the company and its creditors.
19. The ltalian authorities' proposal fora settlement in March and April zg68.
At the end of March 1968, i.e. after ELSI's decision to cease its activity and to proceed to
an « orderly » liquidation, but before the requisition decree, the Italian authorities asked Raytheon
to reopen. the factory an d not to send the dismissal letters as announced. In return the
Government would pay the wages and shoulder most of the operating losses, until such time
(92) See Memorial, .Annex xs, Exhibit C, containing the Summary of the Talks held at IRI on January 4,
1968, between IRI Management, the Chairman of Finmeccanica and Mr. John D. CLARE.
(93) Ibidem.
CONTROMEMORIA DEL GOVERNO ITALIANO 93
as. a public coJnpany could ()pen negotiations with ELSI for the purchase or lease or its assets.
Raytheon ·l:efused (9~). · ·
T4~ same. proposal was renewed to the .company one month later, but Raytheon again
refused. This tii:ne, however, its. acceptance>would have eritailed the immediate revocation oi
the l:equìsition order" which the Mayor • of Palermo had in the meantime issued; . as well as the
pledg~. of, tp.e .• J~liaiJ; aJJ.thòrities .• • that, once.· productive activity . would · bave• · been resumed, by
mean~ ofa speeìllt management company to be set up together with the Sìcilian Region ari d IRI,
(( evety})o,ciy; inclu:diug the Region and IRI, shaU be ready to help Raytheon and in the meantime
to liquidate ELSI thtough a useiul sale in the shortest pdssible .time >~ (95). In an atteinpt to
justify the undue intransigence ()I Raytheon, the applicant Government now claims that, by
means OI this proposal, « [a]fter having requisiponed ELSI's plant and other tangible assets,
Italian authorities pressured Raytheòn to reopen ELSI at Raytheon's owri expense » (96}. In
acwatfact; rlle estall.Jisbme:n,t ()f,the ne)V ()perating C9mpany W()Uld ha:Ve .fequired Mtthe payingUP
()I. 2.9Y n~w Cl!PÌt~, hut tll,erely Raytheon's willingness to cover 40 %. OI the ptobable. operating
l()S!les, :while the rell1aining 6o % would be covered by the Region and IRI,
, .. ·,., · tJ;oweyer1, the crucial point was a different one: Raytheon, although it had made out that
it iriteJ;lcte<i',to pr()cee<,l:With the « Ot'derly » liquida#on ofEI.SI, knew vecy well that only an agree~
nt wi#l :t:he J:>an}(s wo'l;lld allo w it. to avoid having to Jwnom the gl;larantees extended to EL SI.
~a l!.b1~e,,JJ.p:t;o,,:t;h;ttitne,·:t:he banks had sh9wnlittleinçlination to come totermswith Raytheon,
it may be concluded that the latter had every interest in allowing the situation t() wotsen in the
hl)pe that~façe4,.vvitl:l, t;he,prospect 9Ì l9,sin~ t;~VfltYtlli~g. 1:he.l:>ank$woulçl soften tbeir attitude.
Tl:ui.!se appear t() \')e :t:he reij. reasons why Rllcythe9n .refused. the proposals m~de by. the ltalian
G~vert:unent. .The fact. that,. six days later, EI.SlJiled, Ior bankruptéy with .. , the Tril:>unal o I
Pa:Ier~o, also l!.PPeated as an atti;Ìmpt t() f~:>r<::e the band of the banks, which had pre:viously seeme4
Jelqçt~t ~o a<::.cept a neg<:>tiated solUti9n. Nevertheless the Italian authorities contin'l;led
their etforts t() • find a .. s~ttisf!lctQry soMi()n f9r. ,ali c~;>ncerned. .·
During the same period, the flresi<lent of t:he Sicilian Region1 Mr. Vincenzo Carollo, again
according t9. the. Government . 9f the United. States (97
). threatened · the Ray:t;heon management
hec~t'l;lse, 9ft:heir. rei:Usal· tQ. reopen the pJant •... In :fact, in the attempt · to save jobs1. Pres~dent Ca~
rollo merely made a . few reasonable predictions an d severa! personal remarks, . So when he state4
~l:J,at <~ [n]obod:y in It~tly shallp'l;lrchase, th~t Ìl.l. IRI shallnot purchase neither Ior a l9w nor
Ior a high price, the Region shall not pl;lrchase, priv~te enterprises shall not pmchase (; .. ) the
Region and. IRI and ,llftybody else who has any possibility to influence the market will reiuse in
the m()st absolute 1llanner to Iavor any sale while the plant is closed », he announced perh~ps
sornevvhat )lndipl()1llatiçally something that was really quite obvi9us: namely that the Italian
ac;lministrative au:t:horities would :tl9t :view. with I~tvour liquidati9n plans such as those envisaged
by ELS~. as they were incompatible with any realistic reorganìzation pian. But also the Iurther
« tht;eat >) that « [t]he banks which bave outstanding credits Ior approximately r6 billion Lire,
cann~;>t and will not accept. any settlement even at the cost oi dragging the Company into litigation
on an)nternationallevel ( ... ). It is obvious that evety attempt will be made (even at the
cost of long litigation) to obtain Irom Raytheon what is owed by ELSI ( ... ) » is not at ali strange.
In Iact, i t. is only to }>e,. expected that the banl!:s wo:uld attempt, to recover • their loans to ELSI
also fr~;>m Raytheon seeing thatthe latter held 99 % OI the. equity. All the banks actually claimed
payrnent 9I the ELSI debtsfrom Raythi;Ìon, but those olaims were rejected by the Italian
C9.urts (98). This despite the existence oi a number of authoritative doctrine and decisions which
(94) See Memorial, Annex 14, Exhibit G, p. 2.
(95) See Memoria!, Annex 38, p. 2; see also Memoria!, Annex 37·
(96) See Memorial, Annex 47•
(97) Cf. Memoria!, p. 14.
(98) See, in particular, Court of Cassation, decision N. 5143 of 7 October 1982 (finaljudgment against the
Cassa Centrale di Risparmio Vittorio Emanuele); Court of Cassation, decision N. 6712 of 9 December 1982 (final
judgment against the Banca Commerciale Italiana); Court of Cassation, decision N. z879 of9 May 1985 (finaljudgment
against the Credito Italiano). The texts of the three decisions are attached as documentlf N. 41-43 to the present
Counter-Memorial.
7
94 RASSEGNA DELL'AVVOCATURA DELLO STATO
claim that the principle embodied in Articles 2362 of the Civil Code, according to which a sole
shareholder is liable for the company's debts in the case of insolvency (99), equally applies whenever
an insignificant number of shares is being held by figureheads or controlled companies (1°0
).
Then there is the fina! remark by President Carollo that « [i]n the event that the plant shall be
kept closed ( ... ) the requisition shall be maintained at least until the courts will have resolved
the case. Months shall go by( ... )». Despite the efforts by the United States Government (1°1
) to
show that this was a threat to maintain the requisition for an indefinite period, it was actually
a prediction of what could have happened, but in fact did not occur as the effects of the requisition
decree expired after six months.
20. The attitude of the Italian authorities in the following months.
On 2S July 1968 the Minister for Industry and Trade announced in Parliament that two
measures had been adopted in favour of ELSI. The first, of a temporary nature, consisted in
the pledge by the Sicilian Region to continue to pay the employees' wages for two months after
the company would have resumed activity; a total of Lire 700 million were appropriateci for
this purpose (102). The second consisted of the establishment of a management company by
the Region and other public agencies which would allow productive activities to be resumed until
such time as the financial problems of ELSI could be finally resolved, if possible through settlement
out of court (1°3).
The true objective of the Italian authorities thus remained negotiated settlement. For
this purpose contact was resumed with Raytheon and, after a number of meetings held during
the Summer, it seemed that an agreement was just round the corner: an IRI Group company
would purchase the plant as it was, without the supplies (i.e. only the fixed assets) for the price
of Lire 4,ooo million. These funds, plus the revenue from the sale of the remaining company
assets, would be used to pay the costs of bankruptcy and the secured creditors in full, as well
as 40 % or even so % of the claims of the unsecured creditors, while Raytheon would not have
to honour the guarantees extended to ELSI. However, on 14 October, after an eventful meeting
held in Rome at the Ministry of the Budget and Planning, the parties separated whithout reaching
an agreement.
The United States Government now claims, on the basis of evidence given by Raytheon's
counsel (1°4), that the Italian Government was entirely responsible for the breakdown in negotiations
since, for unspecified «politica! reasons », it « had decided to allow IRI to take over ELSI's
assets without a creditor settlement », This is completely untrue. The negotiation of the abovementioned
agreement carne to grief not because of the Italian Government (which had no cause
to do so) but because of the creditor banks, fora very simple reason: the banks, who might have
been willing to accept so % or even 40 % and to free Raytheon from its guarantee o bligations,
realized that the ELSI assets were not enough to pay such a percentage. The assurances to the
contrary given by the Raytheon management (1°6) did nothing to change this. In fact, the Raytheon
estimates were based on the quick-sale value of the ELSI assets according to the valuation
made by the company management itself six months earlier. Already dubious at the time they
were made, these estimates were even less reliable six months later, in full bankruptcy proceedings.
On 13 November 1968 the Italian Government issued a special press communiqué that
« [w]hile the STET Group remains committed to build a new plant in Palermo for the production
of telecommunication products, the IRI-STET Group, urged by the Government, after the
examination of alternative solutions which proved unfeasible, stated its willingness to intervene
(99) Document N. 18.
(10°) See, among others, BIGIAVI, L'imprenditore occulto, Padova 1964, p. 185 et seq.; AscARELLI, Foro Italiano
(1950), I, II 14; FERRI, Le Società, Torino 1985, p. 390 et seq.
(101) See Memorial, p. 14.
(102) See Documents N. 37-39.
(103) See Memorial, Annex 46.
(104) See Memorial, Annex 2.9, p. 6.
(106) See Memorial, p. 16.
CONTROMI!MORIA DllL GOVI!RNO ITALIANO 95
in the take-over of the [ELSI] plant in the organization of new lines of production n (1°6). The
United States Government contends that the Italian Government thus interfered unduly in the
ongoing bankruptcy proceedings; by publicly announcing its intention to take over the ELSI
assets at ali costs, it was allegedly discouraging other possible bidders from competing at the
later auctions (1°7).
However, this allegation is totally unfounded. The announcement in question was made
when it was clear that there was no other way out and for the sole purpose of reassuring public
opinion in Palermo, which was understandably exasperated after months of vainly waiting for
a possible solution to the dramatic ELSI crisis. A perusal of the announcement reveals that
IRI was actually only following a definite Government directive and that the Government itself
was perfectly aware that the acquisition of the plant was a very poor bargain. This is the only
possible explanation for the initial assurance that the purchase of ELSI's plant would in no
way have jeopardized the implementation of the originai STET project to build a new plant,
also in Palermo, and for the final mention of the commitment to start up new production lines
in ELSI's plant. There was therefore no danger of discouraging other possible buyers from
bidding for the factory. After all, six months after ELSI had filed for bankruptcy (and eight
months after the announcement that it was being wound up) only two enterprises- Generai
Instruments and Compagnie Sans-Fil- had come forward and both were interested solely
in leasing the plant once it had been purchased by others. Therefore, the announcement of 13
November 1968 merely gave those concerned the certainty that the solution to the crisis was
dose at hand. In fact, the above-mentioned four auctions for the sale of the ELSI factory were
held by the receiver the following year (18 January, 22 March, 3 May, 12 July 1969) and led to
the final purchase of the plant by EL TEL.
(106) See Memoria!, Annex 47·
(107) See Memoria!, Annex 29, Exhibit +\.

PART II
THE JURISDICTION OF THE COURT
In view of Artide XXVI of the 1948 Treaty of Friendship, Commerce and Navigation
(the « Treaty ») between Italy and the United States, the Italian Government fully recognizes
the Court's jurisdiction over the dispute in so far as it relates to the interpretation and application
of the 1948 Treaty and the 1951 Supplementary Agreement.
The Italian Government respectfully calls the Court's attention to the fact that, under Artide
XXVI of the Treaty, jurisdiction only exists with regard to « any dispute between the High
Contracting Parties as to the interpretation or the application of this Treaty, which the High
Contracting Parties shall not satisfactorily adjust by diplomacy ». The provision appears to
require, as a condition for submitting a dispute unilaterally to the Court, that the basic contentions
concerning the interpretation or the application of the Treaty should have fìrst been put forward
in diplomatic negotiations. A dispute between the Parties with regard to the principal
legai issues (l) could not otherwise be held to exist.
In the « Memorandum of Law in Support of the Claim of Raytheon Company and the
Machlett Laboratories lncorporated, Against the Government of Italy in Connection with
Raytheon-Elsi S.p.A.» (2), submitted by the daimant Government, the « Summary of Legai
Arguments » (pp. 73-75) referred to Artides V, paragraph 2, VI and VII of the Treaty, Artide
I and/or paragraph 2 of the Protocol and Artides I and V of the Supplementary Agreement.
In the condusions to its Memoria!, the daimant Government no longer alleges violations of
Artide VI of the Treaty, Artide I and/or paragraph 2 of the Proctool and Artide V of the Supplementary
Agreement; on the other hand, violations of Artides III, paragraph 2, and V, paragraphs
I and 3, of the Treaty are also maintained. The latter provisions had only been referred
to during the course of the argument in the aerlier « Memorandum ».
This lack of consistency on the part of the Government of the United States with regard
to the treaty provisions which have allegedly been infringed hardly corroborates the daimant
Government's contentions based on these provisions. In respect of the Court's jurisdiction,
the Italian Government could request the Court to dedare that the conditions set forth in Artide
XXVI of the Treaty have not been fulfìlled, a t least with reference to part of the daim. However,
in the interests of a complete settlement of the present dispute, the defendant Government refrains
from putting forward any such request.
(l) Right of Passage Case, I.C.J. Reports 1957, p. 149.
(2) Unnumbered Document.

PART III
THE ADMISSIBILITY OF THE CLAIM
Tbe Italian Government respectfully submits that the United States Government's claim
is inadmissible in view of tbe fact that local remedies were not exbausted by the two United
States corporations on bebalf of whicb tbe claim is put forward.
In the well-known Ambatielos case, wbicb concerned a claim made by tbe Greek Government
against tbe United Kingdom Governinent on tbe basis of tbe bilatera! Treaty of Commerce
and Navigation of 1886, tbe. United Kingdom Government invoked tbe local remedies rule and
the. · Commission of Arbitration:
« Tbe tule tbus invoked by the United Kingdom Government is well establisbed in international
law. Nor is its existence contested by the Greek Government. lt means that tbe State
against. wbicb ·an ìnternational action · is brougbt · for ìnjuries su:ffered by private individuals · bas
tbe rigbt to resist sucb an action if tbe persons alleged to bave been injured bave not first exbausted
ali the remedies available to tbem under tbe municipallaw of that State. Tbe defendant
State bas the rigbt to demand tbat full advantage sball bave been taken of alllocal remedies before
tbe matters in dispute are taken up on tbe international leve! by tbe State of wbicb the persons
alleged to bave been injured are nationals (l) ».
Tbe local remedies rule was autboritatively defined by tbe Court in tbe Interhandel case
in the following terms:
« Tbe rule tbat local remedies must be exhausted before international proceedings may be
instituted is a well-establisbed rule of customary international law; the rule bas been generally
observed in cases in wbicb a State bas adopted tbe cause of its national wbose rigbts are claimed
to bave been disregarded in anotber State in violation of internationallaw. Before resort may
be bad to an international court in sucb a situation, it bas been considered necessary that tbe
State wbere tbe violation occurred sbould bave an opportunity to redress it by its own means,
within tbe framework of its own domestic legai system » (2).
Italy was tberefore entitled to bave an opportunity to redress the alleged violations of tbe
1948 Treaty and the 1951 Supplementary Agreement witbin tbe framework ofthe ltalian domestic
system.
In applying the local remedies rule, it is necessary to assume that tbe contentions with
regard to law and to fact, whicb bave been put forward by the applicant Government on tbe
merits of the case, are correct. In tbe words of the arbitrai award in tbe Flnnish Shipowners ·case:
" According to tbe principles approved by the Arbitrator, every relevant contention, wbetber
it is well founded or not, brought forward by the claimant Government in tbe international procedure,
must under the local remedies rule bave been investigated and adjudicated upon by tbe
bigbest competent municipal court. ... Tbe contentions to be taken into account must be considered
well founded because otherwise tbe rule that wbere recourse is futile, recourse is not required
would lead to tbe consequence, pointed out by tbe Britisb Government, tbat unmeritorious
international claims would be taken out of the · rule tbat municipal remedies must be exbausted.
But, as previously said, every relevant contention brougbt forward by tbe claimant
( 1) I 2 Reports of lnternatio11al Arbitrai Awards, pp. II 8-u9.
(2) I.C.']. Reports 1959, p. 27.
100 RASSEGNA DELL'AVVOCATURA DELLO STATO
Gouvernment in the international procedure - whether erroneous or not - must, according
to the opinion expressed by the Arbitrator, un der the local remedies rule ha ve been examined
by the municipal courts, ere the respondent State is bound to enter into further international
proceedings " (8
).
The same approach was taken by the Commission of Arbitration in the Ambatielos case :
« If the rule of exhaustion of local remedies is relied upon against the action of the claimant
State, what is the test to be applied by an international tribunal for the purpose of determining
the applicability of the rule? As the arbitrator ruled in the Finnish Shipowners case of 9th May,
I934, the only possible test is to assume the truth of the fact on which the claimant State bases
its claim » (4).
The two United States corporations on behalf of which the claim is put forward never made
use of any local remedy. The applicant Government contends that no suit for damages « could ...
have been brought under Italian law, on behalf of ELSI's shareholders, Raytheon and
Machlett " {6
).
However, the only support given to this assertion is a corresponding paragraph in an affidavit
by Mr. Giuseppe Bisconti, Raytheon's Counsel (« Annex 26 para. 28" to the Memoria!).
In the present case no provision of the Treaty or the Supplementary Agreement was ever
invoked before Italian courts. There is no doubt that the two US corporations could have clone
so. Enabling legislation had been enacted in Italy: Law N. 385 of I8 June I949 (Gazzetta
Ufficiale, N. I57 of I2 July I949, supplement) and Law N. 9IO of I August I96o (Gazzetta
Ufficiale, N. 2I3 of I September I96o), the latter with regard to the I95I Supplementary Agreement
Provisions of the Treaty had been regarded by the Italian Court of Cassation as self-executing
and applied to the benefit of United States parties which invoked them. See, for instance,
decision N. 2228 of 30 July I96o, The Durst Manufacturing Co. v. Banca Commerciale Italiana,
with reference to Artide V, paragraphe 4, of the TrE'aty {6).
In the Italian Government's view, the fact that the two United States corporations never
resorted to Italian courts, when they could have based a claim against the Italian State on the
alleged facts and on the alleged infringements of the Treaty and the Supplementary Agreement,
leads to the conclusion that the applicant Government's claim is inadmissible because local
remedies were not exhausted.
(B) .Reports of Internationa! Arbitrai Awards, p. 1503-4.
(4) 12 Reports of International Arbitrai Awards, p. I19. In the van Oosterwijck case the European Court of
Human Rights similarly held:
« The only remedies which Artide 26 of the Convention requires to be exercised are those that relate to the
breaches alleged and at the same time are available and sufficient (see the Beweer judgment of 27 February 1980,
Series A N. 35, p. 16, para. 29). In order to determine whether a remedy satisfìes these various conditions and is on
that account to be regarded as likely to provide redress for the complaints of the persons concerned, the Court does
not have to assess whether the complaints are well-founded: i t must assume this to be so,. but on a strictly provisional
basis and purely as a working hypothesis (see the arbitrationa ward of 9 May 1934 in matter of the << Finnish Shipowners
>>, United Nations Collection of Arbitration Awards, vol. III, pp. I503-1054, also citedb y the Conimission in its
decision of 17 January 1963 on the admissibility of application n. 1661 62, X and Y v. Belgium, Yearbook of the
Convention, vol. 6, p. 366). Publications of the European Court of Human Rights, Series A, vol. 40, p. 13-14 (1981).
(6) Memorial, p. 22, note n.
(6) 64 Rivista di Diritto Internationale (1961) p. II7-II8 and 84 Il Foro Italiano (1961), I-304. A similar view
appears to have been taken by United States courts. In Spiess v. Itoh & Company the US Court of Appeals for
the Fifth Circuit held that « (t)he FCN treaties, including the Japanese Treaty, are self-executing treaties, that is
they are binding domestic law of their own accord, without the need for implementing legislation &, 643 Federai
Reporter, 2d Series, p. 354 at p. 356 (1961).
PART IV
THE INTERPRETATION AND APPLICATION OF THE 1~)48 TREATYAND THE
1951 SUPPLEMENTARY AGREEMENT
I. The ~gal. terms of the. dispute .: tht!. claimant and {he deftmdant Government' s positions.
The Government of the UnitedSta1:es, at the beginning of its Memoria! of IS May 1987,
ass~rts that the case << concerns the failute · of the Government of I taly to afford to U nited States
investorS in I taly the pròtections and guarantees established by the I 948 . Treaty of. Friendship
Commerce and Navigation between. the United States of America and the Italian :Republic
(the <<Treaty ») ànd its i951 Su)?plei:rient '' (1). •
This· daimiS subséquently developed ·withreference, in particular, to Articles III, V and
VII of the 1948 Treaty, and to A11:icle I ofthe 1951 Supplemeiltary Agreement. More precisely,
the Governmerit · of the United States elaims • that « the tequisition · an d subsequent conduct
were both arbitrary and diScriminatory, prevented Raytheon and Machlett from managing and
controlling an ltalian corporationwhose shares they had lawfully acquired, and resulted in the
impàirmeilt òf their legally acquired rights ànd interests - in violation of Articles III an d VII
ofthe Treaty and Artide I of the Supplemerit. In addition, the requisition constituted a taking
of Raytheon's and Mach1ett's interests in property without due process and without adequate
compensation, in violation of Artide V of the Treaty. Italian autorities also failed to comply
with the obligation un der Artide V · to afford the f>rotection an d security, by the unwarranted
delay in ruling on the challenge to the req\lisition order and by failing to afford protection to
ELSI's plant and premises " (2).
On the contrary, the ltalian Government considers the charges concerning the behaviour
of the ltalian authorities to be unfounded, because they are based not only on an inaccurate and
biased reconstructi.on of the facts (as has been clarifìed in Part l), but also on·an incorrect interpretation
of internationallaw. It will be shown how the provisions on which the United States
Government's .daim is based should be properly undetstood and applied to the case in question.
Before doing so, however, a few considerations need to be made concerning the nature, content
and generai features of the two Treaties that tbe United States Government daims have been
violated by ltaly.
z. The rules oj interpretation to be applied with rejerènce to the I948 and I95I Treaties between
United States and Italy.
Although the 19.69 Vienna Convention on the Law of Treaties does not apply to the interpretation
of the Treaty and its Supplementary Agreenient, the rules on interpretation induded
in the Convention are to be considered as corresponding to those applicable under generai international
law. As the Inter-American Court of Human Rights stated in its Advisory Opinion
OC-3/83:
« ... the rules of interpretation set out in the Vìenna Convention ... may be deemend to state
the relevant internationallaw principles applicable to this subject" (3). Similarly, the Arbitration
(1) Memoria!, p. 3·
(2) Memoria!, pp. 3-4.
( 3) Advisory Opinion OC-3/83 of September 8, 1983, Annual Réport of the Inter-American Court of Human
Rights 1984, p. 28-29.
102 RASSEGNA DELL'AVVOCATURA DELLO STATO
Tribunal in the dispute concerning the Delimitation of the Maritime Boundm·y between Guinea
and Guinea-Bissau considered that Articles 31 and 32 of the Vienna Convention provided the
« revelant rules of international law governing the interpretation » of an 1886 treaty. The Tribuna!
referred to the « Parties' agreement on this point » and to « the practice of international
tribunals concerning the applicability of the provisions of the Convention on the Law of Treaties
by virtue of an international custom recognized by States (see in particular the Legal Consequences
for States of the Continued Presence of South Africa in Namibia case, I.C.]. Reports I97I, p. 47,.
paragraph 94; Fisheries ]urisdiction case, I.C.J. Reports 1973, p. 18 and 63, paragraph 36) » (4)
' It should be noted that, in accordance with the generai rules of interpretation set out in
Artide 31 of the above Convention «[a] treaty shall be interpreted in good faith, in accordance
with the ordinary meaning to be given to the terms of the treaty in their context and in the light
of its object and purpose » (5). This provision is expressed in such terms as to allow one to conclude
that, out of the various possible methods of interprétation, priority is given to the textual method.
This method has the advantage of being objective, precisely because it is based on the normal,
ordinary meaning of the words. The Convention gives less weight to the intention of the parties
as it appears from the preparatory works. The value of these works, according to Artide 32 of
the Convention, depends on the results of the objective method (6).
Further elements which can be drawn from the above-mentioned Artide 3 I include the
requirement that each clause of a treaty shall be interpreted in its context, taking into account
the aims pursued by the parties through the treaty as a whole. Both of the above indications
strongly emphasize the unitary character of each treaty. Therefore, it is necessary to rule out
the possibility of artificially combining individuai clauses which may suit the specific and occasionai
interest of one interpreter in a particular case. Likewise, one must also refrain from representing,
as the « object and purpose » of the whole treaty, an aim which is partial with respect
to the overall aim of a treaty, and which, moreover, is not explicitly stated, but is, at most, pursup;:,
only indirectly in the treaty (in the present case, the protection of investments).
3· The Treaty of Friendship, Commerce and Navigation of 2 February I948; its impact on the
problem of investments.
The Treaty of Friendship, Commerce and Navigation signed in Rome on 2 February
1948 between the United States of America and Italy belongs to a well-known category of bilatera!
agreements governing the treatment of aliens. Agreements of this kind aim essentially
at regulating the status of nationals of each party, as well as of legal entities and companies which
have the « nationality >> of one of the parties, by assigning to them a number of advantages and
guarantees in the other party's territory.
One of the main features of these agreements is their broad scope, which is due to the great
variety of the objectives pursued. The matters regulated include, in the first instance, a wide
range of questions referring to the establishment, in the territory of either Party, of nationals
and legal entities belonging to the other party, for the purpose of carrying on not only commerciai
and industriai activities, but also professional, culturai, scientific, religious or philanthropic
activities. It should also be noted that the benefits granted to individuals and legal entities are
not restricted to the recognition of rights with economie implications; aiso personal rights and
even certain civil rights and freedoms are covered.
( 4) See translation published in 25 lnternational Legal lYiaterials, p. 271-272 (1986). The origina! French
text refers to << La pratique des tribunaux internationaux quant à l'applicabilité des dispositions de la convention sur
le droit des traités au titre d'une coutume internationale reconnue entre Etats ( .... ) ''· See 68 Rivista di Diritto Internazionale,
p. 6o9 (1985).
(5) Emphasis added.
(6) However, the Italian Government fìnds it useful to complete the set of preparatory works (Documents
N. 3 to 17) concerning the parliamentary debates relating to the 1948 Treaty and the 1951 Supplementary Agreement-
as the claimant Government exhibited only part of the relevant documentation- both for Italy and the
United States.
CONTROMEMORIA DEL GOVERNO ITALIANO 103
Within the framework of these agreements, thè provisions goveming establishment are
followed by those conceming intemational trade and related problems of a :fiscal, customs, and
currency nature; a further set of provisions refer to navigation e).
The treaty of 2i February 1948 · between Italy and the United States corresponds to the
above mode! andis extremely complex. It lies beyond our present scope to go into its content
in detail. .· We shall merely.point out in.passing.that it is.over.twenty pages long and comprises
twenty ... se.:ven articles; many ofwhich çontaining several paragraphs .. The object and purpose
of such .a Treaty (in thelight of whiçh: it must be interpreted, in accordance with Article 3 I,
paragraph I, of 1:hè Vienna Convention on the Law of Treaties cited above) are given an appropriate
overall description in the Preamble: • « strengthening the bonds of peace an d the traditional
ties of friendship between the two countries and ( ... ) promoting closer intercourse between
their. respective. territories through· provisions responsive to the spiritual, cultural, economie
and eornmerciaLaspirati0ns oftheir peoples » •
. · In consideration of all this, one cannot agree with the Government of the United States
when · i t clairns that <t the parties' fundam:ental· intention >> was « to provi de a framework which
would · foster a favorable climate for · inves1:ment >l (8). In our view, the airn of creating le gal
conditions suitable. for investirnent wa:s only one of the numerous aims pursued in the I948
Treaty (9), It is useful to. insist on this point;. in order to oppose from the outset the tendency
emerging from the Memoria! of the claimant Government, namely to interpret ali the provisions
of the 1948 Treaty as being intended to protect. the in:vestors of each party in the territory of the
other party. This tendency does not conforrn .to .an objective .interpretation of the said provisions.
Furthermore, it would also bave the result of greatly accentuating the imbalance between
the two parties ·in view of the •· o:veJ:Whelining predominance of United States investments in
Italy o:ver. Italian investments in the Uhited States.
In this connection it should be noted that nwnerous other Treaties of Friendship, Commerce
and Na:vigation.concluded betweenthe Govemment ofthe United States and Western European
countries after World War 11 contain an explicit reference to the fostering of investment as one
of the aims pursued. This applies to the treaties with Greece, of 3 August 1951, with Denmark,
of I October 1951, with West Germany, of 29 October 1954, with the Netherlands, of 22 March
1956, with Belgium, of 21 February 1961, and with Luxembourg, of 23 February 1962. The
expression most frequently used refers to the possible contribution to the de:velopment of closer
econ01:nic and cultura} t:elations « by anangements ... pt:omoting mutually advantageous commerciai
interco~t:se and 1nvestmentu. It is noteworthy that wot:ding of this kind was not included in
the Pre;:~mble tothe. treaty signed by the United States and Italy on 2 .February 1948 •
• Our remarks con,çerning the object. and purpose of the I 948 Treaty are indirectly confìrmed
by the S\lbsequent signing of the Supplementary Agreement (Washington, 26 September 1951).
As canbe.seen from its Preamble, this Agreementactually aims at « giving added encouragement
to investments of the one country in useful undertakings in the other country >>; the contribution
it makes to this end consists in the << ampli:fication of the principles of equitable treatment set
forth in the Treaty of Friendship., Commez:ce and Navigation signed at Rome on February 2,
I948». Clearly, there .would bave be(ln no need to negotiate and sign a Supplementary Agreement
had the preçeding funcJazn,ental Treaty given sufficient weight to the speci:fic problems of in:
vestment ..
4· Recent tendencies of the United States policy for the protection of foreign investments.
A signi:ficant development needs to be recalled here. In recent years, particularly since
1982, United States policy, which had pre:viously tended to encourage the stipulation of further
(7) In generai, BLUMENWITZ, « Treaties of Friendship, Commerce and Navigation », in Encyclopaedia of Public
International Law, Inst. 7, 1984, p. 484 et seq.
(8) Memoria!, p. 27.
(9) In this regard, WALKER « Treaties for the Encouragement and Protection of Foreign lnvestment: Present
US Practice », in American Journal of Comparative Law, 1956, p. 239) says that ~ the FNC Treaty is not a specialinterest
vehicle, but rather one into which investor requirements, with scarcely an express reference to investments,
are fitted as integrai parts for a larger regulation of private affairs in international relations ».
104 RASSEGNA DELL'AVVOCATURA DELLO STATO
Treaties of Friendship, Commerce and Navigation (many of which were negotiated after World
War II), underwent a change. Preference began to be given to a more limited, but more effective,
instrument for regulating relations with countries with heavy United States investments,
namely bìlateral Investment Treaties. This new type of agreement had already been tried out
in the seventies with reference to relations between a number of European countries and several
developing countries. The United States ultimately saw the merits of the new approach and
followed it in the case of a number of countries (starting with Egypt and Panama). An attempt
was made by the Investments Bureau of the State Department to draft a model investment
treaty (10).
Two remarks need to be made in this connection. Firstly, the change in the United States
attitude and the reasons for such a change are indicative of the objective limitations of the suitability
of Treaties of Friendship, Commerce and Navigation as a means for protecting investments.
l t has been rightly said that these treaties were « intended to protect American citizens
abroad, rather than private foreign investments » (11). In our opinion, when doubts arise as to
the scope of certain provisions contained in the 1948 Treaty between Italy and the United States,
this factor should not be underrated. It should also be noted, again in connection with Treaties
of Friendship, Commerce and Navigation, that « the attempt to address very complex issues
in the context of a broad spectrum of relations detracted from the utility of the FCN (treaties)
as an investment protection device » (12).
This accurate remark can hardly be reconciled with the attempt by the daimant Government
to make out that Treaties of Friendship, Commerce and Navigation are basically the
equivalent of investment treaties (13).
Secondly, the differences between the two types of agreement we are comparing must
necessarily have repercussions on their interpretation. From the point of view of the Government
of the United States, each of the provisions in the 1948 Treaty to which it refers is merely
a part of a complex regulatory design aimed at protecting investments. This view must bee hallenged.
The approach chosen by the daimant Government distorts the global nature of the
Treaty.
5· The principles on which the I948 Treaty,is based.
One of the fundamental characteristics of the 1948 Treaty, which is rightly emphasized in
its Preamble, is the fact that it is << based in generai upon the principles of national and of mostfavored-
nation treatment in the unconditional form ». Perusal of the individuai provisions of
the Treaty reveals that the two standards are both referred to in some artides (e.g. Artide l,
paragraphs 2 and 3), while reference to only one standard is made in others (e.g. Artide IV,
which merely provides for the most-favored-nation treatment in the case of exploitation of
minerai resources).
When the Treaty was signed, the liberai spirit with which the principle of national treatment
had been adopted was hailed by a distinguished member of the United States administration.
During the hearing of 30 Aprii 1948 before a subcommittee of the Committee on Foreign
Relations of the US Senate, Mr. Thomas Blaisdell, assistant to the Secretary of Commerce for
lnternational Trade, made the following dedaration: << The Treaty represents acceptance by
republican Italy of a number of democratic principles in trade and navigation. The national treatment
accorded to corporations, for example, is the most liberai ever specified in any treaty entered
into by the United States » (14).
(10) BLUMENWITZ, op. cit., p. 489, mentions a << declining relevance » of the Treaties of Friendship, Commerce
and Navigation ».
(11) BERGMAN, «Bilatera! lnvestment Protection Treaties: An Examination of the Evolution and Significance
of the US Prototype Treaty », New York 'Journal of International Law and Politics, 1982, p. 7·
. (12) BERGMAN, op. cit., loc. cit.
(18) Memoria!, pp.27-28, notes.
(14) See Document N. 15.
(15) BERGMAN, op. cit., page 20.
CONTROMBMORIA DBL GOVERNO ITALIANO 105
Clearly, both the national treatment.and the most-favored nation standards take on a concrete
and precise meaning through the ascertainment respectively of the conditions applying to
the citizens (and thus of the municipal legislation governing them) and of those applying to
third countries and theh: citizens (under the agreements concluded with those countries) with
regard to a given matter, Therefore both clauses have been called « relative » (15). Everything
depends on the point of view adopted. in a single case, that of one or other of the contracting
States, and on the type of treatment referred to. In this connection it should be noted that,
when: speaking of« treatment » one cannot take into account only the advantages that are implied;
in ali matters, the overall treatment of aliens is an inseparable whole made up of advantages and
disadvantages. If one considers, in particular, the concept of << national treatment » on the basis
ofthis standard, ofie cannot avoid recognizing that an alien possesses certain rights and related
obligations. which are commensurate with the rights and obligations pertaining to the local
State's nationals .in the matter in question. Although the most-favored-nation treatment 411-
plies the more favorable treatment between those enjoyed and enjoyable by a third Country
(or by one of its nationals), it is necessary to compare the severa! legai systems in their entirety
even for the purpose of assessing.the applicable treatment.
6. The formula «in conformity with the laws and regulations in force» in the I948 Treaty.
Analysis of the 1948 Treaty also shows, that in regulating a given matter, the principle of
national treatment, or that of the most-'favored · nation, is often accompanied by a specific provision
according to which the enjoynl.ent or the exercise of rights by citizens of each party are
ensured «in cdtiformity with the applicablelaws and regulations ». When such a clause is included
in the text of a provision granting national treatment, it reinforces the concept defined above
according to which foreigners do enjoy rights but are also bound to respect the duties imposed
on the citizens by the laws of the country. ln other words, the respect of the set of locallaws
and regulations is a limit that cannot be overstepped by virtue of a condition granted to foreigriers
« protected » by a Treaty of Friendship, Commerce and Navigation.
This appears quite reasonable and corresponds to a situation in which the alien benefiting
from national treatment firids himself, quite apart from the specification of conformity with
the applicable laws andregulations. A foreigner cannot be considered to have a privileged position
vis-a-vis a citizen of the local State when the national-treatment principle is applied. When
the above-mentioned specification is contained in a provision whiCh grants the most-favorednation
treatment, the limitation set on the treatment of the foreigner consists in· not granting
him the favorable condition ensured to the citizens of a third country, should this not be compatible
with the municipal legislation or regulations (16}.
With regard to the principles laid down in the 1948 Treaty, i t must be observed that the
claimant Government makes occasionai references to a notion of fair treatment, to which the
status of an autonomous principle seems to be attributed. In fact, it is in the Preamble to the
1951 Supplementary Agreement that the « principles » (and not the principle) of « equitable treatment
>> stated in the 1948 Treaty are mentioned, and it is asserted that their amplification should
contribute to encouraging investments further. But when Artide I to XIII of the. 1948 Treaty,
i.e. the only clauses dealing with establishment and the only ones partially applicable also to
questìons of investments, are examined thoroughly, the only. principles repeatedly used appear
to be those of national treatment and of most-favored-natìon treatment. The fact is that no fairtreatment
principle is actually stated in the 1948 Treaty.
(16) According to an author quoted in the US Governrnent Memoria! (p. 29, note 3) whose opinion seems
therefore to be shared by the claimant Governrnent, the phrase'in conformity with applicable laws and regulations'
as it occurs in this Treaty, « is frameèl in such a manner as to imply that it does not constitute a reservation detractÌng
from the Treaty right ;, (WALKER, « Provision on Companies in United States Commercia! Treaties », in American
Journal of International Law, 1956, p. 784, note 53). The above-mentioned phrase is not altogether clear. In our
opinion the question is not that of the detraction of something from a treaty right. What happens is simply that
the Treaty acknowledges some rights only to the extent to which they are in conformity with the laws and regulations
of the !oca! State.
106 RASSEGNA DELL'AVVOCATURA DELLO STATO
This becomes ali the more significant in view of the fact that an obligation to ensure « equitable
treatment » (to the persons, property, enterprises and other interests of nationals and companies
of the other party) is laid down explicity in the Treaties of Friendship, Commerce and Navigation
entered into by the United States with Ireland, Denmark, Greece, Belgium and Luxemburg.
Some other treaties, particularly those conduded with Germany and the Netherlands,
speak of << fair and equitable treatment » to be accorded by the parties to the above-mentioned
beneficiaries.
Therefore, the reference to the « principles of equitable treatment » contained in the Preamble
to the 1951 Supplementary Agreement can only mean that the parties thereto wished to express
their intention to go beyond the two principles contained in the basic 1948 Treaty, the value
an d function of which have been expressed in the « equitable treatment » formula. In other words,
the principles of national and of most-favored-nation treatment are both considered to be « principles
of equitable treatment J>. However, there is no separate fair treatment principle to which
the other two are added. At most it may be daimed that Artide I of the Supplementary Agreement
implicitly grants equitable treatment to its beneficiaries insofar as i t forbids subjecting the
citizens and legai entities of either party to arbitrary and discriminatory measures within the
territory of the other party.
7· The Status of corporations, in the same Treaty (Article II, paragraph 2).
Another generai problem solved by the 1948 Treaty, and the solution of which of course
retains its validity in relation to the 1951 Supplementary Agreement, is that of the status of legal
entities. It is a weli known fact that, in ali Treaties of Friendship,Commerce and Navigation,
the category of persons who are entitled to benefit from the protection provided by every treaty
consists, in the first instance, of individuals who are nationals of either party to the agreement.
These individuals are protected insofar as they are present or carry on activities within the territory
of the party other than the one of which they are citizens. A second category consists of
legai entities; with regard to the latter, each treaty establishes the criteria according to which
they are said to belong to one or other of the parties to the agreement, and consequently recognizes
the right of legal entities belonging to one State to enjoy the advantages granted under
the treaty within the territory of the other State.
Artide II, paragraph 1, of the Treaty signed between ltaly and the United States on 2 February
1948 gives a broad definition of the term « corporations and associations ». In particular,
it indudes among the latter ali « corporations, companies, partnerships and other associations,
whether or not with limited liability and whether or not for pecuniary profit, which may have
been or may hereafter be created under the applicable laws and regulations J>. Paragraph 2 goes
on to lay down that « [c]orporations and associations created or organized under the applicable
laws and regulations within the territories of either High Contracting Party shali be deemed
to be corporations and associations of such High Contracting Party and shall have their juridical
status recognized within the territories of the other High Contracting Party whether or not they
have a permanent establishment, branch or agency therein ».
In order to belong to either party, according to Artide Il, paragraph 2, of the 1948 Treaty,
what is therefore required is that the creation (or organization) of a legai entity takes piace in
accordance with the applicable legislation in the respective territories. The Treaty has adopted
the criterion of nationality (if one intends to use this term) which is based on the piace of origin
of each legal entity.
There is no provisions either in the Treaty or in its Supplementary Agreement to the effect
that a High Contracting Party may daim that a corporation which was not << created or organized
under the applicable laws and regulations » within its territory is nevertheless a company of the
same party. As was stated in the brief for the United States as Amicus Curiae in Sumitomo v.
Avigliano with regard to the similar wording of the Treaty of Friendship and Commerce between
the United States and Japan, the treaty << provision makes dear that a company has the nationality
of its place of incorporation » (17). The brief ran as foliows: « The simple place-of-incorporation
(17) 21 International Legal Materials, p. 630 (1982).
CONTROMEMORIA DEL GOVERNO ITALIANO 107
standard in the FCN treaties was a deliberate departure from other tests of corporate nationality -
induding a contro! test of the sort adopted by the court of appeals - that were followed or
suggested in other situations during the proceeding severa! decades (W ALKER, supra, so American
J ournal of International Law at 38I). Moreover; the intent of the parties that a company's nationality
would not be determined by the nationality of its owners is reinforced by other provisions
of the treaty that distinguish between nationals and companies of a party and enterprises owned
or controlled by such nationals and companies >> (18).
This argument was accepted by the Supreme Court of the United States, which applied
it to the case in hand in the following terms: « Sumitomo is 'constituted under the applicable
laws and regulations 'of New York; based on Artide XXII, para. 3, it is a company of the United
States, not a company of Japan. As a company of the United States operating in the United
States, under the literallanguage of Artide XXII, para. 3 of the treaty, Sumitomo cannot invoke
the rights provided in Artide VIII, para. I, which are available only to companies of Japan
operating in the United States and to companies of the United States operating in Japan » (19).
From the above-mentioned Artide II, paragraph 2, in the case in hand it may be inferred
that Raytheon and Machlett, which are companies of the United States, are beneficiaries of the
protection afforded under the Treaty with regard to their activities in Italy (or, more in generai,
to the situations having arisen in Italy and which concem them directly), while ELSI, which
without any doubt a company of Italy, is not induded among the beneficiaries of protection
under the Treaty with regard to its activities in Italy, or in situations relating to them which
have occurred in ltaly (e.g. the requisition of its plant, the result of a decree which was addressed
to ELSI).
8. Provisions of the Treaty protecting activities and goods which formally belong to persons of the
local State.
As a generai rule, the Treaty and the Supplementary Agreement protect the physical persons
and legai entities of one contracting State solely as far as activities carried on and property
directly held in the other contracting State are concerned. However, there are a few provisions
which, as well as according protection to such activities and property, also provide protection
for certain property that, although formally belonging to a physical person or legai entity of the
local State, are substantially activities and proprety belonging to persons of the other State.
For example, Artide V, paragraph 3, of the Treaty, after granting the nationals, corporations
and associations of one contracting party both national and the most-favored-nation treatments
within the territory of the other contracting State for the purposes of the matters enumerated
in paragraphs I and 2 of the same artide, makes the following further provision: « Moreover
in ali matters relating to the taking of privately owned enterprises into public ownership and the,
placing of such enterprises under public contro!, enterprises in which nationals, corporations and
associations of either High Contracting Party have a substantial interest, shall be accorded, within
the territories of the other High Contracting Party, treatment no less favorable than that which
is or may hereafter be accorded to similar entreprises in which nationals, corporations and associations
of such other High Contracting Party have a substantial interest, and no less favorable
than that which is or may hereafter be accorded to similar enterprises in which nationals, corporations
and associations of any third country have a substantial interest ».
The structures of Artide III, paragraph I, second sentence, and Artide III, paragraph 2,
second sentence are quite similar.
The existence of the above-mentioned provisions can be explained by recalling that there
are frequent cases in present-day economie life of companies set up in one country and in accord-
(18) Ibidem., at p. 634.
(19) 102 Supreme Court Reporter 2374 (1982); 21 lnternational Legai Materials, p. 791 et seq., p. 794
(1982). Article XXII, para. 3 of the Treaty between the United States and Japan, which corresponds to Article
II, para. 2 of the Treaty with Ita!y, reads as follows: « Companies constituted under the applicable laws an d regulations
within the territories of either Party shall be deemed companies thereof >>. Article VIII, para. I confers rights
~n « nationals and companies of either Party ... within the territories of the other Party *·
108 RASSEGNA DELL'AVVOCATURA DELLO STATO
ance with its laws expanding their activities to other countries, different from that of their
origin, by means of other companies controlled by them. The latter can be set up by the « parent »
company, or companies may become « parent » cqmpanies by buying up the majority of the
foreign company's share (these occurred in the case of Raytheon and ELSI).
Legally, it must be observed that, in any case, the controlling and the controlled company
remain two distinct entities, i.e. two subjects which can, and in the present case actually do,
have different nationalities.
The phenomenon described as the subordination of one company to another may lead to
various consequences in Treaties of Friendship, Commerce and Navigation. Theoretically,
the Contracting States could solve the question of the nationality of a controlled company by
means of a clause in which the latter is deemed to belong to the national State of the controlling
company (or << parent » company). However, this type of solution is not envisaged in the 1948
Treaty between Italy and the United States. It was decided instead to make the nationality
depend on the State of origin and to include ad hoc provisions in order to give a certain limited
importance to the fact of the control being exerted by a company belonging to the other contracting
State. However, this has three consequences, about which there seems to be no doubt:
firstly, the controlled company retains its nationality, in accordance with Artide Il, and this
must be taken into account when applying all the provisions of the Treaty which do not have
the special nature of the abovè mentioned provisions contained in Articles III and V; secondly,
the link betwee:q. parent company and controlled company, which certainly exists at the level of
economie interests, does not allow of any identification between the two when it comes to interpreting
the Treaty; thirdly, the avobe mentioned provisions must be given a restrictive interpretatation
because any exceptional rule must be interpreted narrowly; it is therefore not possible
to expect that the phenomenon of control by a foreign company over a national company has
any itnpact beyond the situations provided for specifically in Articles III and V.
9· Alleged violations of Article V of the I948 Treaty ...
Let us examine the individuai provisions of the 1948 Treaty and the 1951 Supplementary
Agreement on which the United States has based its claim. It will be shown that, in the first
piace, Articles V and VII of the Treaty are almost entirely irrelevant to the case in hand, and,
in the second place, Artide III of the Treaty, and Artide I of the Supplementary Agreement,
when interpreted correctly, do not support the contentions of the claimant Government.
Artide V concerns the << protection and security » of the persons and property belonging to
nationals of each contracting party within the territory of the other party. Paragraph 1 makes
it clear that the term << nationals » is to be understood as including corporations and associations
insofar as the provision set out in the same paragraph is << applicable in relation to property »,
Paragraph 2, which deals with a particular aspect of the protection and security of property,
lays down that << [t]he property of nationals, corporations and associations of either High Contracting
Party shall not be taken within the territories of the other High Contracting Party without
due process of law and without the prompt payment of just and effective compensation ». The
same provisions give those receiving such compensation the right to withdraw it << without interference
», with entitlement to foreign currency and with exemption from any tax for transfer
or remittance. Lastly, paragraph 3 ensures that treatment no less favorable than national or
most-favored nation treatment will be extended to enterprises in which nationals and corporations
of each contracting party have a substantial interest whenever, within the territories of
the other contracting party, the enterprise is transferred from private to public ownership or
the enterprise is transferred to public ,control.
The Government of the United States contends that Artide V, paragraph 2, was violated
by the Italian Government when it requisitioned the ELSI plant. In its opinion, the << guarantee
of compensation » is extended by the Protocol attached to the Treaty << to interests held directly
or indirectly by nationals, corporations and associations of either High Contracting Party in property
which is taken within the territories of the other High Contracting Party » (<< in other words »,
it is claimed at p. 41 of the Memorial submitted by the Government of the United States,
<< the Treaty unambiguously protects the investment interests of United States shareholders in
109
Italian companies whose property is taken by the ··lt~ian Gov~rnrnent '' ); ·. Lastly, ·• Article v,
paragraph r, .is alleged to have. been··vìolated because the.·It~ian;Government supposedly did
n<lt pr~;~tect the ELSI plant after the req1J:isition; . furthermore; paragraphs I and 3 o:f the same
Artide are dèeriied to have been violated at the · same time• owing to the delay with which the
Prefect decidect <>n the appeal against the requisiti<m.
. . .·.·.··· 1-e~ .. \ls. hegip .. frol:ll .. thtJ:.lAAt .. two.·P~dNs·;··•···'l'l!e Pfelimmaey. rernark.~p,·he ~de•of" .tll~·· çl11~ant
GovertlJ:tlen(s cq4tention is. tlliltJhe pròblem of the protection of. the . ELSI p1~nt, · as well as
····m~ .. ~h~~h··~La~:Jlr~~ti,.•:i~èu~h~tttst~~e:~!e~:~dt~t!6:iài4~~·~;;;:r1g~:~h: . iCj;
· gy:arantées t11e protection àJi<i ìSèi<:4tity ofpr()p~rtybel()nging to Unitect Stàt(;lSi•·companieSi ìn
.· I~y; Whilé tM plaht tl1at accordirtg to the Govériiìnent òf the United • States should bave been
piòteèteci uJ;:tctet tb.e Treaty belonged to tl'te ltalian company ELS[ · 1Vt<>reoV'èil\ also the · Pref~
ctrs 4ecisìt\n og tbe i;J;ppe!l~ ag~irtst tll:e Jtéquisi#on> tog~ther. with · the l.Vt~y9r's decree were ae-
!h~V~Th~~sè~~g!··~~~!;~J~it(t:!~~d~;~~t~~~~~:~ ·we:l•.!t~~~::~;~";L~~~··.~~
~~~--]~!~:::~=~~;~ would bave it, and thatthe attittidéofthew6rkerserttailed M .risk forthe p1ari:taftet the<decree
issued J:>y JJ:!.e l\1ayol,' o~ P#ti!!tl'l:o, espeçi~Ht 'M .the .lVIayor. had aJ?i?~hl,~écl two representatives
to ètisure thaftlt,eordets ìssuedwitha 'tiew to theiriàrtagement of•the factocy wete tespected.
J\deqi:fate darifìcatioris bave beèri gi'ven with re~ard t6 the ea~ses and e.ffects of the delay wìth
whìCh the Prefect decictéd uport the appeal •. ·• In itilY case ìt must absolutely be ruled out that :this
delay has any oonnection with the allegéd violàtiori ~~ pàragraph$ · x an d 3 · of Artide V;
x:-.o •/·..·. .•·. . Q·.· nd ..o f·. t.he. .P· rot.·o.·.·é oÌ.a.n n··.e· .x.e.·d . t.o th.:>e· ·· T.r·e a··.t·.y . ·· .
.. ·. · •· •• WJth regard to the idleged violation of Artide •V ,· patagraph z; it must be pointed ·o ut that
thì$ pJ;ovision accòrds, in the iocid . State, proteetion agairistthé taking of propercy an d· provides
for ~oriiperisation to ?e Pl:lid fòr ljfcipel:tf' bélo!lgitlg' tò . natiòl)~Isr corporations • or associ!l,tiotis
of thé other contracting parey. H is truè that paragraph l ofthe Prbtocol specifies that this protectiori.
ìs lilfforded idso to « inteie8ts h~ld directly or indìrectly by nationals; cotporations and associati()
ns M' either. High Col:ltractllig Party ». However, this: does not rnean that tb.e same protection
is to be generally grantedas for property beion~ing to nationals of the other 'Contractitig party
idso to. ptoperty pertaining to a· com~atiy whi~h • belongs; un der the terms of · the Treacy, . to · the
Ioc~l ~tiite · ;u1d · is conttolled lW a con1pany. belonging to the othér State. Only exceptionidly
a'i'(i sorl):è Treiity provìsions intehdéd to this effect (supra; paràgtaph 8) an d a· different Ianguligé
is lisèd: .·.. · · · · · · · · ·
Furthermorè, under paragraph i of the Prototol, protection ìs accorded only to rìghts to
propercy, While the I:talian text refers only to << rights »· (diritti) the term used in the English
text is <dnterests >>. According to Arti.cle 3.3, paragraph 4 of the Vienna Conventi<>n on the Law
<>fTreaties, the provisi<>ns dtli~Wtl: u.p in two e.qpally au.thent~c langu.ages are to be interp.reted
in such a way as to reconcile the meaning of the two texts and theteforeoin this case, in the more
restrictive · senstf of the Italiiin • text.
· A further obsécyat~on, . #hich · is ctecìsive i#Jtself; amounts t!) .<ien'Ylr)g tl:le applicability. ()f
both the ProtocoLand Article V, paragraph 2, in the present case, foro. the.simple reason that no
expropriation or << taking of property li òccurred; ··.A temporary requisition • decree was issued with
the effect of blodcing th:e ayailabìlìty of thé EL$ l plmtt for siX months and th:erefore of partially
suspending the conipany's managentent functl()ns, but only as far as that particular plant
was concerned. On the other hand, the.Mùnicìpidity of.Palermo gained nothing at the company's
(20) Memorial, p. 44•
110 RASSEGNA DELL'AVVOCATURA DELLO STATO
expense. Thus, it must be ruled out completely that the requisition decreed by the Mayor of
Palermo can be considered an expropriation measure. The Italian text expressly refers to expropriated
property (beni espropriati). In fact, Artide V of the Treaty covers completely different
situàtions from that which actually occurred (21).
II. Interpretation and application of Article VII of the Treaty.
We shall now examine the problems raised by the interpretation and application of Artide
VII of the I948 Treaty. In paragraph I, which seems to be the one to have mainly attracted
the attention of the United States Government, this Artide accords to the nationals, corporations
and associations of each contracting party, the right to « acquire, own and dispose of »
immovable property or interests therein within the territories of the other contracting party;
for corporations of United States nationality the conditions are commensurate with the treatment
accorded to Italian corporations in the United States state of origin, and in any case do
not imply more extensive rights than those granted to legai persons in Italy. The fact that this
provision indudes a principle of the free availability of immovable property is interpreted by
the Government of the United States in the sense that the Italian Government should have
been under an obligations to respect the decisions of the ELSI management concerning the
voluntary liquidation of the company and should not have requisitioned the ELSI plant, since
the requisition allegedly prevented « the owners » from disposing of the plant; in any case, the
requisition should have been followed by the payment of compensation.
Once again the fìrst objection is that the plant belonged to ELSI, that is to an Italian company.
The above mentioned Artide VII applied to the situation to which the dispute relates,
could only ensure the free availability to Raytheon and Machlett of the ELSI shares which
belonged to them (an availability about which nobody has cast any doubts). Supposing the two
United States companies were truly the owners of the plant requisitioned, the decree of the Mayor
of Palermo would not have had any effect since it was addressed to ELSI.
There are, moreover, other objections to be made. It is hard to see how the respect of a
company's decision concerning its own liquidation can be confused with the only rights which
unquestionably pertained to Raytheon and Machlett: their rights as shareholders of ELSI.
It is hard to see how, in order to leave a company free to implement its own voluntary winding
up, the Italian authorities should have refrained from requisitioning its plant: without doubt,
such an argument would be inconceivable with reference to an Italian company, since a requisition
decree referring to certain company property can legitimately be enforced even if the company
1s being wound up. In this connection i t is worth pointing out that the above-mentioned
Artide VII, paragraph I, explicitly exdudes the possibility of United States companies having
more extensive rights than those accorded by the Italian legislation to national companies in
ltaly. Lastly, it is worth repeating what has already been noted with regard to the requisition,
i.e. that it only temporarily blocked the availability of part of ELSI property. Compensation
was not eventually paid simply because it was replaced by the damages paid to the requisitioned
party (22), as was explained in Part I.
(21) In note 4 at p. 45, the United States Government's Memoria! quotes a number of awards delivered
by the Iran-United States Claims Tribuna! during the years I98I-I986 and tries to demonstrate that interference
with an alien's property may amount to expropriation, even though the !oca! State denies to have adopted such a
measure, and notwithstanding the fact that the legai title to the property formally remains with the owner, the essential
condition being that the foreign investor • has no reasonable prospect of regaining management and contro! ~.
The application of this doctrine to our case depends on the assumption that • the Government of Italy physically
seized ELSI's property with the object and effect of ending Raytheon and Machlett's management and contro!,
in order to prevent them from conducting the planned liquidation ~. Furthermore, according to the alleged indications
of ' ltalian officials ~ the requisition was going to be extended beyond its six-month term, while IRI was
completing its arrangements for acquiring ELSI's assets: that is why Raytheon and Machlett had no reasonable
prospect of ever recovering management and contro! of ELSI. Whatever the merits of the claimant Government's
contentions in law, the assumption mentioned above is firmly denied by the Italian Government: ELSI's property
was partially requisitioned for the reasons stated in Part I of this Counter-Memorial, with no intention of ending
Raytheon and Machlett management and contro!. Their end was actually the result of the bankruptcy proceedings,
open at the request of the ELSI management.
(22) In this explicit sense, see Court of Appeal of Palermo, Memoria!, Annex 8x.
CONTROMEMORIA DEL GOVERNO ITALIANO 111
I2. Evaluation of the problems raised by Article III of the Treaty.
The provisions of the 1948 Treaty and the 1951 Supplementary Agreement on which the
Government of the United States seems mainly to have based its case are Artide III of the Treaty
and Artide I of the Supplementary Agreement. Attention will now be addressed to these provisions.
The content of Artide III is rather complex. The fìrst paragraph begins by guaranteeing
that the nationals, corporations and associations of each contracting State will have « rights and
privileges with respect to the organization of and participation in corporations and associations »
within the territory of the other contracting State, in accordance with the applicable laws and
regulations of the local State and benefìting from the most-favored-nation treatment. In the
case in point nobody has challenged the right of Raytheon and Machlett to have a right of participation
in the Italian company ELSI. There is no disagreement on this between the Parties
in the present proceedings. Artide III, paragraph r, then goes on to acknowledge that the corporations
and associations of each contracting Party in which nationals, corporations and associations
of the other Party participate and which are controlled by the latter subjects, « shall be
permitted to exercise the functions for which they are created or organized in conformity with
the applicable laws and regulations », enjoying the most-favored-nation treatment.
The daimant Govemment contends that the fìrst sentence of paragraph 2 of Artide III
has been violated. This provision ensures the right of nationals, corporations and associations
of each contracting party to « organize, contro! and manage " corporations and associations of
the other contracting party << in conformity with the applicable laws and regulations " within
the territories of the latter party. According to the Govemment of the United States the provision
summarized above gives the United States shareholders, in a position to contro! an Italian
company, <<a guarantee of non-interference with management and control" (23). Furthermore,
the Italian Government is accused of having exerted undue influence on the management through
the requisition decree.
Both these contentions have to be challenged. In the fìrst piace, the requisition decree in
no way affected contro! by the shareholders over the company. It merely concemed the management
by the company of some property belonging to the said company. The right to contro!
and manage certain « local >> companies is not subject to unlimited guarantee, as the powers granted
by law to the local authorities are thereby unaffected.
More exactly, with reference to the case in hand, it should be noted that there can be no
violation of the Treaty in the case of a requisition decree based on a La w (la w N. 2248 of
20 March I865, Annex E, Artide 7, previously cited in Part l). This represents the logica! consequence
of the principle of << conformity with the applicable laws and regulations ,, which is
explicitly asserted in Artide III, paragraph 2. The possibility of requisitioning private property
<< because of grave public necessity " is, in fact, one of the cases provided for in Italian legislation
concerning the unavailability of a plant for reasons of public interest. Moreover, it should not
be overlooked that the Mayor's decree had the effect of determining only temporary unavailability
of the ELSI plant.
Moreover, the fact that the requisition decree issued in the case in point was subsequently
dedared to be invalid does not transform it into a manifestation of undue interference by the
Italian authorities. Until it expires or is overruled, a decree is to be considered legitimate and
effective. In this connection, it should be recalled that the Prefect acknowledged as a point of
law that was << undisputed, in case-law and legai doctrine, that the Public Adrninistration is empowered
under the above mentioned Artide 7 to dispose of the private property whenever
necessity exists to face a situation of actual and imminent danger for the public interest (public
health, public order, etc ... ) ... >>. The Prefect likewise acknowledged the Mayor's power to issue
requisition decree on his own initiative.
One point which deserves special attention is related to the nature of the consequences of
the requisition decree. It transferred in no way the ownership of the ELSI plant to the Mu-
(23) Memoria!, p. 30.
112 RASSEGNA DELL'AVVOCATURA DELLO STATO
nicipality of Palermo. It only partially suspended the exercise of control and management by the
company, with reference to the requisitioned property alone. In fact, by I Aprii 1968, the ELSI
Board of Directors had already decided in complete freedom to cease production and to liquidate
the assets. Furthermore, after the requisition, the Company was able to take an extremely important
decision for its future, namely to file for bankruptcy. Only after this decision and because
of it, did ELSI management definitely lose control and management of the company
assets.
13. Article I of the I95I Supplementary Agreement: was the requisition and « arbitrary » measure?
Let us now examine Artide I of the 1951 Supplementary Agreement. It prohibits subjecting
the nationals, corporations and associations of each contracting party, in the territories
of the other party, to « arbitrary or discriminatory measures » having, in particular, one of the
following effects: « (a) preventing their effective control and management of enterprises which
they ha ve been permitted to establish or acquire therein, or (b) impairing their other legally acquired
rights or interests in such entreprises or in the investments which they have made » in
various forms, induding in particular the contribution of funds through loans or shares.
In the present case,· the Government of the United States daims that the requisition of the
ELSI plant decreed by the Mayor of Palermo represented an arbitrary and discriminatory measure
such as to prevent the United States companies Raytheon and Machlett from maintaining
the effective control and management of ELSI. lnasmuch as it is responsible for the requisition
decree, the Italian Government is thus alleged to have violated the above mentioned Artide I
of the 1951 Agreement.
The first objection to be raised to this contention is related to our previous remarks concerning
Artide V, paragraph 2, of the 1948 Treaty. In the present connection, it must be said again
that the requisition decree was addressed to the ltalian company ELSI; the United States companies
Raytheon and Machlett were not actually subjected to any measures affecting their property.
l t is also worth repeating that the above-mentioned two United States companies, which
were shareholders of ELSI, never actually lost control or management of the company: the
company organs, through which this control and management were performed, were able to function
freely also during the period of the requisition, as they were merely deprived (for six months)
of the availability of the plant. One may refer in this context to the decision to file for bankruptcy,
already mentioned above, which was taken after the requisition.
There is a second objection, which would stili be valid even on the assumption that the decree
of the Mayor of Palermo directly affected Raytheon an d Machlett: the requisiti o n of the
ELSI plant cannot be defined either as an arbitrary measure or as a discriminatory measure.
· In generai, an « arbitrary » measure is defined as a measure which is completely lacking in
justificatiòn, and which can be explained only as a tool used by the public authorities to damage
and oppressa private citizen. In most Treaties of Friendship, Commerce and Navigation
entered into by the United States after World War Il, a prohibition sixnilar to the one contained
in the above mentioned Artide I of the 1951 Supplementary Agreement is placed on any «unreasonable
or discriminatory measures that would impair the legally acquired rights or interests
of nationals an d companies of the other Party in the enterprises which they have established » (24).
Each party is therefore prohibited from taking measures detrimental to the rights or interests
of the citizens and companies of the other party, whenever those measures can be defined as
unreasonable; in other words, whenever no possibility exists of identifying an adxnissible reason
on the basis of which public authorities have the power to limit those rights or interests.
lndeed, the way in which the Government of the United States represents the requisition
decreed by the Mayor of Palermo against the ELSI company appears similar to an act corresponding
to the model of arbitrary or unreasonable measures described above: suffice i t to menti o n
(24) See artide V of the Treaty with Ireland (21 January 1950) and likewise Artide VIII of the Treaty with
Greece (3 August 1951), V of the Treaty with the Federai Republic of Germany (29 October 1954), VII of the
Treaty with the Netherlands (22 March 1956), IV of the Treaty with Belgium (21 February 1961}, IV of the
Treaty with Luxambourg (23 February 1962).
CONTROMEMORIA DEL GOVERNO ITALIANO 113
that, on page 33 of the Memorial submitted by the United States Government, it is daimed,
among other things, that the purpose of the requisition was « to prevent Raytheon and Machlett
from protecting their investment ». But a perusal of the requisition decree issued on I Aprii
1968 reveals that it was based on two undeniable facts: ELSI, having decided to dose down its
plant and dismiss about one thousand of its employees, had create a serious social and economie
problem, and the reactions by the employees and the trade unions, with the hacking of public
opinion, were such as to create fears of « disturbances of public order ». In the light of these
facts - the exact analysis of which has been carried out in the preceding pages containing a
correct reconstruction of events (Part l) - the Mayor of Palermo was of the opinion that the
« features of serious public necessity and urgency » required by law in order to proceed with a
requisition actually existed. His decree can therefore in no way be said to be arbitrary.
The Memorial bases its argument on the decision of the Prefect of Palermo to set aside the
Mayor's decree and merely quotes a passage taken from that decision in which the requisition
is held to be «destitute of any juridical cause which may justify it or make it enforceable» (25
). The
Prefect in fact stated: « Therefore, the order is destitute of any juridical cause which may justify
it and make i t enforceable » (2 6). However, this passage is only the conclusion of an argument,
as can be seen from the following words: « There is no doubt that the goal to which the requisition
was directed could not be actually achieved by the order, even though - in theory - in the
case in point, the grounds of the grave public necessity and of the emergency and urgency which
caused the issuance of the order may be held to be existing. This is proved by the fact that the
activity of the company was neither resumed, neither might it be resumed ». In other words,
the requisition decree was deemed illegitimate and set aside, certainly not because it was arbitrary
- indeed, the Prefect acknowledged that, « in theory », the decree respected the conditions
of necessity and urgency - but because the purpose of the resumption of activity by the company
« could not be actually achieved » in this way. The Prefect's decision went on to criticize
the Mayor for not having taken account of the fact that « the state of the company was such, for
reasons of an economie and functional nature, as well as for market reasons, that its activity could
be continued only after action by the management to solve the company's fìnancial and industriai
problems ».
The decision to set aside the requisition decree therefore contained no statement that it
was « arbitrary », as the claimant Government is attempting to make out in the present case.
What was stated, essentially, is that the decree was not suitable for achieving its purpose of getting
the ELSI plant to function. Therefore the requisition decree was cancelled because the
concrete goal the Mayor was trying to achieve was unattainable (and he had therefore wrongfully
exercised his powers). Clearly such a situation has nothing to do with an alleged « arbitrary measure
>> under the above mentioned Artide I of the 1951 Supplementary Agreement.
14. W as it « discriminatory >>?
l t is now necessary to ascertain whether the requisition in question was a« discriminatory >>
measure according to the terms of the same Artide. By adopting the thesis that the requisition
decree was aimed at giving IRI the time to expropriate the property of ELSI, the Government
of the United States contends that it was: the purpose is alleged to be discrirninatory insofar
as it aimed at favoring a public enterprise controlled by the Italian Government (27
).
This thesis, however, is not only groundless, but is also the result of an obvious misinterpretation
of the concept of discriminatory measure set out in Artide I of the 1951 Supplementary
Agreement.
It is possible to speak of discrimination only when two comparable situations are treated
in different ways to the detriment of the interests of one of the parties concerned. Within the
framework of a Treaty of Friendship, Commerce and Navigation which is essentially based on
(25) Memoria!, p. 36.
(26) See Memoria!, Annex 76, pp. IO-II.
(27) Memoria!, p. 36.
114 RASSEGNA DELL'AVVOCATURA DELLO STATO
the standard of national treatment, the situations to be compared for the purpose of ascertaining
whether the principle of the equality of treatment has been respected or not, are those of a foreign
investor and of the corresponding national investor. In the case in hand, it would therefore be
necessary to prove that Raytheon and Machlett, assurning that the requisition decree was addressed
to them, had been discriminateci against with respect to possible Italian investors. In
other words, that the requisitionc concerned them as United States companies, while the Italian
investors, if any, would not have suffered any damage. This must be ruled out entirely: not
even the Government of the United States has ever daimed that the requisition in question was
decided out of bias against United States companies. In fact, during the same years, requisition
was frequently used with regard to plants belonging to companies, the majority shareholders of
which were Italians (Part I, paragraph g).
Furthermore, the fact that IRI is considered by the Government of the United States to
be the beneficiary of the requisition is quite irrelevant. The daimant Government has contended
that the alleged favors extended to IRI by the Italian Government were one aspect of the unfavorable
treatment meted out to United States investors. But what is the logic behind this
assumption of a discrimination against the Raytheon and Machlett companies ? With respect
to what other subject in a sirnilar situation were the two United States companies discriminateci
against ? It should not be overlooked that, according to the highly imaginative presentation of
the facts made by the Government of the United States, IRI is equated to the ltalian Government,
which is accused of having «discriminateci» against the two United States companies.
With reference to what actually happened, we shall limit ourselves to repeating what has
been said above, namely that at the time of the requisition IRI had no intention of taking the
place of Raytheon and Machlett in controlling ELSI, not only in view of this company's extremely
poor technical and economie conditions, but also, and more simply, because, according
to IRI's industriai policy, it was not considered advisable to intervene on a larger scale in the
sector of ELSI's activities. Besides, the purposes of the decree of the Mayor of Palermo were
those stated in the text of the requisition order and nothing else.
It remains to be seen whether the decision related to the requisition the ELSI plant resulted
in damage to « other rights and interests » of Raytheon and Machlett or to investments made by
them in the form of financial contributions, i.e. loans or shares. In this connection it should
be emphasized from the outset that, in order to speak of damage resulting from violation of Artide
I of the 1951 Supplementary Agreement, the basic assumption must always be that the
requisition decree was arbitrary or discriminatory; an d we consider we ha ve already refuted
such an assumption. W e also wish to point out that the company subjected to the decree in question
was an Italian and not a United States company; moreover, loans and shares were not
directly affected. I t is in any case important to recall that the interests of the Raytheon an d Ma ehlett
companies, and the ultimate destiny of their investments, were jeopardized by events occurring
prior to the requisition, e.g. the proven incapacity of ELSI management to make a profit,
and its increasing insolvency, as well as by a subsequent fact, which was the consequence
of the above mentioned circumstances and in any case of the will of ELSI itself, namely the
dedaration of bankruptcy. As has been amply illustrateci in Part I, the requisition decree was
in practice a parenthesis in the life of ELSI. The only damage caused by the decree was that
of the temporary unavailability of a plant whose activities had already ceased without there being
any intention of resuming them. Therefore the Italian Government completely rejects the accusation
of having violated Artide I of the 1951 Supplementary Agreement.
PART v
ISSUES RELATING TO THE CLAIM FOR REPARATION
I. Subsidiary nature of the comments concerning the United States claim for reparation.
In the preceding parts of this Counter-Memorial, the Italian Government has shown that
the claim of the Government of the United States on behalf of Raytheon and Machlett is inadmissible
and, on a subsidiary basis, that the alleged infringements of the Treaty and the Supplementary
Agreement have not taken piace. As the Government of the United States claims reparation
on the basis of wrongful acts that habe not occurred, it is not strictly necessary to deal in
this Counter-Memorial with issues relating to reparation. However, on a further subsidiary basis,
the Italian Government addresses some remarks on the claim for reparation in order to point
out that even in this respect the claimant Government resorts to dubious contentions of law and
to distortions of fact - ali designed to maximize the amount of damages for which compensation
is requested.
Given the entirely subsidiary character of the comments expressed in this part, it seems
appropriate to make only a few generai remarks. However, the Italian Government expressly
notes that the fact that some assertions by the claimant Government are not specifically contested
by no means implies that the same assertions are recognized as accurate or supported by
sufficient evidence. In fact, the claimant Government heavily relies on documents originating
from ELSI or Raytheon or on affidavits of persons closely connected with Raytheon. The claim
essentially rests on the book valuation of ELSI's assets, while no analysis is offered of experts'
valuations which were given during the bankruptcy proceedings or of Raytheon's own prebankruptcy
« quick-sale valuation (l) ». As was shown (see Part l, paragraphs 7 and 17), the
book valuation in no way corresponded to the actual prospects of the sale of the assets.
Under the circumstances, the Italian Government notes that the claimant Government is
far from having discharged its burden of proof also with regard · to the alleged damages.
2. Links between the alleged violations of the Treaty and the alleged damages.
A claim for reparation may only be put forward for losses for which « in legai contemplation »
the alleged acts were « the efficient and proximate cause and source from which they flowed » (2).
This characteristic of being the efficient and proximate cause must pertain to the alleged wrongful
act or acts which is, or are, considered to have occurred. There must be a dose connection
between the infringement that has ex hypothesi occurred and the losses for which reparation is
claimed (3).
In the claimant Government's Memoria! the links existing between each alleged infringement
of a Treaty provision and the alleged Iosses are not explored. For example, the applicant
Government's contention that ELSI's bankruptcy was « the direct and foreseeable consequence
(l) Memoria!, p. 6o et seq.
(2) Thus the Administrative decision N. Il given by the United States-Germany Mixed Claims Commission,
7 Reports of International Arbitrai Awards, p. 30.
( 3) Strictly speaking, the loss suffered by nationals cannot be identified with the loss suffered by the State
as a consequence of the infringement of an obligation under international law. See Aao, Scritti sulla responsabilità
internazionale degli Stati, II, 2 (1986), p. 981.
116 RASSEGNA DELL'AVVOCATURA DELLO STATO
of the requisition arder" (4) is totally unacceptable. As was shown above (Part l, paragraph I I),
bankruptcy was rather the consequence of ELSI's state of financial affairs and of Raytheon's
declared unwillingness to make any further investments in its subsidiary. Nor could the delay
in the Prefect's decision over the appeal be considered as a cause of the bankruptcy since ELSI's
filing its application for bankruptcy carne only seven days after the appeal (Part l, paragraph
I4). Thus, even if the requisition decree and/or the delay in the decision over the appeal were
taken to be infringements of Treaty provisions, no obligation to make good the alleged losses
in the bankruptcy proceedings could be justified.
3· Considerations on the sums paid by Raytheon as a guarantor of ELSI's loans, or claimed by the
United States in relation to Raytheon' s credits towards ELSI.
The Government of the United States also seeks to recover sums that Raytheon had to
pay in the bankruptcy proceedings because it had guaranteed some loans taken by ELSI. These
guarantees were not an investment, but only a security covering so % of the loans which were
given to ELSl by some Italian banks and which were otherwise unsecured. The banks lost
so % of the money borrowed by ELSI. This money had contributed to ELSI'S assets. By
claiming the money which Raytheon later paid as guarantor for the other so %, the govemment
of the United States attempts to shift on to the Italian Government the loss of money which
was borrowed and actualiy used by ELSI and never paid back to the lenders. It would be an
extraordinary Treaty provision indeed that which would imply that the Italian Govemment
should make good a financial loss of a United States company for money that had been freely
used by that company's ltalian subsidiary.
Substantial sums are claimed in relation tò credits that Raytheon or other companies of
the same gròup had towards ELSI. These sums do not necessarily correspond to investments.
No claim had been made with regard to these credits in the bankruptcy proceedings (5). Given
the fact that ali these credits exist towards companies ali belonging to the same multinational
group, their assessment would require particular care in evaluating the services actualiy rendered
and the goods provided - both with regard to ELSI's need for these services and goods, and
their prices in relation to fair-market prices.
4· The issue of the legai expenses incurred by Raytheon.
Legai expenses incurred by Raytheon can hardly find their « proximate cause " in the alieged
infringement of a treaty provision. « Legai and related expenses » incurred by Raytheon
« in pursuing its claim against the Government of Italy for its actions against ELSI " (6) are at
best part of the costs relating to the present proceedings. Most of the alleged legai expenses
concemed lawsuits initiated by five Italian banks - all independent entities - which are grossly
misdescribed as « government banks acting pursuant to a government pian " (1) when they were
only seeking to recover their financial losses over money borrowed by ELSI with a guarantee
coverii:J.g only so % of the sums (B). These lawsuits are clearly unrelated to any alieged infringement
of the Treaty. Even the claimant Government's contention that, had there been an
<< orderly >> liquidation, the banks "would have settled their debts (sic) with ELSI" (9) is sheer
(4) Memoria!, p. 6o.
(5) Cf. Memoria!, Annex 26, p. 9·
(6) Memoria!, p. 62.
(7) Memoria!, pp. 6r-62.
(B) The banks invoked Artic!e 2362 of the Italian Civil Code and contended that, since Raytheon was in substance
the sole stockholder of ELSI, the corporate veil should be lifted against the United States company. The
acquisition of a smaii part of shares by Mach!ett appears to have been a device for avoiding the application of the
said provision against Raytheon. Italian :courts accepted Raytheon's argument that Machlett was in fact a separate
entity, although fuily owned by Raytheon.
(9) Memoria!, p. 62.
CONTROMEMORIA DEL GOVERNO ITALIANO 117
speculation. Moreover, costs were awarded to Raytheon by Italian courts in the same litigations
(1°): the awards cover norma! legai expenses, including fees corresponding to lawyers'
tariffs; any further legai expense possibly incurred into by Raytheon cannot be considered to
be reasonable under the circumnstances.
S· The claim relating to interests.
With regard to interests the Italian Government recalls that in the Lighthouses case the
Arbitrai Tribuna! stated as follows :
« ( ... ) no strict rules of law of a generai character exist which prescribe or forbid the award
of interest. The Arbitrai Tribuna! cannot accept the views expressed thereon by the two Agents,
with opposing results. Also in this respect the solution largely depends on the character of each
particular case " (11).
No interests were awarded by the Court in the Corfu Channel case. The Government of
the United Kingdom had not claimed interests but the Court did not referto this circumstance
and said:
« The Court considers the true measure of compensation in the present case to be the replacement
cost of the Saumarez at time of its loss" (12).
Among the circumstances to be considered in the present case is that the application to the
Court could well have been made many years earlier. As the Government of the United States
stated in its Memorandum of Law of 1974: «In none of the outstanding proceedings is it possible
for Raytheon and Machlett to recover any compensation which resulted from the acts and
omissions of the Government of Italy on which this claims is based " (13). Thus, if one considers
the claim to be admissible contrary to the contention of the Italian Government, the claim would
have been equally admissible ìn 1974.
The applicant Government's claim for coumpound interests finds little support in practice.
The following quotation from the arbitrai award in the British Property in the Spanish Zone of
Morocco case appears to be particularly relevant in this context:
« With regard to the choice between simple interests and compound interests, the Arbitrator
must first of ali state that arbitrai jurisprudence concerning compensation that a State
should gran t to another for damages suffered by nationals of the latter-although i t is particularly
rich - is unanimous, as far as the Arbitrator knows, in denying compound interests » (14).
(10) Documents Ns. 41-42.
(11) 12 Reports of lnternational Arbitrai Awards, p. 252. In the originai French the text reads as follows: • ... il
n'existe de règles de droit rigides d'ordre général qui prescrivent ou interdisent l'allocation d'intèrets. Le Tribuna!
ne saurait admettre !es thèses des deux Agences qui s'y réfèrent, d'ailleurs en des sens opposés. Ici encore la sollution
dépend largement des caractéristiques de chaque cas particulier >>.
(12) I.C.J. Reports 1949, p. 249.
(13) • The Claim •>, p. 56.
(1 4) 2 Reports of lnternational Arbitrai Awards, p. 6so. In the originai French the text reads as follows:
• En ce qui concerne le choix entre !es intérèts simples et !es intérllts composés, le Rapporteur doit tout d'abord
constater que la jurisprudence arbitrale en matière de compensation à accorder par un Etat à un autre pour dommages
subis par !es ressortissants de celui-ci sur le territoire de celui-là - jurisprudence pourtant particulièrement
riche - est unamine, pour autant que le rapporteur le sache, pour écarter !es intérèts composés ~.
SUBMISSIONS
The Italian Government makes the following submissions:
« May it please the Court,
To adjudge and dedare that the Application fìled on 6 February I987 by the United States
Government is inadmissible because local remedies have not been exhausted.
If not, to adjudge and dedare :
(I) That Artide III (2) of the Treaty of Friendship, Commerce and Navigation of
2 February I948 has not been violated;
(2) That Artide V (I) and (3) of the Treaty has not been violated;
(3) That Artide V (2) of the Treaty has not been violated;
(4) That Artide VII of the Treaty has not been violated;
(5) That Artide I of the Supplementary Agreement of 26 September I9SI has not been
violated;
and accordingly, to dismiss the daim ».
I6 November I987.
Professor LUIGI FERRARI BRAvo
Agent of Italy
DOCUMENTS
TABLE OF CONTENTS
x. - Treaty of Friendship, Commerce and Navigation between the United States of America
and the Italian Republic, signed at Rome, 2 February I948, entered into force, 26 July
I949 - 79 UNTS I7I.
2. - Agreement Supplementing the Treaty of Friendship, Commerce and Navigation of 2
February I948, signed at Washington, 22 September I95I, entered into force, 2 March
I96I - 4·04 UNTS 326.
3· - Chamber of Deputies, Parliamentary Proceedings, Documents - Bills and Reports, N.
246, pages I-6, Session of I7 December I948.
4· Chamber of Deputies, Parliamentary Proceedings, Documents - Bills and Reports, N.
246-A, pages I-9, Session of I7 December I948.
5· - Chamber of Deputies, Parliamentary Proceedings, Debates, Session of 24 March I949,
pages 7396-7404.
6. - Chamber of Deputies, Parliamentary Proceedings, Debates, Session of 25 March I949,
pages 7427-744I.
7· Senate of the Republic, Bills and Reports, I948-I949, N. 344-A, Report of the Majority,
pages I-Io, sent to the Office of the President on 28 May I949·
8. Senate of the Republic, Parliamentary Proceedings, I948-I949, Session 221, Debates,
7 June I949, pages 8I37-8I39·
9· - Chamber of Deputies, Parliamentary Proceedings, Legislature III, Documents - Bills
and Reports, N. 537, pages I-7, presented to the Office of the President on 8 November
I958.
IO. Chamber of Deputies, Parliamentary Proceedings, Legislature III, Debates, Session of
7 October I959, pages I0829-10831.
II. Chamber of Deputies, Parliamentary Proceedings, Legislature III, Debates, Session of
I5 December I959, pages I2272-I228I.
12. Senate of the Republic, Session of the Committees, 23 May I96o, page 22.
13. Senate of the Republic, Parliamentary Proceedings, Legislature III, 1958-6o, Bills and
Reports, Documents N. 93I-A, sent to the Office of the President on I8 }tùy I96o,
pages 1-3.
14. - Senate of the Republic, Parliamentary Proceedings, Legislature III, Session 29I, Assembly,
I9 July 1960, pages 13758-13759.
I5. - Hearing before a Subcommittee of the Committee on Foreign Relations, United States
Senate, Eightieth Congress, Second Session, on a proposed Treaty of Friendship, Commerce
and Navigation between the United States and Italian Republic, Aprii 30, I948.
I6. - Commerciai Treaties, Hearing before a Subcommitee of the Committee on Foreign Relations,
United States Senate, Eighty-Second Congress, Second Session, Treaty of
Friendship, Commerce and Navigation between the United States and Colombia, Israel,
Ethiopia, Italy, Denmark and Greece, May 9, I952.
120 RASSEGNA DELL'AVVOCATURA DELLO STATO
17. - Hearing before the Subcorrtmitee of the Committee on Foreign Relations, United States
Senate, Eighty-Third Congress, First Session, Executives R, (82d Cong., 2d Sess.) F
(82d Cong., 2d Sess.) H (82d Cong., 2d Sess.), I (82d Cong., 2d Sess.), J (82d Cong., 2d
Sess.), C (83d Cong., 1st Sess.), N (83d Cong., xst Sess.), O (83d Cong., xst Sess.);
Treaties of Friendship, Commerce and Navigation with Israel, Ethiopia, Italy, Denmark,
Greece, Finland, Germany and Japan, respectively.
18. - Artide 2362 of the Italian Civil Code.
19. - Artide 2446 of the Italian Civil Code.
20. - Artide 5 of the Unified Text 3 March 1934, N. 383 of the Municipal and Provincial
Law, modified by the Law 27 }une 1942, N. 851 and by the Law 9 }une 1947, No. 530.
21. - Artides 6, x6o, 216 and 217 of the Italian Bankruptcy Law, Royal Decree of x6 March
1942, N. 267.
22. - Artides I, 2 and 3 of the Law 22 December 1956, N. 1589 « Institution of the Ministry of
State Participation in Industry ».
23. - Decision N. 3086 of the Court of Cassation dated 23 October 1974, N. 3086, Foro Italiano
(1976), l, n66.
24. - Decision N. 198 of Abruzzo Regional Administrative Tribunal, dated 30 December
1974, Foro amministrativo (1976), I-2, 453·
25. - Decision N. 3 of Apulia Regional Administrative Tribunal, dated 28 January 1975, Foro
Italiano (1976), III, 31.
26. - Decision N. 208 of the ltalian Council of State, Section IV, 25 February 1975, Consiglio
di Stato, 1975, l, no.
27. - Decision N. 210 of Lombardy Regional Administrative Tribunal, dated July 1975, Rassegna
dei T.A.R., 1975, I, 3076.
28. - Decision N. 21 of the Italian Council of State, Section IV, dated x8 January 1977, Consiglio
di Stato, 1977, I, 67.
29. - Decision N. 72 of the Italian Council of State, IV Section, dated 7 February 1978, Consiglio
di Stato, 1978, l, 169.
30. - Certificate of the Italian Ministry of the lnterior concerning the average time taken to
examine appeals.
31. - Excerpts from the decision of the Board of Directors regarding the merger of ELSI
S.p.A. with SELIT (1965).
32. - Notes and comments concerning the books and the documents attached to the petition
in bankrupcty.
33· - Telex N. 570/2 of 6 Aprii 1968 from the Mayor of Palermo to Avvocato Nicolò Maggio
and Dr. Armando Celone.
34· - Telex N. 568/2 of 6 Aprii 1968 from the Mayor of Palermo to Ing. Profumo.
35· - Letter from the Mayor of Palermo entrusting Ing. Laurin with the management of the
plant, 16 Aprii 1968.
36. - Court of Palermo - Bankrupcty Division - Technical accounting consultancy of Raytheon
- ELSI S.p.A.
37· - Sicilian Regional Law N. 12 of 13 May 1968, (« Special Benefits for employees of ELSI
of Palermo and SATS of Messina»).
38. - Sicilian Regional Law N. 23 of 6 August 1968 (« Further Special Benefits for employees
of ELSI of Palermo»).
39· - Sicilian Regional Law No. 31 of 23 November 1968 («Integrative provisions to Regional
Law N. 23 (2) of 8 August 1968, concerning further special benefits for employees of
ELSI of Palermo »).
40. - Report of the bankrupcty Receiver, Avvocato Siracusa, 6 March 1970.
CONTROMEMORIA DEL GOVERNO ITALIANO 121
41. - Decision N. 5143 of the Court of Cassation, I Section, 7 October 1982.
42. - Decision N. 6712 of the Court of Cassation, I Section, 9 December 1982.
43· - Decision N. 2879 of the Court of Cassation, 9 May 1985, Giurisprudenza Commerciale
(Ig86), II, pages 537-564.
44· - Affidavit of Ing. Busacca, dated 30 October 1987.
UNNUMBERED DOCUMENTS
- Verbal notes of the Embassy of the United States of America, Rome, 7 February I974·
- The Claim of Raytheon Company and the Machlett Laboratories, Incorporated, against the
Government of Italy in connection with Raytheon-Elsi S.p.A. (same date as the verbal no•
tes).
Volume I - Statement of facts
Volume 2- Memorandum of LaVI
Volume 3 - Opinions referred to in Memorandum of Law
Volume 4 - Exhibits I-I through III-25
Volume 5 - Exhibits III-26 through end

REPLY
SUBMITTED BY THE
UNITED STATES OF AMERICA
(CASE CONCERNING ELETTRONICA SICULA S.P.A. - ELSI)
18 MARCH 1988

PARTI
INTRODUCTION
This R~ply. acldresf;lel! the nume~:ous. unsubstantiatecl, irrelevant, OJ:'. incorrect assertions
macle by the R,esponclent in its Counter-Memorial, filecl x6 November 1987. The Responclent
both illegally · requisitionecl Elettronica:-Sicula, S.p.A. (« ELSI »), frustrating Raytheon's ancl
Machlett's plannecl orderly liquidation of ELSI, ancl interferecl in the subsequent bankruptcy
PtOceeclings. Y et th!'l Responcl!'lnt denies that its acts violated various provisions of the Treaty
oiFrienclship, Collli):}!'ll'Ce ancl Na.vigation between the Unitecl States and the It11lian Republic
(the « Tteaty »), which entered into force in 1949, ancl its Supplement, which entered into force
in 1961. This Repl:y is filecl in acc;ord,11nce with the Court's Orcler of 17 November 1987.
From li9S6 to J;967, R~tytheon a1;1cl Machlett invested l:lUbf:ltantilll amounts, of capitai ancl
other assistance in their Italian electronics. subsidiary, ELSI, with the expectation that ELSI
would become self-sufficient in the Italian market. Despite its reputation for qu!llity products
an cl its sizeable volume of sales, ELSI never became a $elf-s:ufficient, let . alone profitable,
enterprise. Contrary to Italy's assertions, R,aytheon and Machlett diçl nothing to cre~tte:ELSI's
financial problems.
In early 1967, Raytheon ancl Machlett initiated a comprehensive effort to cletermine the
reasons for ELSI's financial clifficulties. They determinecl that ELSI could survive in the ltalian
market only with a substantial improvement in its competitive environment: specifically, by
partnership with an Italian corporation or substantial cooperation by the Italian Government.
In early 1967, Raytheon and Machlett clecided that unless they could secure a pianto improve
ELSI's competitive environment, they woulcl proceed with an orderly liquiclation of ELSI's
assets within a year. This decision was communicated to the Respondent.
Although the Respondent made broacl proposals for ELSI's continuecl operation, these
proposals requirecl that Raytheon and Machlett make substantial additional investments in
ELSI with no prospect of recovering that investment, while continuing to cover ELSI's losses.
Raytheon and Machlett reluctantly decided in March of 1968 to proceecl with the orderly liquiclation
as planned. Uncler that plan, Raytheon ancl Machlett would aclvance all funcls necessary
to allow ELSI to be sold as a going concern.
lnstead of allowing Raytheon and Machlett to liquiclate ELSI in an orderly fashion, the
Responclent, in violation of Italian law, requisitionecl ELSI's plant and assets on I Aprii xg68
allegeclly because the orderly liquiclation of ELSI woulcl cause « social unrest ». At no time,
however, clicl the Responclent ever resume the operation of the plant or re-employ ELSI's
workforce. This unjustified ancl illegal requisition prevented Raytheon ancl Machlett from selling
ELSI's assets ancl thus proceeding with the orderly liquidation as plannecl. Although Raytheon
and Machlett immecliately took all possible steps to bave the requisition rescinded, the Respondent
refused to quash the order ancl indeed tolcl Raytheon that it woulcl continue inclefinitely.
Since ELSI was deprived of the revenue with which to meet continuing financial obligations,
Raytheon ancl Machlett directed ELSI to file a petition in bankruptcy on 26 Aprii 1968 in
accorclance with Italian law.
Following the filing of ELSI's petition in bankruptcy, the Responclent continuecl to exploit
the situation in which the requisition hacl placecl ELSI's assets, eventually acquiring ELSI
for itself. Only after ELSI had been purchased by the Respondent, the Respondent's administrative
and judicial organs ruled that the Responclent's requisition of ELSI was unlawful as
a matter of ltalian law. Unfortunately, the Respondent was required by its courts to pay only
9
126 RASSEGNA DELL'AVVOCATURA DELLO STATO ------------------------------·
a small fraction of the compensation it should have paid to remedy the damage the Respondent
caused. Accordingly, Raytheon and Machlett incurred substantial losses as a direct result of
the Respondent's actions.
These actions of the Respondent violated several provisions of the Treaty. The Treaty
violations in this case are dear from the ordinary meaning of the artides cited by the United
States. The Respondent's broad assertions about the application of the Treaty and what interests
it protects are unfounded; the Treaty provisions cited by the United States protect United
States shareholders of companies incorporated in Italy. The requisition and other conduct
by the Respondent were both arbitrary and discriminatory, prevented Raytheon and Machlett
from managing and controlling an Italian corporation whose shares they had lawfully acquired,
and resulted in the impairment of their legally acquired rights and interests -- in violation of
Artides III and VII of the Treaty and Artide I of the Supplement. In addition, the requisition
constituted a taking of Raytheon's and Machlett's interests in property without due process
and without adequate compensation, in violation of Artide V of the Treaty. The Respondent
also failed to comply with the obligation under Artide V to afford protection and security, by
the unwarranted delay in ruling on the challenge to the requisition order and by failing to afford
protection to ELSI's plant and premises. These violations, singly and in combination, entitle
the United States to receive full compensation for the damages suffered by Raytheon and
Machlett.
Italy does not contest the jurisdiction of this Court. Italy does assert that the daims of the
United States are inadmissible because local remedies, in the form of a suit in Italian courts
based on the Treaty, were not exhausted. The principle that local remedies be exhausted was
followed in this case. All reasonable steps were taken to obtain compensation from the Respondent
for the unlawful requisition of ELSI. Further resort to Italian courts on the basis of the Treaty
is unavailable or unreasonable. In any event, the Respondent is estopped from insisting on
such action at this time. Consequently these daims are properly before the Court.
PARTII
STATEMENT OF FACTS
CHAPTER I
THE DECISION TO LIQUIDATE ELSI
SECTION I. - ELSI Received Extensive Financial and Managerial Assistance jrom Raytheon
and Machlett but Could Not Become Economically Self-sufficient.
By 1967 ELSI had become a respected manufacturer of sophisticated electronic components
and equipment with a modern, fully-equipped plant in Palermo, a reputation for quality products,
and a significant volume of sales and export earnings (1). I t had been Raytheon's and Machlett's
expectation from the outset that ELSI would gain access to Italian markets, develop new products,
and continue to become more efficient in its operations. ELSI, however, was never able
to achieve the financial self-sufficiency that Raytheon and Machlett had anticipated (2).
John Clare, chairman of the Board of Directors of ELSI, and other qualified technical
experts under his supervision, prepared an in-depth study of ELSI's potential for survival
in the Italian market (3). They determined that ELSI could operate effectively in Italy only
with the addition of an Italian partner, infusion of capitai, introduction of new products, and
greater access to Italian markets (4). These conclusions, previously communicated to the Respondent,
were summarized in a report which was distributed to senior officials of the Italian
Government, the Sicilian Government, IRI (5), Italian banks, and other members of the Italian
establishment (6).
The Counter-Memorial presents additional factors that allegedly contributed to ELSI's
inability to become financially self-sufficient, including ELSI's geographic location, the quality
and prices of ELSI's products, and the obsolescence of some of ELSI's production lines (1).
(l) For a discussion of ELSI's product lines and markets, see Memoria!, pp. 6---;.
(2) For a discussion of ELSI's fìnancial performance, see Memoria!, p. 7; Affidavit of Arthur Schene,
Former Vice President-Controller of Raytheon Company, 17 Apr. 1987 (Annex 13).
( 3) In 1967 Raytheon and Machlett designated John Clare, Raytheon Vice President and Generai Manager
of its European management subsidiary, Raytheon Europe International Company, to be ELSI's chairman.
They also appointed severa! other highly qualifìed persons to assist ELSI. Memoria!, p. 7·
(4) Memoria!, p. 8; Affidavit of John D. Clare, Former Chairman, Raytheon Europe International Company,
10 Jan. 1987, para. 18 (Annex 15).
( 5) Istituto per la Ricostruzione Industriale (« IRI ») is a holding company owned and controlled by the
Respondent. It has extensive and wide-ranging commerciai and banking interests dominating, among other
things, the telecommunications, electronics, and engineering markets. Memoria!, pp. 8-9. IRI's actions are
thus attributable to the Respondent. Memoria!, p. 41.
(6) Memoria!, Annex 15, para. 20; Memoria!,« Project for the Financing and Reorganisation of the Company •,
1967 Report prepared by Raytheon-Elsi, S.p.A. (Annex 22).
(7) Counter-Memorial, pp. 77-78.
128 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Respondent itself engaged in sustained efforts to attract commerce to the Mezzogiorno
region by publicized incentives (B); thus it is ironie that Respondent now attempts to question
Raytheon's and Machlett's decision to invest in the region. Despite numerous inquiries to,
and promises of, appropriate Italian authorities, these benefìts never materialized (9
). Receipt
of these benefìts would have improved ELSI's fìnancial condition and enhanced its attractiveness
to prospective buyers.
Further, ELSI had developed a reputation for the manufacture of high quality and highly
sophisticated electronics (1°). In preparation for the introduction of color television in Europe,
ELSI had constructed a modern, up-to-date facility for color television research and development
pending the decision by Italy and other European countries as to the type of television system
they would adopt (11). In addition, by 1967 ELSI had already moved from production of
gerrnanium transistors, which had become technologically obsolete, to the production of silicon
rectifìers (12).
Of course, the reasons for ELSI's fìnancial problems are not relevant to the dispute before
this Court and were merely presented as background information in the United States Memoria!.
Whatever the reasons for ELSI's inability to become a profìtable enterprise, Raytheon and
Machlett were still entitled to put ELSI through an orderly liquidation under their own contro!.
The criticai questions is whether the Respondent wrongfully requisitioned the plant, prevented
its orderly liquidation, permitted the plant to be occupied, and subsequently rnanipulated the
bankruptcy process to its own advantage.
SECTION 2. - Raytheon's and Machlett's Good Faith Efforts to Negotiate a Solution to ELSI's
Problems W ere Frustrated by the Respondent
Beginning in early 1967 Raytheon made it clear to the Respondent that ELSI could not
operate effectively in Italy and that Raytheon would not make additional capitai contributions
to keep ELSI operating without greater cooperation by the Respondent. In approximately
70 meetings with cabinet level officials of the national an d Sicilian governments, J ohn Clare
and other Raytheon officials presented numerous specifìc proposals for government partnership
in ELSI and government support for ELSI's development of new products and markets (13).
Raytheon proposed that ELSI fìnd an Italian partner. IRI, for example, dominated the
Italian electronics industry at this time and controlled important segments of it, such as the
manufacture of telephone components (14). At fìrst, the Respondent made encouraging statements,
(B) Memoria!, p. 3·
(9) The Respondent's argument that ELSI's distance from its suppliers of glass tubes in northern ltaly is
relevant, if at ali, only to one of ELSI's product lines, cathode ray tubes. Of course, the transportation subsidy
would have removed any disadvantage in this regard, had the Respondent put this program into effect as it had
promised. Memoria!, pp. 8-1 I. The Respondent's argument with respect to semiconductors is also misplaced as
transportation costs of these items is negligible relative to total cost.
(10) Memoria!, pp. 6-7.
(11) Respondent's suggestion that ELSI's products !acked reliable markets is also misplaced. CounterMemorial,
pp. 77-78. ELSI was poised to enter the market for color television. Furthermore, ELSI's sales to NATO,
while irregular by nature, were hardly << dwindling to nothing >>. See Memoria!, Annex 22, Appendix B4. Nonetheless,
ELSI recognized that military sales could not form an exclusive operating basis and for that reason sought
to develop new products and markets. Memoria!, Annex 22, p. 9·
(12) Memoria!, Annex 22, p. 14.
(13) Memoria!, p. 9·
(14) Memoria!, pp. 8-9; Affidavit of Charles F. Adams, Finance Committee Chairman and Director of
Raytheon Company, 17 Apr. 1987, para. 30 (Annex 9); see Annex 15, para. 31.
REPLICA DEL GOVERNO U.S.A. 129
but the Respondent was unwiliing in the end to agree to a concrete, viable solution to ELSI's
problems (u). Under the Respondent's proposals, Raytheon and Machlett would continue to
bear the operating losses of ELSI without itself committing to take specifìc actions to improve
ELSI's ability to compete. Raytheon, however, could not agree to incur continuing losses or
to defer any longer its pian for the orderly liquidation of ELSI.
SECTION 3·- As is Permitted under Italian Law, Raytheon and Machlett Decided to Place ELSI
through an Orderly Liquidation rather than through Bankruptcy Proceedings.
Under Italian law, shareholders are entitled to liquidate a company's assets voluntarily,
by their own resolution (16). Therefore on 28 March 1968, having decided that the orderly
liquidation of ELSI's assets was prudent in view of ELSI's fìnancial situation, Raytheon and
Machlett voted in accordance with ltalian law to proceed with the pian for orderly liquidation
prepared by ELSI's management.
ELSI's management made preparations to seli ELSI as a going concern, with an established
name and reputation, customer and supplier relationships, and the necessary patent and trademark
licenses. ELSI would maintain a limited operation to complete work-in-process, and
ELSI's management took ali possible steps to maintain good relationships with ELSI's customers
and suppliers. Raytheon and Machlett planned to offer ELSI's six product lines either as a
total package or individually to maximize the realizable price (17), and made it known that they
were willing to enter into technical assistance agreements with the ultimate purchasers of ELSI.
Raytheon also made the commitment to advance any funds to provide the necessary liquidity
for the orderly liquidation. Raytheon established a US $1.25 million line of credit to cover payment
of the smali creditors, and ELSI began making payments to them in March of 1968 (18). In
addition, Raytheon was willing to pay ali creditors whose claims were not satsifìed by the sale
of ELSI's assets (19).
It was clear to Raytheon and Machlett that an orderly liquidation would generate far
greater revenue from the sale of ELSI's assets than would a bankruptcy process. In the fìrst
piace, Raytheon would have used its knowledge of the electronics industry to locate buyers
on a worldwide basis and to negotiate the terms for the sale of ELSI's six product lines, maximizing
the return for both creditors and shareholders. Further, Raytheon and Machlett would
have realized the substantial value of ELSI's intangible assets, including the technical assistance
agreements that could be negotiated with each purchaser. Finaliy, with Raytheon and Machlett
(16) Respondent initially made encouraging statements that IRI would agree to participation in ELSI.
See, e.g., Minutes of Meeting with Hon. Vincenzo Carollo, President of the Sicilian Region (20 Feb. I968) (the
alleged discrepancies in the minutes to this meeting are refuted in the letter from Timothy E. Ramish, DeputyAgent
of the United States, to the Registrar of the Court, dated I3 Jan. I988). Respondent's encouragement never
materialized in a specific or written proposal for ELSI's future operations. See, e.g., Memoria!, Annex IS, Exhibit
G, p. 3·
(16) Artide 2448, N. 5 of the Italian Civil Code provides that a joint stock company may be dissolved by
resolution of the shareholders at a meeting called by the directors. M. BELTRAMO, G. LONGO, and J. MERRYMAN
(trans.), The Italian Civil Code (I969), p. 6n. See also Statement by Professar Franco Bonelli, 2 Mar. I988 (Annex I
t o this Reply).
(17) Each product line could be sold as a separate package, including the respective technology, contracts
customer and supplier bases, and established name and reputation to buyers elsewhere in ltaly, Europe, or Japan.
See Affidavit of Joseph A. Scopelliti, Memoria!, para. I2 (Annex I?).
(18) Memoria!, Annex IS, para. 53·
(19) Memoria!, Annex I3, para. I8. Although the Respondent fails to so distinguish, Counter-Memorial,
p. 82, Raytheon's and Machlett's commitment to fund the orderly liquidation in order to maximize the return
on its investment must be distinguished from Raytheon's and Machlett's refusal to continue to cal?itali2:e ELSI
with no prospect of a return on their investment.
130 RASSEGNA DELL'AVVOCATURA DELLO STATO
in control of ELSI's liquidation, Raytheon could ensure that the plant, equipment, and inventory
would be well-maintained and protected.
A trustee in bankruptcy, by contrast, lacked the commerciai and technical expertise and
the financial incentive to market ELSI or its product lines effectively on a worldwide basis to
appropriate buyers (2°). Further, the bankruptcy process did not afford a vehicle for the marketing
and sale of the intangible value of ELSI as a going concern, including the premium that would
be placed on Raytheon's willingness to enter technical assistance and license agreements with
the ultimate purchasers. Moreover, Raytheon and Machlett recognized that the bankruptcy
process would not result in the sale of ELSI's assets quickly. Deterioration in the assets caused
by delay in the sale would, of course, diminish the return to ELSI's creditors and shareholders.
Finally, Raytheon and Machlett sought to avoid the substantial administrative costs associated
with the bankruptcy process, costs which would not have been incurred under the orderly
liquidation.
Sale of ELSI's assets on a going concern basis (21) would have been sufficient to pay ali of
ELSI's liabilities in full, including amounts owed to Raytheon, and return lire 391 million to
Raytheon and Machlett as a small return on their large investments they had made in ELSI (22).
Of course, Raytheon had good reason to believe that the bank creditors would settle their unsecured,
unguaranteed claims at no more than so percent (J3).
SECTION 4·- At No Time Prior to I April 1968 Was it Required by Italian Law that ELSI Be
Placed in Bankruptcy.
Prior to the requisition, ELSI was never in jeopardy of bankruptcy or compulsory dissolution.
ltalian law would have required ELSI to file a petition in bankruptcy if it was impossible
for ELSI to fulfill regularly its financial obligations (24). Alternatively, ELSI could have been
considered dissolved as a matter of Italian law only if its capitai were depleted below a statutory
minimum amount (at the relevant time the statutory minimum amount was one million lire) (2 5).
ELSI never contravened these laws. Until ELSI was deprived of its·revenue by the requisition,
ELSI consistently met and was in a position to meet ali of its financial obligations (26).
ELSI's capitai, even after taking into account losses, was always well above the statutory minimum
(27
). Thus, contrary to the Respondent's unsubstantiated assertions, ELSI had no obligation
to file a petition in bankruptcy, nòr was it subject to compulsory dissolution. Raytheon and
Machlett were fully entitled to proceed with the orderly liquidation of ELSI's assets under
Italian law.
(20) Reply, Annex x, para. 2.
(21) In this case, book value is the dosest available approximation of going concern value. See injra, Part VI,
Chapter III.
(22) Memoria!, pp. x x, 6o.
(23) Memoria!, p. II. Willingness of the banks to settle their daims with ELSI a t 40 to so percent of their
value is further evidenced by the banks' agreement to settle for so percent or less of their daims in the fan of 1968.
Counter-Memorial, pp. 93-94; see also Reply, Annex x, para. 3·
(24) Reply, Annex x, para. 4; Italian Bankruptcy Act, Artide s (Annex x).
(25) Artide 2447 of the Italian Civil Code states:
« If, by reason of the loss ... [exceeding] over one-third of the capitai, [the capitai] fans below the m1rumum
established by artide 2327, the directors (2380) shan without delay can the meeting (236s) to decide on the
reduction of the capitai and the concurrent increase thereof to an amount not less than said minimum, or
on the reorganization of the company >.
Italian Civil Code, op. cit., pp. 6ro-II; see also Reply, Annex r, para. S·
(26) In addition, the Respondent seems to overlook the fact that the book value of ELSI's assets was consistently
greater than ELSI's liabilities. See Counter-Memorial, pp. 86-87; Memoria!, Annex 13, Schedule Br;
Reply, Annex r, para. S·
( 27) Memoria!, p. 12, note 19; Reply, Annex x, para. s.
REPLICA DEL GOVERNO U.S,A, 131
The Respondent also maintains that ELSI was in violation of Artide 2446 of the ltalian
Civil Code with respect to the size of its losses and in violation of the Italian Bankruptcy Act
due to its bookkeeping practices. These assertions, like many of those found in the CounterMemorial,
are irrelevant to the claims before this Court. In the interest of accuracy, however,
it must be noted that ELSI was fully in compliance with Italian law, both with regard to capitalization
requirements {28) and with regard to bookkeeping practices (29),
(28) Article 2446 of the Italian Civil Code provides that when a company's losses exceed one-third of its
capitai, the shareholders - after a one-year grace period from the date they are or should be aware of such losses
(typically at the time they review the balance sheets) - must either reduce the company's capitai in proportion
to the losses to correct the imbalance or make alternative arrangements for the disposition of the company. ltalian
Civil Code, op. cit., p. 6xo. Following the review of the balance sheets for the fiscal year ending 30 September
1966, ELSI reduced the value of its stock, thereby diminishing its losses. Raytheon and Machlett invested an
additional lire 2,500 million in ELSI, thereby bringing the company's capitai to lire 4,ooo million. Memorial
Annex 13, Schedule Bx. Notwithstanding these efforts, ELSI's losses once again exceeded one-third of its capitai
in the fiscal year ending 30 September 1967. This time, however, ELSI's shareholders voted within the one-year
grace period, to liquidate the company rather than adjust its capitai. See Memoria!, Annex 32. This decision was
in complete compliance with Article 2446. Reply, Annex x, para. 6.
(29) There is also no merit to the Respondent's assertion that ELSI's books were not properly kept. CounterMemorial,
p. Sx. From the time Raytheon acquired a majority interest in ELSI, Coopers & Lybrand, an
internationally respected accounting firm, audited ELSI's books. To allow time for its foreign operations to close
their year-end books and to transmit their accounting data to Raytheon, Raytheon's foreign operations typically
closed their books three months prior to Raytheon's consolidated report of December of each year. Under this
system, Coopers & Lybrand audited ELSI's books and prepared a year-end report for the year ending 30 September
1967. The books for the period through 31 December 1967, were kept on a normal basis at Palermo and
a complete management report for that period, consistent with the closing of 30 September 1967, was transmitted
to Raytheon in the first quarter of 1968. The balance sheet at 31 March 1968 was prepared on a basis consistent
with the valuations in the Coopers & Lybrand audit report of 30 September 1967 and a conservative extrapolation
to 31 March 1968. Memoria!, Annex 13, p. 8. Any abnormal delay in the preparation of ELSI's books was due
solely to earthquakes in Sicily and strikes at the plant in early 1968; these were brief and unavoidable interruptions
in ELSI's bookkeeping operations and did not constitute violations of Italian law. Reply, Annex x, para. 7•
CHAPTER II
THE REQUISITION AND RESUL TING BANKRUPTCY
SECTION I. - Rather than Allow Raytheon and Machlett to Place ELSI through a Lawful,
Orderly Liquidation, the Respondent Requisitioned ELSI.
By March of 1968, Raytheon's and Machlett's plan for the orderly liquidation was in place
and the fìrst steps of implementing it had begun. Raytheon and Machlett had extended the
line of credit for payment of the small creditors and was engaged in discussions with the ltalian
banks for settlement of the large unsecured, unguaranteed debts.
One event alone prevented the orderly liquidation of ELSI's assets: the unlawful requisition
by the Respondent of ELSI's plant and equipment on I Aprii I968. The requisition deprived
ELSI of control of the plant and physical assets. It prevented Raytheon and Machlett from
proceeding with the sale of ELSI's assets and prohibited ELSI's management from continuing
as planned with limited production and sale of inventory at full value to waiting customers (30).
As discussed in Part V, below, the requisition was a deliberate act by the Respondent to
prevent Raytheon and Machlett from proceeding with the orderly liquidation of ELSI's assets.
The requisition was purportedly for the purpose of protecting (( the economie public interest n
that was threatened by the proposed liquidation (81). However, during the requisition the Respondent
never re-opened the plant, otherwise resumed production, or re-employed the plant's
workers (32).
Raytheon immediately tried to get the requisition rescinded. On 9 Aprii Raytheon petitioned
the Mayor to lift the requisition order, but received no response. On 19 Aprii Raytheon appealed
the requisition to the Prefect of Palermo, and again received no response (33). Determined
not to foreclose any possibility of re-opening the plant, officers of Raytheon and ELSI continued
to meet with ltalian officials even after the requisition of ELSI. The Respondent, however,
was stili unwilling to come forward with any real proposals to improve ELSI's competitive
position (34
). The Counter-Memorial seeks to portray the Respondent as eager to enter into a
negotiated settlement by these proposals (36), but these proposals are irrelevant to the question
whether the requisition and subsequent interference with the bankruptcy process violate the
Treaty. In addition, the Respondent's admitted use of the requisition to coerce Raytheon and
Machlett into carrying indefìnitely operating losses of ELSI is precisely the type of governmental
action which the Treaty condemns.
(SO) Memoria!, pp. 27-29. Although the requisition deprived Raytheon and Machlett of management of
ELSI's operations, Raytheon and Machlett directed Mr. Rico Merluzzo to remain in the plant to protect the security
of the plant. Mr. Merluzzo remained in the plant unti! ELSI was forced to file its petition in bankruptcy.
Memoria!, Affidavit of Rico A. Merluzzo, Former Director of Planning, Raytheon-Elsi, 17 Apr. 1987 (Annex 21).
(31) Memoria!, Requisition Decree, Mayor of the Municipality of Palermo, 1 Apr. 1968 (Annex 33); Minutes
of Meeting in Palermo between Messrs. Joseph Oppenheim, Howard Hensleigh, Stanley Hillyer, and President
Carollo of Sicily, 19/2o Apr. 1968 (Annex 37); Memorandum from the President of the Sicilian Region, 20 Apr.
1968 (Annex -38).
(82) Memoria!, Annex 21, para. 19.
( 33) Memoria!, pp. 32-33.
( 34) In Aprii of 1968 ltaly proposed to lift the requisition order following the establishment of a special management
team of officials from ELSI, the Sicilian Region, and IRI to liquidate ELSI. However, this pian required
Raytheon to make additional capitai contributions to fund ELSI's continued operation, an option Raytheon and
Machlett had determined they could no longer pursue. In the summer of 1968 the Sicilian Region also proposed
a pian that would- have required Raytheon and Machlett to advance ali costs of ELSI's -operations without any
commitment on the.part of the Respondent as to the exact arrangements the Respondent would make for the sale
of ELSI's assets.
REPLICA DEL GOVERNO U.S.A. 133
Although the requisition was on its face limited to six months, the President of the Sicilian
Region stated to ELSI's stockholders on 19 Aprii, and confìrmed in writing on 20 Aprii, that
the requisition would continue as long as necessary to achieve the Respondent's objectives
regarding ELSI (86). With regard to Raytheon's and Machlett's ability to sell ELSI, President
Caro Ilo stated that:
« Nobody in ltaly shall purchase, that is to say IRI shall not purchase neither for a low
nor for a high price, the Region shall not purchase, private enterprise shall not purchase.
Let me add that the Region and IRI and anybody else who has any possibility to influence
the market will refuse in the most absolute manner to favor any sale while the plant is
closed.... In the event that the plant shall be kept closed, waiting for Italian buyers who
will never materialize, the requisition shall be maintained at least until the courts will have
resolved the case. Months shall go by (87) »,
Hence ELSI was deprived of income from the sale of its assets and was therefore no longer
able to meet its fìnancial obligations as they became due. Without any hope for a change in
this situation by the Respondent, Raytheon and Machlett certainly could no longer advance
funds to ELSI for its continued òperations. ELSI therefore was required under Italian law
to file a petition in bankruptcy on 26 Aprii 1968. The bankruptcy petition explicitly and accurately
stated that the reason for the bankruptcy was the requisition of the plant on I Aprii
1968 (88),
SECTION 2. -By Its Acts Subsequent to the Requisition, the Respondent Also Interfered with the
Bankruptcy Process to Its Own Advantage.
Following the fìling of ELSI's petition in bankruptcy, the Respondent continued to exploit
the situation in which the requisition had placed ELSI, thereby substantially aggravating the
fìnancial injury to Raytheon and Machlett. As a legai matter, the requisition prevented the
Trustee once be was appointed on 16 May by the bankruptcy court from selling the plant and
assets or otherwise protecting the property. Moreover, following the fìling of the bankruptcy
petition the Respondent allowed the local workforce to occupy the plant, which undoubtedly
discouraged prospective buyers and certainly made it difficult to show to interested buyers
the company's plant and other assets (39). Even after the requisition period ended, the bank-
(35) Counter-Memorial, p. 92. The Respondent also speculates that the failure to reach an agreement
between Raytheon and the Respondent was « an attempt [by Raytheon] to force the hand of the banks, which
had previously seemed reluctant to accept a negotiated solution •· Counter-Memorial, p. 92. This unsubstantiated
assertion must be rejected. Had the Respondent and IRI at any point made a concrete offer to acquire ELSI as
a going concern or share ownership with Raytheon and Machlett, Raytheon and Machlett would have acceded to
the plan. The failure to reach agreement was due not to the reluctance of Raytheon to reach a negotiated solution
to ELSI's problem. Raytheon had worked for more than a year for just such a resolution. Failure instead was
due to the Respondent's inability - or unwillingness - to commit to such a solution. See generally Memoria!,
Annex 22. Indeed, the Respondent's unsubstantiated assertion that it « did everything it could • to help ELSI
must be rejected for similar reasons. ,Counter-Memorial, p. 92.
(36) See generally Memoria!, Annexes 37, 38. The continued negotiations with the Respondent and the fact
that the appeal of the requisition was brought on 19 Aprii- only eighteen days after the requisition- did not
indicate that Raytheon considered the requisition « t<J be little more than a temporary nuisance •· CounterMemorial,
p. 92. On the contrary unti! the oral and written statements by the President of the Sicilian Region,
Raytheon believed that the order would soon be quashed. Although Raytheon and Machlett had been frustrated
by the Respondent's refusal to engage in meaningful cooperation, unti! 19 Aprii there were no indications that the
Respondent would sanction the continuance of illegal actions in its treatment of ELSI.
(37) Memorial, Annex 38.
(38) Memoria!, p. 15.
(39) The occupation should be distinguished from the pre-requisition strikes and sporadic sit-ins, a point
which the Respondent confuses. Counter-Memorial, pp. Bo, 83, 87. First, the strikes were directed at the Respon134
RASSEGNA DELL'AVVOCATURA DELLO STATO ------------------------
ruptcy court's lease of the plant by IRI (40) had the same effect. The Respondent proceeded to
obtain ELSI's work-in-process for a 'price below the value assigned by even the judicial
valuator (41).
In addition, the Respondent repeatedly and publicly announced its intention to take over
ELSI's plant through one of IRI's subsidiaries (42). Given the extensive power and dominance
of the Respondent in the commerciai environment of Italy, there can be little doubt that these
announcements deterred other buyers from bidding on ELSI's assets when the four auctions
were held by the bankruptcy court (48
). Notwithstanding its announced intentions, however, Elettronica
Telecomunicazioni, S.p.A. (« EL TEL »), the IRI subsidiary created to take over ELSI
boycotted the first three bankruptcy auctions, seeking to buy only some of the assets at a lower
price. Through a series of maneuvers which had the effect of controlling the sale of ELSI's
assets, the Respondent, through EL TEL, systematically acquired ELSI's operations on a
piecemeal basis, at the expense of ELSI's shareholders and creditors (44). Taking advantage
of the situation which it has created, IRI's subsidiary, Italtel, S.p.A., now uses ELSI's plant
tp manufacture telephone equipment - one of the new products proposed by ELSI in its
« I967 Report » to Italian officials (45).
On I I August I969, more than sixteen months after the appeal was filed, but only 40 days
after EL TEL had completed its acquisition of ELSI's assets, the Prefect ruled that the requisition
was illegal under Italian law.
dent, to persuade it to take action with respect to ELSI. Memoria!, Annex zx, para. zz. They were limited to
brief interruptions of production operations and did not result in the closure of the plant for an indefinite amount
of time. Only after Mr. Merluzzo left the premises following the filing of the bankruptcy petition did the workers
actually occupy the plant for a sustained period. 'ò
(40) Memoria!, pp. x8-x9.
(41) Memoria!, pp. 19-zo.
(42) Memoria!, Annexes 37, 38, 46.
( 48) That IRI's announcement was at the direction of the Respondent is confirmed in the Counter-Memorial,
p. 94·
(44) For a complete discussion of the bankruptcy process and EL TEL's systematic methods acquiring ELSI
at a price favorable to itself, see Memoria!, pp. x6-zo.
(45) Memoria!, p. :o~o.
PART III
JURISDICTION
Jurisdiction in this case is based on Artide 36(1) of the Statute of the Court, as read in
conjunction with Artide XXVI of the 1948 Treaty of Friendship, Commerce and Navigation
(the « Treaty ») between the United States and Itaiy (1). Although acceptance by the Respondent
of the Court's jurisdiction on this basis is not necessary, the Respondent « fully recognizes »
the Court's jurisdiction over this dispute as it reiates to the interpretation and application of
the FCN Treaty and its Suppiement (2).
The Respondent dedines to object to the Court's jurisdiction. Since Ruie 79 of the Ruies
of the Court requires that any objection to the jurisdiction of the Court be made within the
time Iimit fixed for the delivery of the Counter-Memoriai, the Respondent is now barred from
raising an objection. The Counter-Memoriai specuiates, however, that jurisdiction with respect
to Artides V(1) and (3) of the Treaty is in doubt because the United States has not put forward
these provisions previousiy in dipiomatic negotiations, in accordance with Artide XXVI (3).
The Respondent's view appears based on the fact that while these provisions were discussed
throughout the Memorandum of Law accompanying the 1974 Claim, they were not specifically
cited in the Memorandum's « Summary of Legai Arguments »,
The Respondent's view is wholly unjustified. The United States has repeatediy raised with
the Respondent since 1972 the legai daims now before this Court. Each Treaty daim argued
before this Court was presented to the Respondent in the Legai Memorandum submitted to the
Respondent in 1974 (4
). Since the Respondent has consistently refused to pay compensation
for the damages suffered by the United States, the dispute has not been satisfactorily adjusted
by dipiomacy and is now properly before this Court pursuant to Artide XXVI of the Treaty.
(l) Memorial, p. 25.
(2) Counter-Memorial, p. 95·
( 3) Artide XXVI of the Treaty states that disputes « which the High Contracting Parties shall not satisfactorily
adjust by diplomacy » may be submitted to the Court.
( 4) The daim presented to the Respondent in 1972 and again in 1974 appears in Volume I of the << Unnumbered
Documents », annex to the Counter-Memorial. The Memorandum of Law in Support of the Claim of
Raytheon Company and the Machlett Laboratories, Inc. Against the Government of Italy in Connection with
Raytheon-Elsi S.p.A. appears as Volume II of the 1972/74 daim. See pp. s, 21 (Artide III(2)); pp. 6, 23 (Artide
V(x)); pp. 5, 14, 51, and 73, (Artide V(z)); pp. 21, 23, and 51 (Artide V(3)); pp. 6, 25, and 74 (Artide VII);
pp; 6, 74 (Treaty Protocol paragraph 2); pp. 6, 10, 52, 74 (Treaty Supplement Artide x); pp. 7, 74 (Treaty
Supplement Artide V) (these page numbers refer to pages as originally numbered in the Claim).

PART IV
ADMISSIBILITY OF THE CLAIMS
The Respm:i.dent contends that the United States claim is inadmissible because Raytheon
and Machlett failed to exhaust available remedies in Italian courts. Raytheon and Machlett,
however, have exhausted in Italy all remedies available under ltalian law. Consequently the
United States claim is admissible before this Court.
In the Interhandel Case (l) this Court stated that in cases involving injury to a foreign national,
the principle of exhaustion of local remedies provides that the respondent State be given the
opportunity to redress the injury within its internai system. The Court explained that:
« Before resort rnay be had to an intemational court in such a situation, it has been considered
rtecessary that the State where the violation occurred should have an opportunity to redress
it by its own means, within the framework of its own domestic legai system (2) ,,,
In this case, the Respondent was accorded every opportunity within its own legai system
to pay compensation for the injury caused by its actions. Subsequent to the requisition, Raytheon
and Machlett directed ELSI officials to petition formally the Mayor to lift his order. When
this produced no result, Raytheon and Machlett directed ELSI officials to appeal the Mayor's
order to the Prefect of Palermo. While the decision by the Prefect was pending, Raytheon and
Machlett directed its representative on the creditors' committee to appeal decisions of the
bankruptcy judge, such as the decisions to lease the plant to EL TEL and to sell the plant,
equipment, and supplies to ELTEL. Unfortunately these appeals were denied by Italian
courts (3).
Eventually the Prefect declared the requisition to be unlawful (4). When the Mayor appealed
the Prefect's decision to the Italian Council of State and the President of Italy, the appeal was
dismissed and the Prefect's decision upheld (5).
Raytheon's and Machlett's interests as creditors of ELSI were represented in the bankruptcy
process by the Trustee, Giuseppe Siracusa. Following the decision of the Prefect that
the requisition was illegal, the Trustee brought suit against the Respondent seeking damages
for the unlawful requisition. After extensive consideration of the facts and law underlying the
injury to ELSI, the Court of Palermo refused to award darnages (6). Subsequently the Court
of Appeals of Palermo reversed the lower court in part a:nd found that damages were due for
the six-month « use ,, of the plant, but not for the injury caused in preventing Raytheon and
Machlett from placing ELSI through an orderly requisition (1). The Supreme Court of Appeals,
(l) Interhandel Case, Preliminary Objections, I.C.J. Reports I959, p. 27 (« Interhandel Case»).
(2) Interhandel Case, p. 27; see also Ambatielos Claim, u Reports of International Arbitral Awards, pp. n8-
uo (I956) (« Ambatielos Claim »); Finnish Shipowners Case, 2 Reports of International Arbitral Awards, pp.IS03-
I504 (I934).
(S) Memorial, Decree of the Civil and Criminal Tribunal of Palermo, 9 May I969 (Annex 64); Transcript
of Bankruptcy Hearing, Civil and Criminal Court of Palermo, I3 Jul. I969 (Annex 74).
(') Memorial, p. I 3·
(5) Memorial, p. 2I.
(6) Memorial, Judgment of the Court of Palermo, decided 2 Feb. I973, filed 29 Mar. I973, registered
4 Apr. I973, pp. Io-II (Annex So).
(1) Memorial, Judgment of the Court of Appeals of Palermo, registered 24 Jan. I974, p. I4 (Annex 81).
138 RASSEGNA DELL'AVVOCATURA DELLO STATO
after extensive consideration as to the facts and law of the case, upheld the decision of the Court
of Appeals of Palermo (B).
The Respondent asserts that after ali these efforts to seek redress from the Respondent,
Raytheon and Machlett should also have brought suit in Italian courts based on the Treaty (9).
The Respondent, however, does not describe the statutory basis on which such a suit could
be brought, undoubtedly because there is no basis for a suit under Italian law for compensation
based on Respondent's violation of the Treaty. Raytheon and Machlett should not be required
to pursue an unavailable local remedy prior to presentation of their claim by the United States
before this Court.
Treaties only can have effect within Italy if they are incorporated into an Italian legislative
act (1°). Even then, the treaty is only effective as a matter of Italian law for those provisions which
are complete in their essential elements; those provisions which lack completeness remain
ineffective (11). Although the Treaty and Supplement at issue here were incorporated into Italian
legislative acts (12), the provisions argued before this Court are not complete enough to permit
a suit for compensation by a United States national against the Government of Italy in Italian
courts (13). Indeed, although there is provision in Artide V for indemnification by the Government
of ltaly of those individuals or corporations w ho ha ve been deprived of their property,
that Artide is still not sufficiently complete. For example, there is no indication whether such
indernnification would be viewed as « diritto soggettivo " (subjective right), and therefore enforceable
in the ordinary courts, or « interesse legittimo >> (legai interest), and therefore enforceable
in the administrative courts. The other articles of the Treaty pleaded by the United States are
similarly not enforceable (14
). Further, since Raytheon's and Machlett's claims are those of
shareholders, Italian law would prevent a suit seeking compensation based on the illegal requisition
because Italian law reserves such a right to ELSI alone, despite the existence of the
Treaty (16). As stated by Elio Fazzalari, an esteemed Professar of Civil Procedure at the University
of Rome, « The Respondent's claim is groundless (16
) "·
Professar Antonio La Pergola, then Professar of Law at the University of Bologna and
subsequently President of the Italian Constitutional Court, considered in 1971 whether Raytheon
could sue based on the Treaty and concluded that further local remedies were not available.
Professar La Pergola stated that:
« ... I believe that I must conclude that in a situation of this kind, all the requirements
appear to be satisfied for the U.S. citizens who are members of Raytheon-Elsi S.p.A.
to be protected at the international level, without any internai remedies being explored
before the filing of a possible claim against the Italian Government (17) "·
The only Italian case cited by the Respondent in support of its argument is the 1961 case
of The Durst Manufacturing Co. v. Banca Commerciale Italiana (lB). Durst, however, merely
(B) Memoria!, Judgment of the Supreme Court of Appeals, 26 Apr. 1975 (Annex 82). The Supreme Court
of Appeals is not capable of reviewing de nova the facts as found by the lower courts.
(9) Counter-Memorial, p. 100.
(10) « Implementation of Treaties and Community Law », V Italian Yearbook of International Law, p. 265
(198o-81).
(11) ~ Implementation of the Peace Treaty with Italy », II Italian Yearbook of International Law, pp. 364-
365 (1976).
(12) Counter-Memorial, p. 1oo.
(13) Statement by Professar Elio Fazzalari, University of Rome, 29 Feb. 1988, p. 4 (Annex 2 to this Reply).
(14) Ibid., pp. s-6.
(15) Ibid., pp. 6-7.
(16) Ibid., p. 4·
(17) Letter from Antonio La Pergola, Professor at the University of Bologna, to Raytheon Company, 9 Dee.
1971 (Annex 3 to this Reply). Raytheon also sought the advice of its Italian counsel, Giuseppe Bisconti, who
informed Raytheon on 6 Nov. 1971 that << there is no remedy under Italian law available to the shareholders of
ELSI in relation to the damage suffered by them as a consequence of the requisition by the Mayor of Palermo and
the subsequent events ». Letter from Avv. Giuseppe Bisconti, Studio Lega! Bisconti, Rome, to Raytheon Company,
6 Nov. 1971 (Annex 4 to this Reply).
(18) 64 Rivista di Diritto Internazionale (1961), pp. II7-II8.
REPLICA DEL GOVERNO U.S.A. 139
holds that another provision of the Treaty - the << access to justice " clause - relieves a party
who files a petition for review by the Italian Supreme Court of the need for an authentication
of the signature of the Italian consul in New York by the Minister of Foreign Affairs. There
were no damages awarded in that case and it did not involve the Government of Italy.
Even if the Court believes that there was some possibility that a suit by Raytheon and
Machlett in Italian courts based on the Treaty would have succeeded, the principle of exhaustion
of local remedies does not require an injured national to pursue a highly speculative and unlikely
means of redress. The principle is satisfied if there is no effective local remedy « as a matter
of reasonable possibility (19) "· Indeed, the burden is on the Respondent to prove the existence
of a further .remedy in Italian courts (20). In this case, local counsel advised Raytheon that a
suit based on the Treaty could not succeed (21). Further, the Supreme Court of Appeals in Italy
had already decided the amount of compensation owed by the Respondent for its unlawful
actions (22). Therefore, obtaining compensation through a suit based on the Treaty was so
unlikely that it could not be considered a remedy available as a matter of reasonable possibility.
In any event, the Respondent is estopped from asserting that there exists any requirement
to further exhaust local remedies (23). Although for 15 years the Respondent entertained diplomatic
representations by the United States on the basis of the Treaty (including the formai
presentation of a diplomatic claim in 1974), at no time until the filing of its Counter-Memorial
did the Respondent suggest or request that Raytheon and Machlett enter Italian courts and sue
on the basis of the Treaty. Instead the Respondent made statements that it was willing to go
to arbitration with the United States (24), which discouraged further resort to Italian courts.
The United States has relied on the Respondent's representations in good faith to the United
States detriment because - assuming for the sake of argument that an action based on the
Treaty could be brought - the statute of limitations on that action has now expired (25).
Therefore, the Respondent is now estopped from assering that there should have been further
resort to local remedies by Raytheon and Machlett.
(19) Norwegian Loans Case, I.C.J. Reports 1957, p. 39 (separate opinion of Judge Lauterpacht); Barcelona
Traction Case, Second Phase, I.C.J. Reports 1970, pp. 144-145, and 284 (separate opinion of Judge Gros).
(20) Ambatielos Claim, p. 119.
( 21) Reply, Annex 3·
(22) Memoria!, Annex 82. Although the opinion of the Supreme Court is not binding outside the case in
which it is rendered, it is highly persuasive authority in subsequent cases in Italian courts. The Italian Civil Code,
op. cit., ix. No effective local remedy exists if further appeals to the courts are on issues previously decided by
the highest court. Panevezys v. Saldutiskis Railway, P.I.C.J., Series A/B, N. 76; X v. Austria, 30 International
Law Reports, p. 268.
(28) Estoppel is a generai principle of international law which this Court has previously employed to qualify
the rights of parties before the Court. E.g. Arbitra[ Award Made by the King of Spain on 23 December r9o6,
I.C.J. Reports p. 192, pp. 213-214 (where Nicaragua was not permitted to challenge the validity of an arbitrai
award in part because it had failed to raise any question with regard to the validity of the award over severa! years);
H. LAUTERPACHT, The Development of lnternational Law by the International Court, pp. 168-172 (1961) (« [Estoppel]
may fairly be regarded as a generai principle of law which, once more, is merely an affirmation of the mora! duty
to act in good faith »). As for the application of estoppel in the case of a bilatera! treaty, a member of this Court
has stated:
« The primary foundation of [ estoppel] is the good faith that must prevail in international relations, inasmuch
as inconsistency of conduct or opinion on the part of a State to the prejudice of another is incompatible with
good faith. Again I submit that such inconsistency is especially inadmissible when the dispute arises from
bilatera! treaty relations >>,
Temple of Preah Vihear Case, I.C.J. Reports r962, pp. 40, 42 (separate opinion of Judge Alfaro). For cogent
discussions of the issue of estoppel, see Bowett, << Estoppel before International Tribunals and its Relation to
Acquiescence », 33 British Yearbook of lnternational Law, p. 176 (1957); MacGibbon, « Estoppel in International
Law », 7 International and Comparative Law Quarterly, p. 468 (1958).
( 24) In response to the claim espoused by the United States in 1974 on the basis of the Treaty and customary
international law, the Respondent did not protest that local remedies had not been exhausted, but instead stated
that << the claim is juridically groundless, both from the international and internai point of view ». Aide-Memoire
of 1978 from the ltalian Ministry of Foreign Affairs to the United States. Fora summary of the diplomatic efforts
made to resolve this dispute, see Application Instituting Proceedings Submitted by the Government of the United
States of America, Attachment 2.
( 25) The norma! time period for filing of a suit in Italian courts seeking compensation for damages arising from
unlawful acts is five years from the date on which the act occurred. Italian Civil Code, op. cit., Artide 2947·

PART V
THE CLAIMS OF THE UNITED STATES
CHAPTER I
INTRODUCTION
Respondent's Counter-Memorial attempts to obscure the violations of the Treaty by
asserting inaccurate generaiities abòut the Treaty and by attributing to the United States arguments
that the United States does not make. The protections of the Treaty and the violations
of it by the Respondent, however, are quite clear from the ordinary meaning of each artide
invoked by the United States.
The United States has shown that the Respondent, through the actions of its agents and
officiais, violated its legai obligations under the Treaty by: (I) unlawfully requisitioning the
ELSI plant on I Aprii I968, (2) allowing ELSI workers to occupy the plant; (3) unreasonably
delaying ruling on the lawfulness of the requisition for I8 months until immediately after the
ELSI plant, equipment, and work-in-process had all been acquired by ELTEL; and (4) interfering
with the ELSI bankruptcy proceedings, which allowed the Respondent to realize its
previously expressed intention of acquiring ELSI, fora price far less than its fair market value.
All of these actions, singly and in combination, violated Articles III, V, and VII of the
I949 Treaty and Artide I of its I96I Supplement, which by its terms is an integrai part of the
Treaty. The protections provided under the Treaty relating to this dispute fall into four categories:
(a) protection from interference with Raytheon's and Machlett's management and
control of ELSI;
(b) protection from impairment of Raytheon's and Machlett's investment rights;
(c) protection from the wrongful taking of Raytheon's and Machlett's property; and
(d) protection and security for Raytheon's and Machlett's investment.
Before addressing these four areas of protection under the Treaty, however, three generai
assertions by the Respondent in the Counter-Memorial must be addressed as a preliminary
matter.
First, a specific object and purpose of this Treaty was to encourage investment by corporations
of one party in the territory of the other party (l). The United States does not argue
that the sole purpose of the Treaty is to encourage investment (2), but certainly the articles
(1) As noted in the Memoria!, when the Respondent debated the merits of the Treaty, one factor that
weighed in its favor was the « urgent need » of its economy for foreign capitai. Memoria!, p. 27.
(2) The Respondent itself agrees that the encouragement of investment was one of the aims of the Treaty.
Counter-Memorial, p. 103. Some other treaties of Friendship, Commerce, and Navigation (<< FCN ») entered into
by the United States subsequent to this Treaty contain within their preamble a reference to the promotion of
investment, but the object and purpose of ali of these treaties are seen in their substantive provisions, which
are largely identica! and which ali provide investment protections for corporations. Of course treaties create
neither rights nor duties for third States. See 1969 Vienna Convention on the Law of Treaties, Article 34·
J()
142 RASSEGNA DELL'AVVOCATURA DELLO STATO
advanced before this Court show that both parties were concerned with the property and interests
therein of each party's corporations in the territory of the other. The 1961 Supplement, which
constitutes «an integrai part >> of the Treaty (3), states in its preamble that the United States
and Italy were « desirous of giving added encouragement to investments of one country in useful
undertakings in the other country (4) )), The use of the word « added >> shows that the originai
Treaty envisioned protection of investment (5). To accept the Respondent's implied argument
that the Treaty does not provide protection for United States investments in Italy would eviscerate
large sections of the Treaty.
The emergence in recent years of bilatera! investment treaties (« BITs ))) between the United
States and developing countries is not relevant when interpreting this Treaty's protections
for investments. BITs specifìcally address just investment issues rather than establish a comprehensive
network governing both investments and other matters (6). There is no reason why
a later series of treaties with other countries dealing specifìcally with investment should weaken
the provisions of this Treaty with Italy, which deals with investment and other matters.
Second, the Respondent incorrectly asserts that the only standards operating under this
Treaty are a national treatment standard and a most-favored-nation standard. The ordinary
meaning of the Treaty artides at issue in this dispute belies the Respondent's assertion. For
instance, Artide I of the Supplement establishes an unqualifìed rule prohibiting arbitrary and
discrirninatory conduct that prevents effective control and management by United States
corporations of their subsidiaries in Italy or impairs their investments in those subsidiaries.
Artide V of the Treaty establishes an unqualifìed rule that property of United States corporations
shall not be taken without due process of law and without just compensation. Artide III of
the Treaty also establishes a virtually unqualifìed rule permitting United States corporations
to organize, manage, and control Italian corporations, subject only to certain guidelines under
Italian law. In Artide VII of the Treaty, there is a standard of reciprocity which requires the
Respondent to allow United States corporations operating in Italy the same freedom to dispose
of their immovable property or interests as is given to Italian corporations in the United States.
The operative standard of treatment must be analyzed for each of the artides advanced by the
United States.
Third, the Respondent is incorrect in implying that the United States' daim depends upon
ELSI being a benefìciary under the Treaty. The Treaty provisions at issue specifìcally protect
the rights, interests, and property of United States corporations such as Raytheon and Machlett,
which invested in the ltalian economy by means of an Italian subsidiary. The rights, interest,
(B) Treaty Supplement, Artide IX. The Vienna Convention on the Law of Treaties,·Article 31(3), also
provides that any subsequent agreement between the parties shall be taken into account when interpreting the
Treaty.
(4) Treaty Supplement, Preamble (emphasis added). As stated in the ratification bill passed in Italy, « The
Supplemental Agreement ... is designed above all to foster investment in Italy using private capital from the
United States which is the most important, perhaps the only, country today which has such resources at its disposal
». Counter-Memorial, Annex 9, p. 10. (Materials from the Italian interna! ratification proceedings are
cited in this Reply to demonstrate that the two parties had a common understanding of the meaning and purpose
of the Treaty. Standing alone, such interna! ratification proceedings cannot, of course, bind another party).
This Court has previously used the preamble of a treaty to establish its object and purpose. Case Concerning
Rights of Nationals of the United States, judgment, I.C.j. Reports I952, p. 24.
(5) Application of the Treaty provisions will not accentuate an << imbalance » between the Parties. CounterMemorial,
p. 103. Even if it can be said that United States investments in Italy predoininate the two parties'
economie relationship, the Respondent agreed to this Treaty not just to protect the ability of Italians to invest
in the United States, but to secure for the Italian economy the benefits of United States capital in Italy. In
this sense, the Italian « gain » under the Treaty predoininates that of the United States. Whether one party benefits
at any given time more than the other party is irrelevant to the agreement of each party to abide by the provisions
of the Treaty.
( 6) The United States has negotiated BITs with Panama, Senegal, Haiti, Zaire, Morocco, Turkey, Cameroon,
Bangladesh, Egypt, and Grenada. None of these treaties is yet in force. The BITs draw on concepts of protection
which were developed in the FCN treaties subsequent to World War II. Any greater specificity of investment
protections in the BITs are attributable to innovations that address concerns particular to investments in developing
countries. P. GANN, << The US Bilateral lnvestment Treaty Program », 21 Stanford journal of International
Law, pp. 373-374 (198s).
REPLICA DEL GOVERNO U.S.A. 143
and property affected by the Respondent's actions belonged to Raytheon and Machlett, not
ELSI (1). In the Case Concerning the Barcelona Traction, Light, and Power Company, Limited,
the Court recognized that whether particular rights and interests of shareholders are protected
as a matter of internationallaw may be governed in a particular case by the rules of an applicable
international instrument (8
). The nature of the right, interest, or property at issue in this case
is clear from the ordinary meaning of the Treaty provisions that apply within each category
of protection. Those categories of protection are now discussed separately in light of the CounterMemorial.
(7) The argument of the United States before the United States Supreme Court in Sumitomo Shoji America,
lnc. v. Avigliano, cited in the Counter-Memorial p. xo6, is not relevant to this case. In Sumitomo the United
States argued that the United States subsidiary of a J apanese corporation was not capable under the particular
language of Artide VIII( x) of the United States-Japan FCN Treaty to avoid application of United States federai
law. That case dealt with language particular to Artide VIII( x) of that FCN Treaty. Further, Sumitomo did not
discuss in any way the right of Japanese corporations to raise claims under that FCN Treaty in United States courts.
(B) judgment, Second Phase, ICi Reports I970, paras. 54, 6x, 62.
CHAPTER II
INTERFERENCE WITH MANAGEMENT AND CONTROL OF ELSI
The Respondent requisitioned the ELSI plant, delayed its decision as to the lawfulness
of the requisition, and thwarted the normal bankruptcy process, instead of allowing an orderly
liquidation of ELSI. These acts constitute interference with Raytheon's and Machlett's management
and contro! of their subsidiary. Artides III and VII of the Treaty and Artide I of
the Supplement bar the Respondent from engaging in such interference.
SECTION x. - Article III of the Treaty.
Artide III of the Treaty guarantees that United States corporations may participate in
corporate enterprises organized under the laws of Italy. Artide III(z) creates a broad right
for United States corporations to "organize, contro! and manage >> Italian corporations engaged
in commerce and manufacturing in conformity with applicable Italian law and regulations (9
).
The facts of this case vividly show a denial of this right to contro! and manage. The Respondent,
however, tries to avoid application of the ordinary meaning of Artide III(z) by making severa!
incorrect assertions.
First, the Respondent contends that the unlawful requisition of the ELSI plant in « no
way affected contro! by the shareholders » over ELSI, but rather << merely concerned the management
by [ELSI] of some property belonging to [ELSI] (1°) ». Yet a fundamental right of
shareholders in controlling and managing a non-public corporation is the right to decide to
liquidate or « wind up » the business of that corporation. Under Artide 17 of the By-Laws
of ELSI, the right « of changing the legai nature of the Company, of winding up voluntarily
the Company » was reserved exdusively to shareholders owning shares having an aggregate
value of 90 percent of the capitai of ELSI (11). Mter having made extensive investments in ELSI,
Raytheon and Machlett alone had the right and the responsibility to decide to liquidate ELSI
in an orderly fashion.
Second, the fact that the requisition did not transfer ownership of ELSI to the Respondent (12)
does not make the requisition any less of an interference with management and contro!. The
requisition deprived any potential buyer of access to ELSI's physical assets, thereby making
(9) Article III(2) of the Treaty states in part:
« The nationals, corporations and associations of either High Contracting Party shall be permitted, in conformity
with the applicable laws and regulations within the territories of the other High Contracting Party,
to organize, control and manage corporations and associations of such other High Contracting Party for
engaging in commerciai, manufacturing, processing, mining, educationa!, philanthropic, religious and scientifìc
activities ~ (Emphasis added).
(10) Counter-Memorial, p. 105. Contrary to the Respondent's assertion, the United States is not establishing
an« autonomous principle of fair treatment >>. Counter-Memorial, pp. ros-1o6. The United States simply points
out that the Treaty as a whole seeks to assure investors that investments will be given fair or equitable treatment.
Memoria!, p. 30. The concern with equitable treatment is expressly stated in the Preamble to the Supplement,
which of course constitutes an integrai part of the Treaty. See Treaty Supp!ement, Artide IX. The existence
of other standards of treatment such as national treatment and most-favored-nation treatment does not preclude
application of fair treatment.
(11) ELSI - Elettronica Sicula S.p.A., By-Laws (Articles of Incorporation), Approved by the Shareholders
Extraordinary Meeting of 19 Ju!y 1961, Artide 17 (Annex 5 to this Reply).
(12) Counter-Memorial, p. III. ·
REPLICA DEL GOVERNO U.S.A. 145
sale of ELSI as a going concern impossible. When President Carollo of Sicily informed Raytheon
orally and in writing that the requisition would be prolonged inde:finitely unless Raytheon
abandoned its pianto wind up ELSI (13), it was dear that Raytheon and Machlett had completely
lost their ability to manage and control ELSI, leaving them only the option of placing ELSI
in bankruptcy as required by Italian law (14
). Ultimately the interference by the Respondent
in the bankruptcy process even diminished the right of Raytheon and Machlett to receive any
of the benefìts of a normal bankruptcy sale, thereby forcing Raytheon and Machlett to pay
off a greater share of ELSI's guaranteed debts that went unpaid due to the low proceeds from
the bankruptcy. Whether or not the requisition involved transfer of title, it obviously involved
interference with management and contro!.
Third, the Respondent seeks to justify its conduct under the fìrst sentence of Artide III(2)
by asserting that the requisition was based on an Italian law and therefore was in<< conformity
with the applicable laws and regulations ». Yet while that dause permits United States corporations
to organize and control Italian corporations only within the guidelines established by
locallaw, it does not call for United States corporations to receive treatment «no less favorable >>
than that accorded to corporations owned by local nationals, which is the dause used in the
Treaty to trigger a national treatment standard (1 6). Consequently the « applicable laws and
regulations » dause m:ust be interpreted to mean that the way in which management and control
may be exercised is subject to regulation under locallaw, but the right to manage and control
may not be abrogateci entirely, regardless of the treatment accorded to ltalian nationals (16).
Subject only to this constraint, the guarantee of treatment in the fìrst sentence of Artide
III(z) is unqualifìed. Unqualifìed or << absolute » rules are used in FCNs to protect vital rights
and privileges of foreign corporations in any situation, whether or not a host government provides
the same rights to its own population (17).
In any event, the « applicable laws and regulations » dause cannot excuse the Respondent's
conduct in this case because the requisitiort of the plant bythe Respondent was not in conformity
with applicable laws and regulations. The Prefect of Palermo found the requisition to be illegal
because it was not directed toward the goal stated by the Mayor of Palermo. The highest ltalian
court confìrmed the Prefect's fìnding. To be in conformity with applicable laws and regulations,
it is not enough that the Mayor of Palermo referenced certain laws when he requisitioned the
plant. If mere reference to local laws satisfìes Artide III(z), then all acts of the Respondent
could be excused in this way and the protection of Artide III(2) would be rendered meaningless.
Even if the fìrst sentence of Artide III(z) is read as providing for treatment no less favorable
than is provided to Italian corporations, the presumption must be that this Artide was not
meant to deprive United States corporations of advantages they would have otherwise enjoyed
(18) Memoria!, pp. 13-14.
(14) Memoria!, pp. 14-15, 3o-32.
(16) The <• no less favorable » clause appears in various parts of the Treaty where a national treatment standard
is intended. The clause also appears in the second sentence of Artide III(2), but this sentence applies to corporations
controlled by corporations in the other party. Hence, Article Ill(2) applies a national treatment standard
to the rights and privileges of ELSI to engage in activities in ltaly, but not to the rights of Raytheon and Machlett
to contro! and manage ELSI.
(16) Herman Walker, a highly qualified writer in this area who was intimately involved in the negotiation of
many FCNs, noted that the phrase « in conformity with applicable laws and regulations », as it occurs in this Treaty,
<< is framed in such a manner as to imply that it does not constitute a reservation detracting from the treaty right;
and such phraseology has been omitted from subsequent treaties >>. H. WALKER, « Provisions on Companies in
United States Commerciai Treaties », so American journal of International Law, p. 373 at p. 384, N. 53 (1956).
In view of the possible ambiguity of this qualification, however, the Supplementary Agreement provided stronger
protection by absolutely prohibiting arbitrary and discriminatory interference, whether or not in accordance with
local law. See infra, Part V, Chapter II, Section 2.
(17) H. WALKER, << Modern Treaties of Friendship, Commerce and Navigation », 42 Minnesota Law Review,
p. 8os at pp. 81 I, 823 (1958). Mr. Walker states that in these situations foreign nationals are to receive « not only
equa! protection, but also a certain tninimum degree of protection, as under international law, regardless of a
Government's possible lapses with respect to its own citizens. » H. WALKER, « Treaties for the Encouragement
and Protection of Foreign Investment: Present United States Practice », 5 American journal of Comparative Law,
p. 229 at p. 232 (1956). Unqualified rules state the law of the treaty itself and may be assessed, as relevant, in
accordance with principles of international law.
146 RASSEGNA DELL'AVVOCATURA DELLO STATO
--------------------~~ ~--------------------------
under international law (18). Hence Artide III(2) indudes certain mm1mum standards of
protection under intemational law, induding protection from unlawful interference with management
and control (19).
Thus, under either the standard set forth in Artide II1(2) or even under a national treatment
standard, unlawful interference in the management and control of a United States-owned
subsidiary violates Artide III(2) of the Treaty.
SECTION 2. - Article I of the Supplement.
Artide I(a) of the Supplement guarantees that United States corporations shall not be
subject to arbitrary or discriminatory measures in Italy resulting particularly in preventing
their effective control and management of enterprises which they have been permitted to establish
or acquire in Italy (2°). This provision complements and reinforces the protections accorded
to Raytheon and Machlett under Artide III by establishing a completely unqualified rule (21)
prohibiting interference with control and management by arbitrary and discriminatory conduct,
regardless of Italian laws and regulations.
The Counter-Memorial strains to interpret the Respondent's actions as being directed
only at ELSI and therefore as having no effect on Raytheon and Machlett's property (22). Yet
Artide I(a) of the Supplement does not referto property at all; it refers to control and management
of enterprises established or acquired in Italy, which is precisely what is at issue here.
Raytheon and Machlett were most certainly « subjected to » measures in Italy << resulting in »
the prevention of their effective control and management of ELSI. The Respondent pretends
that « the company organs, through which this control and management were performed, were
able to function freely also during the period of the requisition (23) ». The « company organs »
could still function, but there was nothing left for them to control and manage. This is precisely
what Artide I(a) of the Supplement was designed to prevent (24).
(18) H. P. CONNELL, « United States Protection of Private Foreign lnvestment through Treaties of Friendship•
Commerce, and Navigation », 9 Archiv des Volkerrechts, p. 256 at p. 266 (I96I-62) (quoting Schwarzenberger
at note 49: « Even if the standard of national treatment is laid down in a treaty, the presumption is that it
has been the intention of the parties to secure to their nationals in this manner additional advantages, but not to
deprive them of such rights as in any case, they would be entitled to enjoy under international customary law or
the genera! principles of law recognized by civilized nations »).
(19) When a State admits into its territory foreign investments in the form of juristic persons, that State is
bound to extend to them the protection of the law and assumes obligations concerning the treatment to be afforded
to them. Such obligations include the obligation to refrain from acts that deprive investors of the right to
exercise management and contro! of their investment. See, e.g., Revere Copper and Brass, !ne. v. Overseas Private
lnvestment Corporation, 56 International Law Reports, p. 258 at pp. 290-293, 295 (I98o). The unlawful interference
with Raytheon's and Machlett's management and contro! by the Respondent was a breach of its obligations
under customary internationallaw as preserved by the Treaty.
(20) Artide l(a) of the Supplement states:
« The nationals, corporations and associations of either High Contracting Party shall not be subjected to arbitrary
or discriminatory measures within the territories of the other High Contracting Party resulting particularly
in: (a) preventing their effective contro! and management oj enterprises which they have been permitted
to establish or acquire therein ... & (Emphasis added).
(21) See supra, note I7 and accompanying text.
(22) Counter-Memorial, p. II2. The Respondent's reading of this artide runs counter to its asserted acceptance
of the rules of interpretation set out in Artides 3I and 32 of the Vienna Convention on the Law of Treaties.
Counter-Memorial, pp. I07-Io8. The United States agrees that the rules of the Vienna Convention apply to
the interpretation of this Treaty. The ordinary meaning of Artide l(a) as well as the other provisions cited by
the United States establishes the Respondent's wrongful conduct. Further the ordinary meaning of these
provisions is the proper meaning within the context of the Treaty as a whole and in light of its object and purpose,
which indudes the promotion and protection of foreign investment. lf reference to supplementary means of
interpretation is necessary, in accordance with Artide 32, these too confìrm the interpretation of the Treaty provisions
advanced by the United States.
(23) Counter-Memorial, p. II2.
(24) At the time of the ratifìcation of the bill introduced to implement the Supplement, the Respondent noted
that « the fìrst part of the [ Supplement], which is certainly the most important, refers to the free transfer of capitai
and income by natura! and corporate persons from the two contracting States, and their freedom to manage the
companies which these natura! or legai persons establish or procure ». Counter-Memorial, Annex I I, pp. 20-21.
REPLICA DEL GOVERNO U.S.A. 147 ---------------------------------
The Counter-Memorial tries to avoid Artide I(a) by arguing that the requisition was not
arbitrary because « arbitrary " means the same as << unreasonable >> and the requisition was a
reasonable step to take to deal with an emergency. The requisition was both arbitrary and
unreasonable regardless of the problems of « social unrest >> alleged by the Mayor of Palermo
and used as the pretext for the requisition (25). First, both the Prefect of Palermo and the Italian
courts declared that the requisition was an unlawful act. An unlawful act is not a reasonable
act under any system of legai obligations. Indeed the Prefect himself found that the law was
« destitute of any juridical cause which may justify it or make it enforceable " and could not
achieve the asserted objective of alleviating social unrest (26). Second, the subsequent fate of
ELSI shows that once the Respondent requisitioned the plant, the Respondent took absolutely
no steps to alleviate the « social unrest "• such as by reopening the plant. The goal expressed in
the requisition order was not obtainable by the act he took and was therefore arbitrary.
Third, even if the Respondent's actions were reasonably related to the goal stated, requisitioning
a plant for politica! reasons is not a legally permissible goal under the Treaty. Indeed, the
Respondent was completely unresponsive to Raytheon's and Machlett's efforts to stabilize
ELSI financially, precipitating the conditions which led to the « social unrest "· The real
purpose of the requisition was not to stem « social unrest "• but to wrest control of ELSI's plant,
equipment, and assets from its rightful shareholders, Raytheon and Machlett. That purpose
was arbitrary. ·
The existence of Italian laws which in some situations allow the Mayor of Palermo to requisition
property does not make reasonable the improper and arbitrary application of those laws.
Municipallegal systems, including those of Italy and the United States, and principles of internationallaw,
recognize that where the means employed do not fit the expressed goal, or are
legally impermissible, then those means are arbitrary and unreasonable (27). Within the context
of the Treaty itself, which has as an objective the promotion of investment, the actions of the
Respondent in seizing Raytheon's and Machlett's investment are also unreasonable and arbitrary.
The Respondent contenda that the requisition was not discriminatory because requisitions
of this kind frequently ha ve been used with regard to plants belonging to I talian-owned companies.
The Treaty, however, envisions protection from notjust discrimination against foreign companies,
but also from discrimination in favor of Government-controlled enterprises (28). It is not
sufficient to point to other requisitions where the Respondent also took over companies that
were competitive with its own. Therefore at the time that Raytheon and Machlett invested
in ELSI, and at the time this requisition occurred, Italian corporations apparently had never
been treated in this fashion, and therefore the requisition may be said to be discriminatory.
SECTION 3· - Artide VII of the Treaty.
Further protection against interference with management and control is given by Artide
VII of the Treaty. Artide VII states that a United States corporation is entitled to acquire,
own, and dispose of its immovable property or interests therein in Italy on terms no less favorable
than those accorded to Italian corporations by the state of the United States under which the
United States corporation is created (29
).
(25) Counter-Memorial, p. 83.
( 26) Memoria!, Judgment of Prefect of Palermo, 22 Aug. 1969, p. 11 (Annex 76). See Memoria!, p. :n.
The Prefect found that the requisition could not possibly have achieved its stated purposes, because the requisition
could not result in the re-employment of the workers or in the continued operation of the plant.
( 27) Memoria!, pp. 34-36.
(28) See, e.g., Artide XVIII of the Treaty and Paragraph 2 of the Protocol.
(29) Article VII of the Treaty states in part :
~ The nationals, corporations and associations of either High Contracting Party shall be permitted to ..
dispose of immovable property or interests therein within the territories of the other High Contracting
Party upon the following terms:
·················································· .......................... ·················· (b) in the case of nationals, corporations and associations of the United States of America, the right to
148 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Respondent contends that since the plant and assets belonged to ELSI, the only
property to which Artide VII could apply is the shares in ELSI held by Raytheon and Machlett;
since Raytheon and Machlett were free to dispose of their shares at ali times, Artide VII was
not violated. Even if the protections of Artide VII were limited to the shares, the value of
Raytheon's and Machlett's shares was essentially reduced to nothing. Prior to the requisition,
the shares had a value reflecting ELSI as a going concern, and the shareholders could control
and manage fundamental changes in the status of ELSI, such as an orderly liquidation. After
the requisition, however, Raytheon and Machlett were only «free» to dispose of their shares
by declaring ELSI bankrupt and by paying portions of ELSI's guaranteed debts that would
have been paid from proceeds of an orderly liquidation.
Yet Artide VII is actually concerned with « immovable property or interests therein ».
« Interests ll in property is a phrase sufficiently broad to include indirect ownership of property
rights held through a subsidiary that is not a United States corporation (30). Raytheon's and
Machlett's interests in ELSI's plant, equipment, and work-in-process were obliterated by
the unlawful requisition and subsequent treatment in the bankruptcy process. The fact that
the requisition period was for six months is irrelevant since Raytheon and Machlett, facing
no prospect of an orderly liquidation, were forced to have ELSI declared bankrupt within the
first month of the requisition.
The standard of treatment operating in Artide VII is one of reciprocity. A national treatment
standard is applied only if the reciprocity standard is higher than the standard of national
treatment. To establish the reciprocity standard of treatment, the United States has shown
that under both Delaware and Connecticut law, corporations may be dissolved and their assets
sold pursuant to determinations of their boards of directors and shareholders (81). If Delaware
or Connecticut were to interfere substantially with a parent corporation's right to dissolve its
subsidiary, even if for a lawful public use, it would be obligated to pay compensation for that
property (32). The Respondent has not shown that this standard of treatment is higher than that
accorded by the Respondent to its own corporations. Unless the Respondent can show that
it may illegally requisition a wholly-owned subsidiary of an Italian corporation, without paying
compensation to that corporation, then the standard of reciprocity applies.
acquire, own and dispose of such property upon terms no less favorable than those which are or may hereafter
be accorded by the states, territory or possession of the United States of America ... under the laws of which
su eh corporation or association is created or organized, to ... corporations ... of the Italian Republic; provided
that the ltalian Republic shall not be obligated tq accord to nationals, corporations and associations of the
United States of America rights in this connection more extensive than those which are or may herafter
be accorded within the territories of such Republic to nationals, corporations and associations of such
Republic ».
( 30) Starrett Housing Corp. et al. v. Islamic Republic of Iran, Awd. N. 314-24-1, p. 124 (14 Aug. 1987);
Amoco International Finance Corp. v. Government of Iran, Partial Awd. N. 310-56-3, p. 47-48 (14 July 1987);
Sedco !ne. v. National Iranian Oil Company, Awd. N. 309-129-3, p. 22-23 n. 9 (7 July 1987) (« The term
' interests in property ' clearly is broad enough to encompass property owned indirectly through subsidiary
corporations »).
(31) Memoria!, pp. 37-38.
(32) The duty to compensate extends beyond property rights taken solely pursuant to a formai expropriation
decree. Memoria!, p. 38.
CHAPTER III
IMPAIRMENT OF INVESTMENT RIGHTS AND INTERESTS
The previous chapter concerned Treaty prov1s10ns that protected investors' rights in
managing and controlling their investment. This chapter concerns an equally significant protection
against measures that impair the value of that investment. Artide l(b) of the Supplement
provides that United States corporations shall not be subjected to arbitrary and discriminatory
measures in I taly which result particularly in impairing either their legally acquired rights
and interests in Italian enterprises or their investments (83). Specifically, the Supplement protects
against impairment of rights, interests, and investments «in the form of funds (loans, shares,
or otherwise) >>,
This broad language envisions protection of all financial commitments made for the benefit
of ELSI, whether in the form of direct capitai contributions, loans, loan guarantees, or open
accounts (84). Further, the financial loss incurred by Raytheon in defending the suits brought
by Italian banks subsequent to the Respondent's arbitrary measures is also within the scope
of the Supplement because that loss represents a burden on or impairment of Raytheon's legally
acquired interests in ELSI (36). The requisition ofthe plant, which caused Raytheon and Machlett
to place ELSI in bankruptcy, and the subsequent acquisition of the plant, assets, and workin-
process of ELSI, dearly impaired investment rights and interests in ELSI. The requisition
prevented voluntary liquidation of ELSI and caused it to file for bankruptcy. The impairment
continued with the subsequent conduct of Italian officials in a series of concerted actions to
acquire for EL TEL the ELSI plant and assets a t less than fair market value, leaving Raytheon
to pay ELSI's outstanding guaranteed debts and to defend lawsuits brought by ELSI's unsecured,
unguaranteed debtors (36).
Once again the Respondent argues that the property of Raytheon and Machlett was not
actually affected by the requisition because it was addressed to ELSI (37). But Artide l(b) of
the Supplement does not protect against just direct seizure of tangible property belonging to
United States investors; it prohibits arbitrary and discriminatory measures which « impair"
United States corporation's rights and interests in and loans to Italian entities (38). Clearly
Raytheon's and Machlett's rights and interests were impaired. Acceptance of the Respondent's
argument would eviscerate the ordinary meaning of this artide.
(83) For a discussion of the arbitrary and discriminatory nature of the Respondent's acts, see supra, Part V.
Chapter II, Section z.
(34) The Respondent seeks to differentiate between such financial commitments, Counter-Memorial, p. II4,
but there is no basis in the language of the Treaty for doing so. Loan guarantees represent as much of a financial
commitment as any direct loan, especially where, as in this case, the guarantor actually has to pay off the loan.
The Respondent itself has recognized that investments wlùch are eligible for protection include equity interests
in the form of loan guarantees. See Operational Regulations of the Multilateral lnvestment Guarantee Agency,
Article 1.04(vi), signed by Italy on 17 Feb. 1986.
( 35) Memoria!, p. 40.
(36) Memoria! at pp. 41-43.
(37) Counter-Memorial, p. nz.
( 88) The ordinary meaning of « impair • suggests a wide scope of protection. This interpretation comports
with the desire of Italy in negotiating the Supplement << to remove any obstacles to the inflow of private American
capitai ... t. ltalian Annex 9, p. 3·
CHAPTER IV
WRONGFUL TAKING OF INTERESTS IN PROPERTY
The Treaty also protects against government taking of property without compensation.
Artide V(2) of the Treaty provides that property of United States corporations within Italy
shall not be taken without due process of law and without the prompt payment of just and
effective compensation (39). Paragraph I of the Protocol to the Treaty provides that the provisions
of Artide V(2) shall « extend to interests held directly or indirectly » by United States corporations.
Both the Respondent's act of requisitioning the ELSI plant and its subsequent acts in
acquiring the plant, assets, and work-in-process singly and in combination constitute takings
of property without due process of law or just compensation.
The Respondent agrees that Artide V(2) accords protection to United States corporations
against the taking of property. and agrees that this protection was extended by the Protocol
to interests held directly or indirectly by a United States company (4°). Yet despite unambiguous
language to the contrary, the Counter-Memorial implies that the standard of protection in the
Protocol given to « interests held directly or indirectly » is somehow different than the standard
of protection given to property in Artide V(2) of the Treaty (41). This is contrary to the explicit
language of the Protocol which states:
« The provisions of paragraph 2 of Artide V, providing for the payment of compensation,
shall extent to interests held directly or indirectly by ... corporations ... of either High
Contracting Party in property which is taken within the territories of the other High Contracting
Party».
There is no mention in the Protocol of any different standard of protection from that which
exists in Artide V; to the contrary, the Protocol << extends » Artide V(2). The wealrness of the
Respondent's interpretation is further made evident in that the Respondent does not even try
to establish what this different standard is or whether the standard was met in the treatment of
Raytheon and Machlett.
The Counter-Memorial also asserts that Paragraph I of the Protocol accords protection
« only to rights to property " because the Italian text of the Protocol uses the word << diritti »
(which can be translated as << rights >>) and Vienna Convention Artide 33(4) requires application
of the more restrictive meaning (42). Although << interests >> properly reflects the meaning of
<<diritti>> in the Protocol (43), i t must be recognized that the Protocol extends Artide V to interests
(or under the Respondent's interpretation << rights ») << held directly or indirectly >> by Raytheon
and Machlett. Therefore it is dear that indirect rights to property are also protected (44).
1The Respondent denies that the requisition of the ELSI plant can be considered an << expropriation
>> or << taking >> of property, since it was simply a << requisition in use >> for which the M uni-
(39) Artide V(2) of the Treaty provides that:
« The property of nationals, corporations and associations of either High Contracting Party shall not be
taken within the territories of the other High Contracting Party without due process of law and without
the prompt payment of just and effective compensation ~ (Emphasis added).
(40) Counter-Memorial, p. 109.
(41) Counter-Memorial, p. 109.
(42) Counter-Memorial, p. 109.
( 43) <<Diritti~ is also translated as << interests >l in other parts of the Treaty, such as Artide Vl1(1) (a).
( 44) The Respondent's reliance on Artide 34(3) of the Vienna Convention on the Law of Treaties is also
misplaced. By its terms Artide 33(4) should not be used unless interpretation in accordance with Artides 31
and 32 does not resolve the difference of meaning. An analysis under Articles 31 and 32 of the meaning of
t diritti t shows that the Protocol, placed in context as an extension of Artide V, goes beyond the protection
REPLICA DEL GOVERNO U.S.A. 151
cipality of Palermo received no financial benefì.t (45
). Yet a '' taking » is generally recognized as
including not merely outright expropriation of property (46), but also unreasonable interference
with its use, enjoyment, or disposal (47). The requisition of the plant prevented an orderly
liquidation of ELSI, thereby causing Raytheon and Machlett to piace ELSI in bankruptcy.
The Respondent then proceeded through EL TEL to acquire the ELSI plant and assets for less
than fair market value. Consequently the Respondent's acts so substantially interfered in the
use and disposal of Raytheon's and Machlett's indirect interests in the ELSI property that a
taking occurred. This taking gave rise to a right to compensation.
Whether the Municipality of Palermo ultimately gained from the action of its Mayor is irrelevant.
The Treaty does not require that the Respondent benefit from its taking; it is sufficient
that Raytheon and Machlett were deprived of the use and disposal of their interests in ELSI.
In any event, the Respondent gained considerably from this requisition because it prevented
an orderly liquidation of ELSI and led to EL TEL's acquisition of ELSI's plant, assets, and
work-in-process for far less than EL TEL would have had to pay had there been no interference.
nccorded in Artide V to direct property rights. Therefore the Protocol seeks to protect << interests >> in property,
not just « rights ~ in property, since « rights » in property are already protected by Artide V. Even if resort to
Artide 33(4) of the Vienna Convention is necessary, that Artide does not calJ for application of the most
restrictive meaning, but rather the application of the meaning which J:>est reconciles the two texts, having regard
to the object and purpose of the Treaty. Both international courts,' e.g., Wemhoff Case [1968] Pub. Eur. Ct.
of Human Rights, Ser. A (Judgment of 27 June 1968), and even Italian courts, e.g., Ministero della Difesa v.
Societa Rimorchiatori Napoletani, Cassazione, 9 Dee. 1974, N. 4106, pp. 307-309, have rejected the approach
taken here by the Respondent.
(46) Counter-Memorial, pp. 83, 109.
( 46) The use of '' beni espropriati ~ in the Italian text of the Treaty should not be read as a restriction on this
protection. The Respondent itself recognized that the principle of expropriation was deve!oped in Artide V
precisely for the purpose of protecting the investment of capitai in a broad sense.
<• The advisability and importance of this dause is qui te evident because of the peculiar economie and fìnancial
structure of our country, in which the accumulation of savings does not correspond to the productive needs
or to any program of fulJ employment. The influx of foreign capitai represents an indispensable supplement
for our country».
Memoria/, Chamber of Deputies, Parliamentary Proceedings Documents - Bills and Reports, N. 246-A,
p. 4, presented to the Office of the President, 2 Mar. 1949, p. 2 (Annex 3). See Counter-Memorial, Annex 4,
pp. 12-13.
(47) For an extensive discussion of the concept of « taking » and « expropriation » in international la w, see
Memoria!, pp. 44-47.
CHAPTER V
FAILURE TO PROVIDE PROTECTION AND SECURITY
A final area of protection under the Treaty denied to Raytheon and Machlett concerned
the protection and security of their property. Artide V(I) of the Treaty provides that United
States corporations shall receive in Italy the most constant protection and security for their
property, and shall enjoy in this respect the full protection and security required by international
law (48). Artide V(3) provides that United States corporations shall receive in Italy no less protection
and security than that accorded to Italian corporations and other foreign corporations.
The delay in ruling on the challenge to the requisition order until immediately after the
ELSI plant, equipment, and work-in-process had been acquired by EL TEL was a denial of
the level of procedura! justice accorded by international law (49). Normally the legality of the
requisition would have been reviewed within 30 days after the date the ruling was sought,
which in the case of ELSI was on 19 April 1968 (50).
A timely decision by the Prefect could have avoided the need to place ELSI in bankruptcy
because while the voluntary petition in bankruptcy was filed on 26 April 1968, ELSI was not
in fact dedared bankrupt until 16 May 1968. Thus, if the requisition had been rescinded, the
bankruptcy could have been avoided by ELSI asking the bankruptcy judge to deny the petition.
The occupation of the plant, which resulted in its deterioration and impeded the Trustee's
efforts to dispose of it, occurred with the tacit approvai of the local government authorities (61).
It no doubt discouraged potential buyers from inspecting the plant and assets and generally
chilled the process of selling ELSI for its full value. Therefore this action also constituted a
denial of << constant protection and security », thereby violating Artides V( I) and (3) of the
Treaty regardless of whether physical damage actually occurred from the occupation.
The Respondent implies that Artide V only protects immovable property and any failure
in ruling within a reasonable time or in protecting the plant was not a failure to protect immovable
property of Raytheon and Machlett. This construction of Artide V is unjustified. Artide
V(3) states:
« The ... corporations ... of either High Contracting Party shall within the territories of the
other High Contracting Party receive protection and security with respect to the matters
enumerateci in paragraphs I and 2 of this Artide ».
Artides V( I) and (2) speak of protection and security for « persons » and « property », not
« immovable property ». Property in it ordinary sense is not confined to immovable property (62),
(48) Artide V(I) of the Treaty states in pertinent part:
« The nationals of each High Contracting Party shall receive, within the territories of the other High Contracting
Party, the most constant protection and security for their persons and property, and shall enjoy in this respect
the full protection and security required by international law ~ (Emphasis added).
(49) Memoria!, pp. SZ-53·
(50) Memoria!, p. ZI.
(61) Memoria!, pp. 53-55· The Respondent is incorrect saying that the occupation of the plant by the
workers occurred prior to the requisition. Although some brief, intermittent rikes known in Italy as « hiccup » strikes
occurred at the plant prior to I Aprii I 968, there was no long-term, indefinite contro l of the plant by the workers.
Memoria!, Annex ZI paras. I6-I7. Further, the Respondent did not do anything to keep the workers out of the
plant nor to << preserve » the value of the plant.
(62) For instance, under rules of customary international law, takings of property concern expropriation of
ali rights in the investment, not just in the right to possession of immovable plant and equipment. See, e.g.,
Revere Copper and Brass, Inc. v. Overseas Private Investment Corporation, 56 International Law Reports, pp. zs8,
Z90-Z93·
REPLICA DEL GOVERNO U.S.A. 153
and when the Treaty intends to cover immovable property, such as in Artide VII, it expressly
says so.
In this case, the property of Raytheon and Machlett in Italy was ELSI itself. The entire
entity of ELSI - plant, equipment, receivables, inventories, goodwill, and other intangibles -
was at stake when the requisition occurred. The Respondent was obligated to protect ELSI
from the deleterious effects of the unlawful requisition. The failure to overturn the Mayor's
order, and the failure to provide ELSI with any security from trespass, deprived Raytheon and
Machlett of the security and protection for their investment to which they, as roo percent owners
of ELSI, were entitled.

PART VI
COMPENSATION
CHAPTER I
THE DUTY TO PAY AND MEASURE OF COMPENSATION
As set forth in the United States Memoria!, the United States is entitled to compensation
in the full amount of the losses resulting from the wrongful conduct of the Government of
Italy (53). Compensation should be measured in this case by the injuries suffered by Raytheon
and Machlett (54).
Ali of the injuries suffered by Raytheon and Machlett should be included in the measure
of compensation. A State may discharge its duty to make reparation by implementing measures
designed to re-establish the situation prior to the wrongful act, i.e., restitutio in integrum (55).
Where it is not possible to restore the situation that would have existed if the wrongful act
had not been committed, or restoration does not fully redress the injury caused by the State's
unlawful act, damages should be awarded in lieu of restitution to compensate for ali losses or
injury caused by a State's wrongful acts (56).
(53) For a complete discussion of Respondent's obligation to make full compensation, see Memorial, pp. 56-
57·
(54) The Respondent correctly notes that the losses suffered by nationals are not necessarily identica! to those
suffered by the State. Counter-Memorial, p. II5, n. 3· However, international tribunals and commentators
have recognized that damage to the national as a result of a violation of a treaty or customary international law
may serve as a measure of the compensation to the injured State, particularly where, as in this case, the treaty
provision was designed to ptotect the parties' respective nationals and the violation of the treaty provision caused
direct financial loss to the national. See Memorial, pp. 57-59.
(••) Memorial, p. 58.
( 06) Memoria!, pp. 58-59.
CHAPTER II
THE NATURE OF THE INJURY
SECTION I. - Raytheon and Machlett Suffered Financial Losses with Respect to Loan Guarantee
Payments, Return of Investment and Open Accounts.
The requisition directly prevented the orderly liquidation of ELSI. Had the Respondent
not interfered with the liquidation, Raytheon and Machlett would have recovered the market
value of ELSI as a going concern in 1968. The book value of ELSI - the closest available
approximation of going concern value in this case (57)-was Lire 17,053·5 million as of 31 March
1968. This amount would have allowed payment of ali of ELSI's creditors in full (including
Raytheon) (58), payment of ali administrative costs, and would have even returned Lire 391 million
to Raytheon and Machlett as a small return of the large investments they had previously
made in ELSI. This amount would have been insufficient to recoup Raytheon's and Machlett's
investment in ELSI, since they stili would have lost over US$1 I million in investments made
since 1956.
By contrast, the Trustee in bankruptcy recovered only Lire 6,373.8 million from the sale
of ELSI's assets to EL TEL. Raytheon and Machlett, therefore, lost the full value of their
open accounts with ELSI (59) and, more importantly, were required to pay ali of the guaranteed
loans (60), thus incurring some Lire 6,931.4 million in losses. The difference between Raytheon's
and Machlett's position had they been permitted to proceed with the orderly liquidation (recovery
of Lire 391 million) and the losses they sustained as the result of the Respondent's interference
(net loss of Lire 6,931.4 million) is Lire 7,322.4 million (US$II,7J9,200) (61
).
SECTION 2. - Raytheon Incurred Substantial Legal Expenses.
In addition, as a further direct consequence of the Respondent's actions in violation of the
Treaty, Raytheon incurred more than US$939,800 in outside legai and related expenses in
connection with the bankruptcy proceedings, in defending against suits brought by Italian
(57) See infra, Part VI, Chapter III.
(58) The United States has declined to claim compensation based both on sale of ELSI's assets for book
value and settlement with the large unsecured, unguaranteed creditors. The damages claimed in this case are
based on the premise that had Raytheon and Machlett recovered book value or greater, all ereditar claims could
have been satisfìed in full.
(59) That Raytheon and Machlett declined to file a claim for their open accounts with ELSI in the bankruptcy
process is irrelevant to the question whether they are entitled to recover the losses associated with the
open accounts as a result of the Respondent's violations of the Treaty. However, it should be noted that the
principal reason Raytheon did not seek recovery for the open accounts in the bankruptcy process was the inescapable
fact that due to the requisition and Respondent's subsequent interference in the bankruptcy process, Raytheon
and Machlett would not have recovered sufficient compensation in the bankruptcy process to justify the
cost of fìling a claim for their open accounts.
(60) The Court should reject the Respondent's assertion that the Respondent is not responsible for payments
of the guaranteed loans. First, as demonstrated supra Part V, Chapter III, guaranteed loans are a type of
investment specifìcally protected by the Treaty. Equally important, Raytheon's out-of-pocket expenses associated
with payment of the guaranteed loans would not have been incurred but for the Respondent's requisition
of ELSI's plant and assets, and are therefore a direct loss compensable under internationallaw. See Memoria!,
pp. 6o-61.
(61) For a complete discussion of Raytheon's and Machlett's actual fìnanciallosses as compared to the planned
orderly liquidation, see Memoria!, pp. 6o-61.
REPLICA DEL GOVERNO U.S.A. 157
bank creditors in Italian courts, and in pursuing its claim against the Respondent for its actions
against ELSI (62). The Respondent's allegation that the legai expenses incurred by Raytheon
were not proximately caused by the infringement of the Treaty must be rejected. As a factual
matter, had the Respondent permitted Raytheon and Machlett to proceed with the orderly
liquidation pian, Raytheon would not have incurred these costs since the banks would have
been paid in full or in settlement. Furthermore, reimbursement for legai costs arising from
an unlawful act is widely recognized by international tribunals (63).
SECTION 3· - Compensation Received by the Trustee for the Unlawful Requisition was Inadequate.
The only « compensation" paid for the requisition was limited to Lire I 14 million, considered
to be the rental value of ELSI during the requisition period. The Court of Appeals of Palermo
rejected the claim by the Trustee for the diminution of the value of ELSI's assets and for ELSI's
inability to dispose of its plant and assets during the same period (64). The amount of the judgment
was paid to the Trustee who, after deducting costs and expenses, distributed the proceeds to
ELSI's creditors (66). This amount has been taken into account in the calculation of compensation
requested in this case.
(62) For a complete discussion of the legai and related expenses incurred by Raytheon, see Memoria!, pp.
61-62. The Counter-Memorial asserts that Raytheon was awarded costs by Italian legai courts, which include
~ fees corresponding to lawyers tariffs t. Counter-Memorial, p. II7. Raytheon did receive nominai court costs,
but this amount was not sufficient to cover all legai expenses.
(63) Memoria!, p. 62. See M. WHITEMAN, Vol. III, Damages in International Law, pp. 1998, 2005, 2o2o-
2021 (1943), discussing the cases of Thomas W. Mather (United States v. Mexico) (award included amount for
legai expenses incurred by claimants to procure the return of gold seized by Mexican troops) and the Louisa (United
States v. Mexico) (award included amount for legai expenses incurred in prosecution of claim relating to seizure
of cargo); L. Sohn and R. Baxter, « Convention on the International Responsibility of States for Injuries to Aliens t
c~ revised Harvard Draft Convention •), reprinted in F. v. GARCIA-AMADOR, L. SOHN and R. BAXTER, Recent
Codification of the Law of State Responsibility for Injuries to Aliens, p. 133 (1974) (Artide 36 states that a << claimant
shall be reimbursed for those expenses incurred by him in the local and international prosecution of his claim
which are reasonable in amount and the ncurrence of which was inecessary to obtain reparation on the international
piane»).
(64) Memoria!, Annex 8x.
(66) Memoria!, Annex 26, Attachment.
Il
CHAPTER III
ENTITLEMENT TO THE VALUE OF ELSI AS A GOING CONCERN
The starting point for the calculation of compensation is the value that would have been
realized by Raytheon and Machlett by the sale of ELSI as a going concern in the orderly liquidation.
Going concern value typically includes the fair market value of the company's assets
and the future profits of the company's continued operations. In ELSI's case, however, the
actions of the Respondent made it impossible for ELSI to become self-sufficient. Thus, while
those familiar with ELSI's operations and its potential for sale determined that the intangible
value of ELSI's product lines in an orderly liquidation would command a value (66), it was not
then - and is not now - possible to piace an exact vahie on these assets or on the future earnings
potential of each line.
The closest remaining approximation of ELSI's going concern value is the book value of
the assets as of 31 March 1968: Lire 17,053 million. Book value, being merely an accounting
tool, does not measure going concern value as such, because it merely value assets at acquisition
cost less depreciation. This is so also with respect to any asset, such as land and buildings,
which may have appreciated in value. I t does not measure the actual market value of the assets
or the full intangible value of the company, and therefore understates ELSI's real economie
worth (67).
The Respondent does not argue that the United States is not entitled to the value of ELSI
as a going concern. Instead, the Respondent argues that book value does not reflect the market
value of the assets (68). First, the balance sheet drawn up as of 31 March 1968 was current within
the framework of ELSI's system of financial accounting, was supported by reliable records,
and therefore is the valuation that most closely approximates the value of ELSI's assets at that
time (69). Second, while book value does not take into account the deterioration in value of
ELSI's assets as a result of the delay caused by the bankruptcy, Raytheon and Machlett are
entitled to the value of ELSI at the time of the Respondent's wrongful interference with the
orderly liquidation, not at the expiration of, or at any point during the bankruptcy process.
It was the Respondent - not Raytheon or Machlett - who caused and interfered with the
bankruptcy process and thereby caused the delay in the purchase of ELSI's assets. The
Respondent, therefore, is responsible for any decrease in the value of ELSI's assets due to
this delay.
The Counter-Memoria! also implies that the Court should reject the compensation sought
on the basis that it is supported by « documents originating from ELSI or Raytheon or affidavits
closely connected with Raytheon (1°) ». Again, this assertion should be rejected. lnternational
arbitrations have long accorded probative value to affidavits of interested parties, particularly
those that are based on personal knowledge and are corroborateci by contemporaneous business
records, such as those presented in support of this case (71).
(66) Memoria!, Annex 13, para. 1s.
( 67) Of course, if the Respondent had made available the investrrlent incentives it had promised or had otherwise
become involved with ELSI prior to the requisition, ELSI's book value would have been substantially higher.
(68) See Counter-Memorial, p. ns.
(69) See supra, Part II, Chapter I, Section 3·
(70) Counter-Memorial, p. ns.
(71) D. SANDIFER, Evidence before International Tribunals (197S), pp. 3S1~Ss; see e.g., Gill Case, s Reports
of International Arbitrai Awards, pp. 157-159 (1931) (affidavit corroboràted by letters from British Minister and
REPLICA DEL GOVERNO U,S.A. 159
The Respondent does not offer an alternative method of valuation. Instead, the Respondent
merely questions whether some other measure properly reflects the value of ELSI. As the
following discussion demonstrates, neither the quick-sale value, the valuation performed by
the judicial valuator, nor the valuation submitted by EL TEL properly establish the market
value of ELSI in the spring of 1968.
Consistent with its recognized limited use, ELSI's management created a worst case scenario
for the sale of ELSI's assets for purposes of internai corporate planning by ELSI's shareholders.
In so doing, they established what is referred to as a << quick-sale » value. This value was calculated
by discounting the book value of ELSI's assets in order to identify a worst-case minimum
realizable value of ELSI's plant and tangible assets in an orderly Iiquiciation. The quick-sale
value was an internai determìnation of the minimum guaranteed return on the sale constructed
for plantling purposes. It does not reflect the full value of ELSI's tangible assets or their market
value, nor does it take into account· the significant intangible value of ELSI's business (12
). In
addition, it did not include construction in process, studies in process, deferred costs, and
other smaller book-value items (13).
The Counter-Memorial erroneously places substantial probative weight on ·the United
States use of the quick-sale value in the 1974 diplomatic claim. Obviously, the use of a quicksale
value in the originai claim is not dispositive of the proper measure of ELSI's going concern
value. • The value was usedas a matter of convenience in the diplomatic claim and in the spiri t
of compromise on which a settlemènt of the dispute might be based. As this claim has now
been brought to the Court for resolution, the United States has a right to the full measure of
compensation for injuries imposed by the Respòndent;
The valuations performed by the • bankruptcy valuator and the valuation submitted by
EL TEL should both be rejected as they do not assess the · going concern value of ELSI a t the
time of the requisition. The bankruptcy valuator attempted to . value ELSI's assets as of 11
Octoper 1968, more than five months after the tìme of the Respondent's wrongdoing. Moreover,
the valuation which was presented to the bankruptcy judge by EL TEL two days after the third
auction, and more than a year after the illegal requisition, clearly under-valued ELSI's plant,
machinery, and equipment (14). This valuation also failed to include ali of ELSI's assets, such
as those in Milan and Rome, and the X-ray, semiconductor, complex components and other
product lines. Of course this valuation was prepared by EL TEL's parent company, Siemens
S.p.A., itself à member of the IRI group, and therefore cannot be considered an objective assessment
of ELSI's true value.
employer); Stacpoole Case, 5 Reports of International Arbitrai Awards, pp. 95-96 (affidavit corroborated by disinterested
party seven years after loss); Tracy Case, 5 Reports o/ International Arbitrai Awards, pp. 90, 92 (1930
(claimant's affidavit corroborated by affidavit from someone in position to know the facts of loss).
(72) The intangibles include ELSI's reputation as a producer of reliable electronic products, experience and
know-how in the electronics industry, its supplier and customer lists and market reputation, patent licenses and
other rights to technology supplied by Raytheon and Machlett, the technical assistance agreements that would
have been executed by Raytheon and the new purchasers, and the value of existing contracts.
(73) The'difference between the Lire 193 million quick-sale price and the Lire 217 million price established
by the court-appointed valuator for work-in-process is stark evidence of the artifìcially low value of the quick-sale
estimate for purposes of a worst-case scenario. · ·
(74) Counter-Memorial, Volume 5 (Unnumbered Documents, Volume III).
CHAPTER IV
THE AWARD OF INTEREST
Compensation awarded should include interest, compounded annually, from the date of
the requisition until the date of the award (13). The circumstances in this case not only cali for
an award of interest but also require that the rate and calculation of the total amount reflect
the commerciai realities of the case. Raytheon and Machlett invested in ELSI with the goal
of obtaining a return on their investment. These same commerciai considerations were paramount
in Raytheon's and Machlett's decision to engage in an orderly liquidation of ELSI's
assets. The Respondent's requisition of ELSI's assets and interference with the ensuing
bankruptcy frustrateci Raytheon's and Machlett's investment objective, deprived Raytheon
ànd Machlett of funds to satisfy ELSI's creditors, and caused Raytheon and Machlett to pay
ELSI's debts from its own funds. Thus, the Respondent is responsible for the loss of the use
of the revenue and funds over time.
The Respondent asks this Court not to award interest because the application to the Court
could ha ve been made « many years earlier (16) », However, the Respondent presents no legai
support for the proposition that delay in filing a claim is a bar to an award of interest. The
Respondent's argument is also based on a faulty factual premise- that any delay in the filing
of the claim is attributable to actions of the United States, Raytheon, or Machlett. The injured
parties did not delay in seeking redress for their grievances. The claims asserted in this case
were communicated to the Respondent immediately after the requisition and by a diplomatic
claim provided to the Respondent in 1972 and formally presented in 1974. Subsequent to the
presentation of that claim, the two governments have been in diplomatic communication in an
attempt to reach a negotiated settlement of the dispute. In short, the Respondent can claim
no prejudice as a result of the passage of time which would entitle it to a reduction in or absolution
from the obligation to pay interest on this claim or to attribute the delay to the claimants.
Indeed, Respondent has benefited from the value of Raytheon's and Machlett's lost investment
in ELSI since the time of the requisition and should now be held accountable for it.
The Respondent's reliance on the Corfu Channel Case as a basis for denial of an award
of interest is misplaced (17). The question of interest was not before the Court in that case, as
the United Kingdom did not assert a claim for interest. Thus, the Respondent has presented
no basis for a refusal to award interest in this case.
Interest awarded should be compounded annually (1B). The Respondent bases its opposition
to an award of compound interest on the ground that it was not awarded in the case involving
British Property in the Spanish Zone of Marocco (19). Although the arbitrator in that case did
award simple interest, he went on to recognize that there are situations where compound interest
is proper (B0). An award of compound interest is compelling in this case since Raytheon and
(70) For a complete discussion of the award of interest, see Memoria!, pp. 62-67.
(76) Counter-Memorial, p. II7.
(77) Counter-Memorial, p. II7.
(7B) Memoria!, pp. 66-67.
(79) 2 Reports of International Arbitrai Awards, p. 6so (1924), cited in the Counter-Memorial, p. u7.
(BO) Ibid. See also Case of Antoine Fabiani, summarized in M. WHITEMAN, op. cit., at pp. 1785-89; American
Independent Oil Co. v. The Government of the State of Kuwait, 21 International Legai Materials, p. 976 at p. 1042
( 1982).
REPLICA DEL GOVERNO U.S.A. 161
Machlett have lost the use of their funds for nearly twenty years. If Raytheon and Machlett
had not suffered the financial losses they did, these funds would either have generated additional
earnings or would have been used to repay debt. These funds therefore would have generated
either interest earnings or interest savings, which in turn would have been devoted to profitable
use. Each year that compensation is not awarded to Raytheon and Machlett, the injury to them
is in fact compounded. Thus, the actual loss to Raytheon and Machlett is most closely approximated
by calculating interest at a commerciai borrowing rate, compounded annually.
SUBMISSIONS
Accordingly, the United States submits to the Court that it is entitled to a· deè:laration and
judgment that:
(a) the daims brought by the United States are admissible before the Court since ali
reasonable local remedies ha ve been exhausted;
(b) Italy- by engaging in the acts and omissions described above and in the Memoria!,
which prevented Raytheon and Machlett, United States corporations, from liquidating the
assets of their wholly-owned Italian corporation ELSI and caused the latter's bankruptcy,
and by its subsequent actions and omissions - violated the internationallegal obligations which
it undertook by the Treaty of Friendship, Commerce and Navigation between the two countries,
and the Supplement thereto, and in particular, violated:
- Artide III(z), in that Italy's actions and omissions prevented Raytheon and Machlett
from exercising their right to manage and control an Italian corporation;
- Artide (V)( I) and (3), in that Italy's actions and omissions constituted a failure to provide
the full protection an d security as required by the Treaty an d by international la w;
- Artide V(z), in that Italy's actions and omissions constituted a taking of Raytheon's
and Machlett's interests in property without just compensation and due process of law;
- Artide VII, in that these actions and omissions denied Raytheon and Machlett the right
to dispose of their interests in immovable property on terms no less favorable than an Italian
corporation would enjoy on a reciproca! basis;
- Artide I of the Supplement, in that the treatment a:fforded Raytheon and Machlett was
both arbitrary and discriminatory, prevented their e:ffective control and management of ELSI,
an d also impaired their other legally acquired rights and interests;
(c) that, owing to these violations of the Treaty and Supplement, singly and in combination,
the United States is entitled to compensation in an amount equal to the full amount of
the damage su:ffered by Raytheon and Machlett as a consequence, induding their losses on
investment, guaranteed loans, and open accounts, the legai expenses incurred by Raytheon in
connection with the bankruptcy, in defending against related litigation and in pursuing its
daim, and interest on such amounts computed at the United States prime rate from the date
of loss to the date of payment of the award, compounded on an annual basis; and
(d) that Italy accordingly should pay to the United States the amount of US$I2,679,000,
plus interest, computed as described above and in the Memoria!.
z8 March zg88.
ABRAHAM D. SOFAER
Agent of the United States
of America
ARNOLD I. BURNS
Deputy Attorney General
Department of J ustice
ANmx I
STATEMENT BY PROFESSOR FRANCO BONELLI
UNIVERSITY OF GENOA
Dated z March xg88
My name is Franco Bonelli. I am an attorney and counselor a t la w duly admitted to practice
in ali courts in Italy. I graduated magna cum laude from the University of Genoa in 1960.
I am the senior partner in Studio Legale Bonelli where I specialize in commerciai law, partièlilarly
bankruptcy law. ·In my practice I have counselled numerous major private and public
companies in bankruptcy law and bankruptcy proceedings. I have held the chair of Commerciai
Law at the University of Genoa since 1976 and was a visiting professor at Stanford University
in the United States. I am the author of severallegal publications on commerciallaw. I am
the founder and editor of « Giurisprudenza Commerciale )) and '' Diritto del Commercio Internazionale
)), I have been involved both as arbitrator and as advocate in various domestic arbitrations
of commerciai disputes and in international arbitrations under the rules of the Chamber
of Commerce in Paris.
I have been asked to provide my opinion on whether Elettronica-Sicula, S.p.A. (« ELSI »)
was entitled in 1968 to proceed with an orderly liquidation under Italian law, whether ELSI
was obligatèd to file a petition in bankruptcy prior to the requisition on I Aprii 1968, and whether
any delays in ELSI's bookkeeping in early 1968 due to earthquakes in Sicily or strikes at the
plant violated Italian law.
The following opinion is based on my experience in ltalian bankruptcy law and my review
of the Memoria! of thè United States Government, the Counter-Memorial of the Government
òf ltaly, and thè accompanying ·annexes to each.
Entitlement to an Orderly Liquidation.
I. A company is entitled under Artide 2448, N. s, of the ltalian Civil Code to engage
in an orderly liquidation of its assets upon a resolution of its shareholders to that affect.
Raytheon and Machlett acted in accordance with this law when they voted on 28 Mar<:h 1968
to liquidate the plant and assets of ELSI.
2. In Italy it is widely recognized that an orderly liquidation generates a more favorable
return to the shareholders than does placing the company into bankruptcy.
There are two principal reasons for this. ·First, a trustee in bankruptcy lacks the knowledge
of the industry and marketing expertise to locate a buyer and execute the terms of the sale at
the greatest return to the shareholders. Second, the trustee does not have the same monetary
incentive to maximize the sales price as would the shareholders in an orderly liquidation.
3· In my experience it is common practice for larger bank creditors in Italy to settle claims
for 40 or so percent of value, rather than taking the risk of receiving little or nothing in the
bankruptcy process.
No Obligation to File a Petition in Bankruptcy.
4· Based on my review of ELSI's financial data attached to Annex 13 of the United States
Memoria!, it is my opinion that ELSI was under no obligation to file a petition in bankruptcy
164 RASSEGNA DELL'AVVOCATURA DELLO STATO
under Italian law. Under Italian law, ELSI would have been obligated to file a petition in
bankruptcy only if its liabilities dearly exceeded its assets or if it was impossible for ELSI to
fulfili regularly its financial obligations. At no time during its operations, as summarized in
Attachment EI to Annex I3 of the United States Memoria!, did ELSI's liabilities exceed the
book value of its assets. Moreover, as evidenced by the United States Memoria!, ELSI consistently
met and was in a position to meet ali of its financial obligations.
I have no reason to believe the book value was incorrect since it appears from the United
States Memoria! that ELSI's balance sheets were audited by the company's auditors and by the
accounting firm of Coopers and Lybrand. Therefore, if the book value had been higher than
the actual value, the book value would have been diminished by virtue of Artides 2423 and
2425 of the Italian Civil Code.
No ]eopardy of Compulsory Dissolution.
5· It is also my opinion that ELSI was never in jeopardy of compulsory dissolution.
Under Artide 2447 of the Italian Civil Code, ELSI would have been considered dissolved as
a matter of law if its capitai were depleted below a statutory minimum amount. At the relevant
time the statutory minimum was Lire I,ooo,ooo. Attachment BI to Annex I3 of the United
States Memorial demonstrates that ELSI's capitai, even after taking into account losses, was
always weli above the statutory minimum.
Compliance with Article 2446.
6. I t is my opinion that ELSI was ali times in compliance with Artide 2446 of the Italian
Civil Code. When a company's losses exceed one-third of its capitai, Artide 2446 grants the
shareholders of a company a one-year grace period from the date they knew or should have
known of such los.ses either to reduce its capitai or to take another appropriate action. As Annex
I3, Attachment BI demonstrates, at the fiscal year ending September 30, I966, ELSI's capitai
was Lire 4,ooo million and its losses were Lire 2,oo7,I million. As the same Annex demonstrates,
in I967 the company devalued the capitai stock to Lire I,500 million to reduce the company's
losses and invested an additional Lire 2,500 million to bring the company's capitai back to Lire
4,ooo Iniliion. During the fiscal year ending September 30, I967, however, ELSI's losses once
again exceeded one-third of its capitai. This time, the company did not adjust its capitai and
instead the shareholders voted to proceed with the orderly liquidation of ELSI's assets. This
decision was taken within the one-year grace period authorized by Artide 2446 and was in ali
respects in conformity with Italian law.
Delays in ELSI's Bookkeeping.
7· Any delays in ELSI's bookkeeping in early I968 that were due to earthquakes in Sicily
or strikes at the plant were merely brief and unavoidable interruptions in ELSI's recordkeeping.
In my opinion such delays do not violate Artides 2I6 or 2I7 of the Italian Bankruptcy Act.
Genoa, March 2, zg88,
FRANCO BoNELLI
Studio Legale Bonelli - Genoa
TITLE II
ON BANKRUPTCY
Chapter I
ON DECLARING BANKRUPTCY
5· State of insolvency. - The entrepreneur who finds himself in a state of insolvency is
declared bankrupt.
The state of insolvency is manifested by defaults or other external facts which would
demonstrate that the debtor is no longer in a position to satisfy his own obligations in a regular
manner.
TITOLO II
DEL FALLIMENTO
Capo I
DELLA DICHIARAZIONE DI FALLIMENTO
5· Stato d'insolvenza. - L'imprenditore che si trova in stato d'insolvenza è dichiarato
fallito.
Lo stato d'insolvenza si manifesta con inadempimenti od altri fatti esteriori, i quali dimostrino
che il debitore non è più in grado di soddisfare regolarmente le proprie obbligazioni.
ANNEX 2
STATEMENT BY PROFESSOR ELIO FAZZALARI
UNIVERSITY OF ROME
Dated 29 February I988
My name is Elio FazzalarL I am an attorney at law practicing in Italy and am qualified to
appl;lar. before the Supreme Court of Cassazione. I ha ve .been·appointed by the International
Chamber of Commei:èe of Paris ·as chairman of severa! international arbitrations.
I graduateci in 1944 from the Law Faculty of Rome University. I have been a professor of
Civil Procedure since 1957. Since 1972, I have tought Civil Procedure at the Law Faculty of
Rome University.
I am a member of the Intèrnational Association for Comparative Law and a professor at
the International Faculty of Comparative Law in Strasbourg.
I am the Director of the Procedura! Law Section of " Enciclopedia del Diritto "·
I am the author of several legai publications and treaties of civil procedure.
I was requested to provide my opinion as to whether Raytheon and Machlett exhausted ali
local remedies in Italy with respect to their claim before the International Court of Justice involving
their subsidiary Elettronica-Sicula, S.p.A.
The following opinion is based on my knowledge of Italian civil law and my review of the
Memoria! of the United States and of the Government of Italy.
I
In its defense the State of Italy claims that, as a consequence of the execution order of the
two treaties between Italy and the United States of America (t;reaties of July 12, 1949 and September
I, 1960, respectively), the Italian internai law has been integrated with the provisions
of the said treaties and therefore Raytheon and Machlett should have and could have requested
enforcement of these provisions in an I talian court. On the other han d, the respondent does
not specify which subjective position it assumes may have arised in the Italian internai law nor
which judicial remedies it assumes may belong to Raytheon and Machlett.
Thus, Artide V of the Treaty, providing an indemnification for an individuai dispossessed
of his own property, is not self-executing. In fact, in domestic law - to the structure of which
it is necessary to make reference, and in our case to Italian law - an indemnification can be
recognized either as "diritto soggettivo>> (enforceable in an ordinary court) or as "interesse
legittimo >> (which is a different situation, enforceable in an administrative court): the provision
of an indemnification obligation does not imply a determination of which of the two subjective
positions an individuai has been awarded, and such specific determination must be derived from
other provisions of Italian law.
Also the provision of Artide I of the Supplementary Agreement is not a complete norm; in
any case, a claim for damages in an Italian court is subject to the same specification as mentioned
above with regard to Artide III of the Treaty: the Italian legislator must further specify what
kind of indemnification and/or compensation is provided and which court is competent to deal
therewith.
REPLICA DEL GOVERNO U.S.A. 167
Similarly, as Italy has not introduced in Italian law provisions affording United States citizens
the additional protections of Articles III and VII, United States citizens in Italian courts
may only assert the protection of Italian law as applied to ali companies in Italy.
Any claim for the additional protections created by Articles III and VII - as weli as those
arising from Article 1 of Supplementary Agreement and Artide V of the Treaty - must
therefore be raised by the United States at the international level.
II
Having excluded that the Treaty has introduced into the internai law claims and judicial
remedies stronger and different from those already available in the Italian legai system, we can
only repeat that Raytheon and Machlett; have exhausted ali available remedies for the simple rea,.
son that there were no remedies available to them. · ·
In fact, in .case. of an arbitrary requisition of the assets of a company, the shareholders do
not have any claim against the requisition order, because such claim is reserved to the company
(in the case in issue ELSI exercised the claim).
Similarly, an action for compensation by the authorities, as a consequence of a judicial
declaration of the illegitimacy of the requisition, is reserved to the company which was the object
of the requisition and not to its shareholders. And, in any case, if the company has become
bankrupt, any judicial action is reserved to the receiver, while the shareholders become creditors
of the bankruptcy (in the case in issue, the receiver of ELSI exercised ali claims without
success).
Rome, February zg, zg88.
ANNEX 3
LETTER FROM PROFESSOR ANTONIO LA PERGOLA PROFESSOR
AT THE UNIVERSITY OF BOLOGNA TO RAYTHEON COMPANY,
Dated 9 December I97 I
[legai opinion from Prof. ANTONIO LA PERGOLA, Atty.]
... For the reasons set forth above, then, I believe that I must conclude that in a situation
of this kind, ali the requirements appear to be satisfied for the US citizens who are members
of Raytheon-Elsi S.p.A. to be protected at the international leve!, without any internai remedies
being explored before. the filing of a possibile claim against the Italian Government.
La questione che mi viene proposta è quella di stabilire se - considerato tutto il complesso
delle vicende della S.p.A. Raytheon-Elsi, costituita a Palermo e per il caso che il governo degli
Stati Uniti intenda di avanzare reclamo contro il governo italiano per un illecito internazionale
nei confronti dei cittadini statunitensi, azionisti di detta società - si possa ritenere che sia stato
soddisfatto il requisito dell'esaurimento dei rimedi interni, e che il reclamo internazionale sia
proponibile.
Per rispondere al quesito, richiamerò, anzitutto, i principi di diritto internazionale che
consentono di accertare quando un individuo - in particolare, l'azionista di una società commerciale
- possa essere legittimamente tutelato dallo Stato di cui è cittadino, per torto subito
da parte di uno Stato straniero. Dopo di che, passerò ad indagare se nella situazione della specie
ricorrano gli estremi per l'ammissibilità del reclamo internazionale.
I. - È opinione comune degli studiosi e dei corpi giudicanti che ciascuno Stato sia legittimato
a proteggere i propri cittadini nei confronti dell'illecito che essi abbiano subito ad opera di
Stati stranieri. Tale tutela è però, subordinata al fatto che l'individuo abbia infruttuosamente
esaurito i rimedi che l'ordinamento interno dello Stato autore del preteso illecito consente effettivamente
di esperire. Il significato e l'ambito di applicazione della regola ora richiamatalocal
redress rule -verrebbe, però, frainteso, se si ritenesse che l'esaurimento dei rimedi interni
costituisca la sola condizione a dover essere soddisfatta perchè possa ammettersi la tutela internazionale
dell'individuo. Ogni qualvolta lo Stato agisce per tutelare un proprio cittadino non
basta, infatti, che questo abbia tentato inutilmente di ottenere il risarcimento del danno o comunque
la riparazione dell'illecito da parte dello Stato straniero: occorre anche che il reclamo
sia fondato su di un qualche titolo idoneo a far valere la responsabilità internazionale dello Stato
straniero. Non avrebbe, dunque, alcun senso chiedersi, nel caso che mi viene proposto, se i cittadini
americani, azionisti della Raytheon-Elsi, abbiano o meno esperito i rimedi locali, senza
accertare al tempo stesso che sussistano le altre condizioni volute dal diritto internazionale perché
un eventuale reclamo contro il governo italiano possa essere fondatamente avanzato. Diverso
sarebbe il caso in cui s'intendesse avanzare non un reclamo in senso proprio, bensl una generica
tutela diplomatica a favore di tali subbietti, dal momento che l'esercizio di questo più lato diritto
di protezione diplomatica - ultimamente richiamato e disciplinato nella Convenzione di Vienna
sulle relazioni diplomatiche del 18 aprile 1961, ma indubbiamente radicato nel diritto internazionale
generale - è svincolato - con la sola ed ovvia eccezione che nemmeno la generica tutela
diplomatica può estendersi ad altri soggetti, diversi da quelli connessi allo Stato dal legame della
REPLICA'DI!L GOVERNO 'IJ.S.A. 169
cittadinanza - dalla sussistenza dei requisiti necessari per la proposizione di un reclamo inter•
nazionale. Tali requisiti sono, essenzialmente, i seguenti:·
a) L'appartenenza dell'individuo ·allo Stato reclamante (c.d .. nationality of the claim).
Essa 'và intesa nel senso che l'individuo debba aver mantenuto lo status di cittadino dal momento
in cui egli subisce il d~no o la ·lesione derivante dal comportamento illecito di uno Stato stranìèrò,
ininterrottam~nte fino al ~omeìito in. C1li lo Stato cui esso appartiene abbia avanzato recilìiilo
.o àddirittura fino al momento in cui il reclamo sia stato deciso dai competenti organi
giudicanti. l)l:l ta,luni si ritiene altresl che parallelàmente a tale requisito sia richiesto un vincolo
(genuine link) effettivo, dunque, e non occasionate o involontario, tta il soggetto leso e lo Stato
autore dell'illecito, quale potrebbe, per es., tisultare dalla conclusione di ùn contratto d dal fàtto
di risiedere in detto Stato.
b) Altro requisito è che allo Stato, contro il quale è proposto reclamo, sia imputata la
commissione di un illecito internazionale. L'illecito deve consistere nell'inosservanza di una regola
internazionale la quale vincoli lo Stato stesso a un determinato trattamento nei confronti
dei cittadini dello Stato reclamante. Nel compimento dell'illecito non rileva il fatto che la regola
violata sia consuetudinaria piuttosto che convenzionale. Si avrà, tutt'al più, maggiore difficoltà
nel provare la violazione di una regola consuetudinaria, anzichè di un trattato, fermo restando
che Pònere della prova deve gravarè sullo Stato reclamante. Questo perchè la prova di una eventuale
violazione delle regole pattizie è presumibilmente agevolata dall'esistenza di un testo scritto,
sul quale il giudice può fare affidamento per stabilire quando l'illecito si è verificato, laddove non
vi è concordia di opinioni sul contenuto delle norme consuetudinarie dalle quali lo Stato. è vincolato
ad assicurare diritti allo straniero, se si prescinde dall'obbligo di adeguare l'organizzazione
ed il funzionamento della· giurisdizione ad un minimo livello d'imparzialità e di garanzie procedurali.
Non importa qui considerare altri aspetti problematici della definizione dell'illecito internazionale.
Mi limito. a rilevare che dottrina e giurisprudenza concordano nel ritenere che l'illecito
commesso in origine contro un individuo deve essere considerato come un illecito contro
lo Stato al quale l'individuo appartiene (Mavrommatis Palestine Concessions, International
Court of Justice. Series A, N. 2). Questo è. un punto fermo di tutto il diritto dei reclami, che
non può essere messo in discussione, perché ancorato alla premessa, tuttora pacifica, secondo
la quale gli individui sono privi di soggettività internazionale. Discende da tale premessa che
l'infrazione di una regola internazionale, la quale vincoli lo Stato ad un certo contegno verso
lo straniero, significa violazione di un diritto dello Stato di cui Io straniero è cittadino ; e cioè
del diritto di pretendere che la regola fosse osservata o addirittura del diritto di protezione diplomatica,
riconosciuto ad ogni Stato nei confronti dei propri sudditi. È certo, dunque, che il reclamo
internazionale è proponibile, vuoi che l'illecito tragga origine da un torto inflitto al privato, vuoi
che esso consista, invece, nella violazione immediata di un diritto dello Stato reclamante, in nessun
modo collegata con un qualche contegno che l'autore dell'illecito abbia tenuto nei confronti
dei cittadini di tale Stato. Ciò non esclude, tuttavia, che, quando lo Stato agisce per tutelare un
proprio suddito, l'ammissibilità del reclamo sia subordinata a talune condizioni le quali, logicamente,
non possono ricevere applicazione nel caso Ì1l cui lo Stato reclamante lamenti di aver
direttamente subito l'illecito. Tali, appunto, sono le ·condizioni di ammissibilità del reclamo
che ho fin qui richiamato, e prima. di ogni. altra quella dell'esperimento dei rimedi interni. Si
spiega infatti che i rimedi in questione debbano essere esauriti dagli invidivui stranieri, sempre
che essi siano effettivi e che servano alla riparazione del danno e della lesione subiti, in quanto
si presume che il soggetto abbia dovuto o voluto. sottoporsi all'ordinamento dello Stato territoriale;
ma altrettanto non può presumersi del sovrano straniero ; par in parem non habet jurisdictionem.
A ciò si aggiunge che la proposizione di un reclamo per torto arrecato all'individuo non
può in alcun caso prescindere dalla dimostrazione del danno o dalla lesione subita dall'individuo
tutelato. Da qui deriva che questa figura di illecito si distingue dall'altra dell'illecito direttamente
commesso nei confronti dello Stato sovrano (direct injury), la quale ultima si concreta solo che
vi sia la minaccia o la turbativa della lesione degli interessi o dei diritti di uno Stato. Per stabilire
poi, in concreto, quale· siano il danno o la lesione scaturenti dall'illecito, si dovrà aver riguardo
170 RASSEGNA DELL'AVVOCATURA DELLO STATO
al contenuto di. quella certa regola internazionale, la cui violazione è allegata dallo Stato recla·
mante; il reclamo dovrà pure indicare in quale delle forme consentite dal diritto internazionale,
il danno e la lesione lamentati dall'individuo debbano essere ripa111ti.
Se si ritenesse di poter prescindere dal requisito del danno o della lesione del soggetto privato,
si dovrebbe, del resto, negare ogni fondamento a tutto il sistema delle regole che governano
la proposizione dei reclami internazionali: il requisito della nationality of the claim si fonda, infatti,
sul concetto secondo cui ogni lesione della sfera dell'individuo equivale a una lesione della
sfera dello Stato; la stessa regola dell'esaurimento dei rimedi interni, presuppone che l'individuo
abbia subito un danno che gli derivi dalla violazione di una posizione giuridica vantaggiosa della
quale egli dovrebbe godere in base all'ordinamento dello Stato territoriale e che possa essere
riparato, nei modi previsti da tale ordinamento, senza che si verifichi quel diniego o ritardo della
giustizia (delay or denial of justice) che, dal punto di vista del diritto internazionale, costituisce
una autonoma figura di illecito.
2. - Questo è il quadro essenziale dei principi entro il quale deve essere contenuta l'indagine
del caso di specie.
Occorre ora vedere come, nell'applicazione di tali principi, possa venire in rilievo la circostanza
che l'individuo, per conto del quale verrebbe proposto il reclamo, sia azionista di una
società italiana. Tale elemento della fattispecie può sollevare qualche perplessità quanto all'am..,
missibilità del reclamo. Gli studiosi ed i collegi arbitrali continuano, invero, a dibattere il problema
se la tutela degli azionisti della società commerciale debba, o meno, rimanere preclusa
dal fatto che si tratti di individui organizzati in entità giuridiche, le quali, nella maggior parte
degli ordinamenti statuali, hanno personalità e nazionalità propria, con il risultato che i soci
possano essere cittadini di più Stati e che alla società può essere attribuita la nazionalità di uno
Stato diverso dallo Stato o dagli Stati ai quali appartengono gli azionisti. Per ammettere la tutela
internazionale dell'azionista senza riserve occorrerebbe, dunque, lacerare il velo della personalità
della società. Questa soluzione è stata infatti patrocinata innanzi alla Corte permanente dell' Aja,
da un autorevole giurista italiano, lo Scialoia, il quale osservava, nel caso Canevaro, che il diritto
del governo italiano a proteggere i propri cittadini non è limitato nè escluso dal carattere straniero
delle società, perché « se i diritti della società come persona giuridica sono distinti da quelli
degli azionisti, in realtà essi si esercitano soltanto negli interessi dei soci ». Altri rilevano, però,
che la tutela internazionale del singolo socio può dar luogo a seri inconvenienti e cosi, prima
di tutto, ai conflitti che sorgerebbero le volte in cui intervenissero diversi Stati, ciascuno per
tutelare internazionalmente propri cittadini, azionisti di una medesima società. Lo Stato autore
dell'illecito si troverebbe, in tal caso, a rispondere nei confronti di altrettanti soggetti quanti'
sono gli Stati che propongono reclamo. Se, poi, gli azionisti della società straniera fossero, a loro
volta, non già individui, ma società, magari di diversa nazionalità, potrebbe addirittura accadere
che venissero a concorrere ed a cumularsi i reclami proposti, sempre contro il medesimo Stato,
rispettivamente per conto della società e dei singoli azionisti. Di fronte a simili prospettive, la
giurisprudenza arbitrale ha dovuto procedere con molta cautela, ispirandosi largamente a considerazioni
di equità, per trovare il giusto punto di conciliazione tra la esigenza di non comprimere
indebitamente il diritto di protezione diplomatica di ciascuno Stato, da un canto, e di non
dilatare, dall'altro, oltre ragionevoli limiti, la responsabilità internazionale degli Stati in cui operino
società commerciali costituite da individui di varia cittadinanza .
. Opportunamente, dunque, il giudice Bagge, arbitro in alcune importanti controversie connesse
alla tutela degli azionisti, scrive a questo riguardo che le regole dell'intervento sono di
natura semiguridica e semipolitica, auspicando che esse non vengano applicate con criteri tanto
rigorosi e inflessibili da pregiudicare, piuttosto che agevolare, i buoni rapporti tra gli Stati sovrani.
I precedenti giurisprudenziali che mi sembrano· rilevanti sono, peraltro, pochi e riguardano
prevalentemente reclami presentati dagli Stati Uniti e dalla Gran Bretagna. Questi due
Stati si sono infatti trovati a dover tutelare con una certa frequenza gli interessi patrimoniali
dei propri sudditi all'estero e degli azionisti in particolare: la tutela è stata esercitata in un primo
tempo, mediante l'interposizione di buoni uffici e senza pretesa d'intervento ufficiale, e dal Delagoya
Bay Case (1889) in poi (MooRE, Digest of International Law, 1906, vol. VI) con l'instaurazione
di formali reclami. Ritengo di poter enucleare dalla decisione di quest9 caso e dalla sueREPLICA
DEL GOVERNO U.S.A. 171
cessiva giurisprudenza alcuni essenzialissimi principi che, per quanto mi risulta, vengono oggi
comunemente accolti, e che in ogni caso mi paiono i più rispondenti a quelle esigenze juris aequi
dalle quali il diritto dei reclami internazionali non può, specialmente in questa delicata materia,
divergere.
a) La società, come ente distintoclaì singoli soci deve avere la nazionalità dello Stato contro
il quale si reclama. Ciò serve ad escludd:e che la società; In quanto tale, possa essere tutelata
dallo Stato che intervi~ne per proteggere gli azionisti, di guisa che questi ultimi, se privati dell'àssistèn_
za dello . Stato . di cui . sono cittadini, rimarrebbero spogli di qualsiasi possibile tutela
interna:;:ùmale (Delagoa Bcay Case, cit.; Tlahualilo Case, in HACKWORT, Digest of International
Law, · Vol. V, 1943).
b) La società deve essere estinta o vetsare in uno stato di liquidazione o .di fallimento e tale
sintazione deve essere, beninteso, imputabile ad un illecito. internazionale (BAASCH AND RoMER;
Kunhardt Case in Ralstin, Venezuelan Arbitrations of 1903 (1904); El Triunfo Case, in MooRE,
Digest of International Law (xgo6), Voi. VI; Romano-Americana Case, in HACKWORTH, Digest,
ci t.).
La ratio di questo requisito è duplice. Prima di tutto si vuole che la società sia incapace
di fa:r. V!llere la lesione dei propri diritti da parte dello Stato territoriale altrimenti che per mezzo
di \.ln liquidatore o curatore e che, dunque, i singoli azionisti si trovino nell'impossibilità di fare
affidamento sul normale funzionamento degli organi sociali, per la tutela di ogni eventuale lesione
dei loro, diritti che discenda,_ mediatamente, da un torto inflitto alla società. Anche-in questo
caso, dunquej tutela internazionale e protezione diplomatica sono le sole possibili vie per tutelare
i diritti del socio e per ottenere la riparazione del danno da esso subito. Inoltre, è da considerare
che, ove la società sia sciolta o estinta, o versi in uno stato equivalente allo scioglimento o all'estinzione,
il diritto degli azionisti cessa di atteggiarsi semplicemente come un diritto di partecipare
ai profitti della società e si converte in un diritto alla ripartizione dell'eventuale attivo costituito
da). patrimonio sociale nett_o.- Anche in sede di applicazione di questi principi da parte della giurisprudenza
internazionale, si è discusso in ordine a quali diritti possano ritenersi immediatamente
e direttamente spettanti all'azionista come tale: mentre si esclude che in questa categoria
di posizioni soggettive dell'azionista possano rientrare i diritti conferiti all'azionista da norme o
da prindpi regolanti l'organizzazione della società o diretti a rimediare al mismanagement, il
diritto ad ottenere una quota proporzionale alla propria partecipazione sociale in sede di liquidazione
costituisce - nella maggior parte degli ordinamenti giuridici nazionali - un diritto soggettivo
di carattere· patrimoniale (proprietary right) immediato o, direttamente spettante all'azionista
come singolo.
c) Sempre che si riesca a stabilire che, cessando di operare regolarmente la società, il socio
abbia subito un danno derivante dalla lesione dei diritti ad esso attribuiti, lo Stato di cui l'azionista
è cittadino potrà intentate reclamo contro lo Stato autore dell'illecito.
Se tutti gli estremi che ho indicato ricorrono nella specie, allora è da ritenere ammissibile
la tutela diretta dell'azionista senza tener conto dell'esistenza della società come autonomo soggetto
di diritto. Ne seguirà- ed è questa una conseguenza assai importante - che il reclamo
non è subordinato all'esaurimento dei rimedi interni, non avendo il socio, in quanto tale, a1cun
rimedio da esperire all'interno dello Stato territoriale, per ottenere la riparazione del proprio
danno. Ai fini dell'ammissibilità del reclamo internazionale, il caso in cui non esistano effettivi
rimedi equivale, infatti, a quello in cui i rimedi esistenti siano stati inutilmente esauriti.
Le considerazioni che precedono permettono di inquadrare con sufficiente precisione gli
aspetti rilevanti per la soluzione delle questioni che, nella specie, mi sono state sottoposte.
Tenendo infatti presente quanto prima ho avuto modo di osservare in ordine al primo
requisito per la proposizione del reclamo da parte dello Stato al quale appartengono gli azionisti
-la commissione di un illecito internazionale- si può fare riferimento alla norma dell'articolo
I dell'accordointegrativo del trattato di commercio e navigazione del 2 febbraio 1948, stipulato
a Washington il 26 settembre 1951, ed in particolare alla previsione della illiceità di ogni misura
arbitrari~ o discrimi?athra "che abbia come conseg,ue~za di impedire !:effettivo controllo e l'aro172
RASSEGNA DELL'AVVOCATURA DELLO STATO
ministrazione delle imprese stabilite o acquistate da cittadini o persone giudiriche di una delle
parti contraenti, ovvero di pregiudicare i loro diritti ed interessi relativamente ad imprese ed
investimenti (specificamente, anche partecipazioni azionarie). L'impegno internazionale delle
parti contraenti di non adottare misure discriminative od arbitrarie nei confronti dei cittadini
dell'altro Stato è diretto anche a consentire la possibilità di ottenere, a condizioni normali, capitali
ed altri beni straordinari occorrenti per lo sviluppo economico delle iniziative derivanti dagli
investimenti dei cittadini delle due parti, oltre che ad ottenere la concessione delle speciali agevolazioni
in materia fiscale, doganale e tariffaria (alle quali poi si riferisce l'art. 5 dello stesso
accordo, con specifico riguardo alle provvidenze stabilite dalla legislazione italiana, in vigore al
momento dell'entrata in vigore del Trattato o successiva) per gli investimenti ai fini dell'industrializzazione
del Mezzogiorno.
Individuata così la norma internazionale, alla stregua della quale deve essere valutato il
comportamento del governo italiano, per stabilire l'eventuale sussistenza di un illecito internazionale
- e personalmente non ritengo possibile, nè utile, far riferimento a questo fine ad
altre norme, consuetudinarie o pattizie - il problema che si pone è quello di accertare se la situazione
di fatto che mi viene rappresentata dalla Raytheon Company possa in concreto offrire
gli elementi necessari per ritenere che siano stati violati gli obblighi scaturenti da detta norma.
Nel quadro delle iniziative, direttamente o indirettamente riferibili al governo italiano,
dei provvedimenti formali e di tutte le altre circostanze che hanno determinato o concorso a
determinare lo stato di estremo disagio in cui sono venuti a trovarsi gli azionisti americani della
Raytheon-Elsi S.p.A., un fatto emerge decisamente e merita di essere preso in particolare
considerazione. In conseguenza di tutti gli avvenimenti, che risultano da vari atti sociali e che si
trovano anche esposti nella relazione presentata al giudice delegato dal curatore del fallimento
della Raytheon-Elsi S.p.A. in data 28 ottobre 1968, la Raytheon-Elsi S.p.A. - dopo che
gli azionisti avevano a varie riprese, sia mediante il conferimento di ingenti somme a capitale
di rischio, sia con finanziamenti diretti o da essi garantiti alla Società, dovuto far fronte alle
perdite create dalla difficoltà di ambientamento dello stabilimento - era stata costretta ad adottare
un programma di riorganizzazione delle sue strutture produttive, che aveva sortito favorevoli
effetti, consentendo la riduzione delle perdite di gestione.
Tale programma - destinato ad assicurare, con l'aumento della produttività dell'azienda
sociale, una maggiore competitività dei prodotti di questa - comportava sacrifici per una parte
delle maestranze impiegate; sacrifici che, certo, non incontravano il favore dei sindacati.
Altre difficoltà, derivanti dalla situazione di alcune linee di prodotti dell'azienda, inducevano
gli organi di gestione della Raytheon-Elsi S.p.A. a decidere la cessazione delle attività
industriali, e poi anche delle attività commerciali, e a proporre agli azionisti la liquidazione della
Società, al fine di procedere ad un ordinato ed oculato realizzo di tutte le attività di quest'ultima.
In conseguenza di questa determinazione degli organi di gestione sociale, che venne resa pubblica,
il Sindaco di Palermo, nella sua qualità di ufficiale del governo, e con la tacita approvazione del
governo centrale, con suo provvedimento del 1° aprile 1968, ordinava la requisizione dello stabilimento
e di tutte le relative attrezzature per la durata di mesi 6, successivamente prorogato.
Contro questo provvedimento, la Raytheon-Elsi S.p.A. reagiva prontamente con i mezzi
consentiti dall'ordinamento italiano. Ma intanto, essendo stata ad essa sottratta la disponibilità
di tutti i beni costituenti il suo patrimonio aziendale, veniva irrimediabilmente pregiudicata
quella ordinata liquidazione delle attività sociali, alla quale la Raytheon-Elsi S.p.A. intendeva
procedere; ed in conseguenza quest'ultima, per il sopravvenire di massicce scadenze di debiti,
che essa non poteva pagare per la mancanza di liquidità così determinatasi, era costretta a richiedere
la dichiarazione di fallimento. Il fallimento veniva dichiarato con sentenza 7-16 maggio
1968.
Che tale provvedimento di requisizione sia illegittimo è stato riconosciuto dal Prefetto di
Palermo nell'esercizio del suo potere di controllo sugli atti del Sindaco quale ufficiale di governo.
Il Prefetto ha dato atto che la situazione di dissesto, alla quale è seguita la dichiarazione di fallimento
della Società, è diretta conseguenza del fatto che il complesso è stato sottratto alla disponibilità
del privato per l'intervento dell'autorità governativa.
Comunque, ai fini che qui ci interessano, non pare necessario indagare se sussistano gli
estremi di una illegittimità del provvedimento del Sindaco sulla base dell'ordinamento interno
REPLICA DEL GOVERNO U.S.A. 173
italiano, perché· questa è. questione che interessa, ormai, l'ufficio fallimentare (essendo in Italia
esclusivamente demandato al curatore della società fallita il potere di promuovere o resistere a
tutte le azioni legali in base alle quali è possibile stabilire in· via definitiva la contrarietà di questò
provvedimento alle norme di diritto interno)•.
Posto che alla Società è ormai sottratta. ogni possibilità di. iniziativa per la tutela dei diritti
che specificamente le competono; dato lo stato di fallimento in cui essa versa, si tratta, invece,
di vedere se gli azionisti abbiano subito una qualche lesione dei loro diritti· come .. risultato ·di un
comportamento dello Stato. italiano, ove questo risulti .• contrario agli obblighi. internazionalmente
assunti dall'Italia secondo le specifiche previsioni del trattato di axnicizia. Non pare dubbio
che il provvedimento del Sindaco. di Palermo ha impedito, in primo ·luogo; l'instaurazione e lo
svolgimento. di quel procedimento di liquidazione delle attività patrimoniali della RaytheonElsi
S.p.A., a condusione del quale si sarebbe potuto stabilire se gli azionisti, dopo il pagamento
dei debiti>sociali, avrebbero potuto ottenere il rimborso, in tutto od in parte, dei loro èonferimenti
ed eventualmente l'attribuzione di.una.quota -proporzionale alloro conferimentodel
residuo attivo netto sociale.
A prescindere, quindi, dal diretto .nesso causale che esiste fra la requisizione e lo stato di
dissesto, culminato nel fallimento della Società (a danno dei creditori sociali, nel cui collettivo
ed obiettivo interesse la· curatela· è abilitata a prendere i più opportuni rimedi), il comportamento
dell'organo dello Stato italiano ha immediatamente e definitivamente impedito ògni possibilità
di provvedere alla liquidazi6ne dell'attivo sociale, non solo mediante l'alienazione, secondo i
criteri di diretta ed immediata convenie~a per la Società, dei beni che a questi sono stati sottratti;
• ma anche . mediante tutti gli opportuni. accordi ·che quest'ultima avrebbe potuto raggiungere
coni creditori sociali, per i quali in effetti erano in corso avanzate trattative, e che avrebbero
anche consentito una possibilità. di recupero, sia pure parziale, • delle .ingenti somme che gli azionisti.
avevano impegnato nell'affare.
Ora; r.aver reso impossibile. la liquidazione della Società e le attività che normalmente conducono
al realizzo dei beni sociali, ha inciso direttamente su un diritto, pro.prio e specifico, degli
azionisti. Ed il comportamento dello. Stato italiano che ha. determinato questa situazione pregiudizievole
per i diritti e.gli interessidegli azionisti americani e.per lasorte degli investimenti da
essi fatti sotto forma • di partecipazioni azionarie, è certamente contrariò non solo all'espressa
previsione della norma internazionale sopra richiamata, ma. anche alla ~atio di quest'ultima,
diretta ad assicurare l'impegno ad un effettivo ed efficace riconoscimento delle esigenze di tutela
di tali diritti e interessi. Il comportamento dello Stato assume carattere arbitrario e discriminatorio,
infatti, in relazione a tutti quei principi di diritto internazionale e soprattutto al principio
della buona fede, che ci offrono il costante criterio interpretativo dei trattati: è chiaro che le
espressioni arbitrario o discriminatorio, usate nel Trattato, possono anche non coincidere con
la nozione di illegittixnità - soprattutto se questa venga riferita al significato che comunemente
ad essa si attribuisce nella giurisprudenza degli ordinamenti statuali - nel senso che arbitrario
o anche discrixninatorio può essere un comportamento formalmente non illegittimo ma pur sempre
contrario alla regola internazionale. Al limite, infatti, potrebbe ben esservi un comportamento
o un atto dello Stato sottratto ad ogni forma di controllo o di sindacato, secondo i parametri del
diritto interno, perché correttamente si può definire arbitrario un provvedimento per il solo fatto
che supera i Iixniti di quella esse~ialissima ragionevolezza e buona fede (che rileva ai fini della
applicazione del Trattato), ancorché non si verifichi tecnicamente abuso o straripamento nell'esercizio
dei poteri latamente discrezionali dell'attività pubblica. Tanto più opportuna è questa precisazione
in quanto, nella specie, l'arbitrarietà del provvedimento del Sindaco di Palermo come
ufficiale di governo è solo la nota più decisa di quel quadro, al quale prima accennavo e in cui si
compongono vari altri fatti, direttamente o indirettamente imputabili allo Stato italiano. Questi
fatti, che già di per sè isolatamente presi, rimangono indubbiamente sintomatici dell'inclinazione
verso un trattamento, se non ostile, certamente non favorevole verso gli azionisti americani della
Raytheon-Elsi S.p.A., assumono nel loro complesso decisa rileva~a al fine di esprimere un
giudizio sulla contrarietà del comportamento italiano agli obblighi del Trattato.
Fra i fatti che mi vengono segnalati vi sono un pesante intervento del Presidente della Regione,
prima della dichiarazione di fallimento della Società, diretto apertamente ad ostacolare
il programma di liquidazione, divisato dalla Società; la grande pubblicità data dal governo ita-
12
174 RASSEGNA DELL'AVVOCATURA DELLO STATO
liano attraverso la radio e la televisione all'intento di una Società del gruppo IRI, sotto il controllo
dello Stato, di procedere al rilievo dell'impianto, con l'effetto di scoraggiare ogni eventuale
acquirente privato e rendere impossibile quell'acquisto che esso ha poi effettuato ad un prezzo
di gran lunga inferiore al prezzo di stima; il comportamento delle banche creditizie dell'IRI
nei confronti degli azionisti americani, con l'41tentare vessatorie azioni legali presso le corti italiane,
al fine di rendere onerosa la situazione di questi ultimi.
Da tutti questi elementi io credo che si possa trarre il fondato convincimento dell'arbitrarietà
del comportamento del governo italiano, con la conseguenza che sussiste l'illecito internazionale.
Come prima ho precisato, occorre però, al fine di legittimare la proposizione di un reclamo,
che concorrano altri requisiti; ma nel nostro caso non si può certo dubitare che essi sussistano.
Infatti, gli azionisti sono cittadini americani: è dunque soddisfatto il requisito della nationality
del reclamo. Essi hanno poi stabilito, in conseguenza del loro interesse e degli investimenti
in una società italiana, un genuine link con lo Stato territoriale.
La Società ha, peraltro, indubbiamente, la nazionalità italiana; appartenendo la Società
allo Stato autore dell'illecito, ricorre un altro degli estremi perché il singolo azionista possa essere
tutelato dallo Stato di cui è cittadino. La Società versa per di più in uno stato di fallimento che
è, inter alia, diretta conseguenza del provvedimento di requisizione. L'esistenza del fallimento
impedisce ogni iniziativa diretta degli organi sociali al fine di ottenere che la società sia reintegrata
nella situazione nella quale. essa si sarebbe trovata se non fosse intervenuto l'illecito. Il
che ..- sulla base dei principi convalidati dalla giurisprudenza internazionalistica - costituisce
un altro elemento che rende possibile la tutela immediata dei soci da parte dello Stato di cui essi
sono cittadini. Non si pone, quindi, il problema dell'esaurimento dei rimedi. interni, che infatti,
in questa situazione, non sarebbero direttamente esperibili dagli azionisti.
Questi ultimi hanno subito una lesione specifica del loro interesse perché il comportamento
illecito dello Stato ha reso impossibile la liquidazione. Tale comportamento è di per sè astrattamente
idoneo a causare un danno, anche se la quantificazione concreta di questo danno è argomento
che non forma oggetto del quesito che mi è stato posto.
Per ·le ragioni svolte sopra, ritengo, allora, di dover concludere che, nella situazione della
specie, appaiono soddisfatti tutti i requisiti perché i soci cittadini statunitensi della RaytheonElsi
S.p.A. vengano tutelati internazionalmente, senza che vi siano rimedi interni da esperire
prima della proposizione di un eventuale reclamo contro il governo italiano.
Prof. ANTONIO LA PERGOLA
LL.M. (Harvard)
.ANNEx 4
LETTER FROM AVV. GIUSEPPE BISCONTI
STUDIO LEGALE BISCONTI, ROME, TO RAYTHEON COMPANY
Dated 6 Novembre I97I
Gentlemen:
Y ou ha ve requested an opinion as to w ha t remedies are available un der I talian la w to the
shareholders of Raytheon Elsi S.p.A. (hereinafter referred to as « ELSI ))) in relation to the damages
suffered by said shareholders as a consequence of the requisition by the Mayor of Palermo
of ELSI's assets on Aprii 2, 1968 and of subsequent events.
I have acted as Italian counsel to Raytheon Company, a shareholder in ELSI, in relation to
various matters since 1962. I have also acted as Italian counsel to Raytheon Company in relation
to ELSI matters continuously since March 1968.
As such counsel, I am fully familiar with the events concerning ELSI that occurred since
the resolution of ELSI's Board of Directors of March z6, 1968 to cease production and undertake
an orderly liquidation of ELSI and specifically with the events represented by the
aforementioned requisition, the subsequent action by the Italian Government, the bankruptcy
of ELS I an d its developments to date an d the pending litigation instituted by the Italian
creditor banks against Raytheon Company. Under Italian law the following remedies are
available:
I. Remedies against the requisition. The Mayor of Palermo in making the requisiti o n
acted as an official of the National Government. Under Italian law, an appeal against the requisition
order can be taken to the Prefect. Such appeal was promptly taken by ELSI. As an effect
of the bankruptcy of ELSI which occurred subsequent to and as a consequence of the requisition of
ELSI's assets by the Mayor, the right to pursue the appeal vested solely in the curator of ELSI's
bankruptcy. The remedy as such was a remedy available to ELSI as a company and prior to the
bankruptcy there was under Italian law n<;> remedy available to the shareholders of ELSI. The
requisition was made by the Mayor acting as an official of the National Government and there
is no remedy under Italian law against the National Government other than the aforementioned
appeal.
2. Under Italian law as an effect of the bankruptcy ELSI and its management were deprived
of the right to take any action in ELSI's name and such right has vested in the curator. Under
Italiani aw the curator exercises any such rights in the interests of ELSI's creditors and not of the
shareholders. Subsequent to the bankruptcy of the company, there is no possibility under Italian
law for the company itself nor for the shareholders to exercise any rights or action which the
company might have had prior to the bankruptcy. Following the decision by the Prefect o.t
Palermo of August 22, 1969 which ruled that the requisition by the Mayor was illegal, the curatoJ
of ELSI brought suit against the Italian Government and the Mayor of Palermo to recover damages
on behalf of ELSI's creditors. No such action would be available under Italian law to
ELSI's shareholders.
3· As stated above, the shareholders of ELSI have no direct action against the Italian Government
under Italian law in relation to the damages suffered by them as a consequence of the
requisition and subsequent event. In my opinion, the shareholders would not have a cause of
action even un der Artici e 2043 of the I talian Civil Code, because: (a) the requisition was direct176
RASSEGNA DELL'AVVOCATURA DELLO STATO
ed against ELSI and not the shareholders even though the latter eventually suffered damages;
and (b) Italian law provides fora specific remedy against the requisition which is the aforementioned
appeal to the Prefect. I know of no judicial decision in which Artide 2043 of the Italian
Civil Code was applied in similar circumstances. I t is my opinion that the shareholders of ELSI
would have no remedy or no effective remedy un der Artide 2043 of the I talian Civil Code.
4· By way of condusion, there is no remedy under Italian law available to the shareholders
of ELSI in relation to the damage suffered by them as a consequence of the requisition by the
Mayor of Palermo and the subsequent events. In my opinion there can be no question as to whether
the shareholders have exhausted all (nonexistent) local remedies.
Respectfully submitted
Studio legale Bisconti
Avv. GIUSEPPE BISCONTI
ANNEx s
ELSI - ELETTRONICA SICULA S.p.A.
BY-LAWS (ARTICLES OF INCORPORATION)
APPROVED BY THE SHAREHOLDERS EXTRAORDINARY MEETING
ARTICLBS OF INCORPORATION
Consolidation Act approved by the Special Meeting of July 19, 1961, ratified by the Civil
Court of Palermo by decree of October 28, 1961, amended in accordance with the resolution of
the Special Meeting of October 31, 1961
ARTICLB 17
The Special Meeting at first convening passes valid resolutions with the presence and the
favorable vote of more than half of the capitai stock [of the Company].
At second convening, the Special Meeting passes resolutions with the favorable vote of as
many members as would represent more than a third of the capitai stock.
However, both at first and at second convening, the favorable vote of as many members
as would represent at least 90 percent of the capitai stock is necessary to pass resolutions that
concern changing the Company's purpose, changing the Company's legal nature [form], dissolving
the Company ahead of time, moving the Company's main office abroad, or the takeover or
consolidation of the Company by or with other companies.
ELSI - ELETTRONICA SICULA S.p.A.
Sede Sociale: Palermo Via Villagrazia, 79
Capitala Sociale L: 2.ooo.ooo.ooo
STATUTO SOCIALE
Testo Unico approvato dall'Assemblea straordinaria del 19 luglio 1961, omologato dal Tribunale
Civile di Palermo con decreto del 28 ottobre I 96 I, modificato secondo la delibera dell'Assemblea
Straordinaria del 31 ottobre 1961
Le deliberazioni possono essere prese per alzata di mano o, quando si tratta di nomine per
le cariche sociali, per acclamazione, a meno che un diverso sistema di votazione venga richiesto
da tanti azionisti che rappresentino non meno di un quarto delle azioni presenti in Assemblea.
ARTICOLO 16
L'Assemblea ordinaria in prima convocazione delibera validamente a maggioranza assoluta
di voti purché siano intervenuti tanti azionisti che rappresentino in proprio o per delega almeno
la metà del capitale sociale.
Nel computo si terrà conto delle azioni costituenti la cauzione degli Amministratori anche
quando i medesimi, giusto l'art. 2373 del Codice Civile, devono astenersi dal voto.
In seconda convocazione l'Assemblea ordinaria delibera sugli oggetti che avrebbero dovuto
essere trattati nella prima, qualunque sia la parte di capitale rappresentata dai soci intervenuti.
ARTICOLO 17
L'Assemblea straordinaria in prima convocazione delibera validamente con la presenza e
con il voto favorevole di più della metà del capitale sociale.
In seconda convocazione l'Assemblea straordinaria delibera con il voto favorevole di tanti
soci che rappresentino più del terzo del capitale sociale.
Tuttavia sia in prima che in seconda convocazione è necessario il voto favorevole di tanti
soci che rappresentino almeno il novanta per cento del capitale azionario per le deliberazioni concernenti
il cambiamento dell'oggetto sociale, la trasformazione della Società, lo scioglimento
anticipato di questa, il trasferimento della sede sociale all'estero, l'assorbimento o il consolidamento
della Società da o con altre Società.
ARTICOLO 18
La gestione della Società è controllata da un Collegio Sindacale composto da tre o cinque
Sindaci effettivi e due supplenti.
I Sindaci durano in carica tre anni.
L'Assemblea ne nomina il Presidente e ne fissa l'emolumento.
REPLICA DEL GOVERNO U.S.A. 179
ARTICOLO 19
L'esercizio sociale si chiude al 31 dicembre di ogni anno.
Il Consiglio provvede entro i termini sotto l'osservanza delle disposizioni di legge alla compilazione
dell'inventario e del bilancio corredandoli con una relazione sull'andamento della gestione
sociale e sottoponendoli all'approvazione dell'Assemblea dei Soci.
ARTICOLO 20
Sugli utili che risultano dal bilancio, approvato dall'Assemblea, deduzione fatta di tutte
le spese di amministrazione e di esercizio, si preleva il 5 % sino a costituire il fondo di riserva
legale.
L'utile residuato, dopo averne prelevato il 4 % a favore del Consiglio di Amministrazione,
si ripartisce alle azioni, salvo diversa deliberazione dell'Assemblea.

REJOINDER
SUBMITTED BY
ITALY
(CASE CONCERNING ELETTRONICA SICULA S.P.A.- ELSI)
18 JULY 1988

INTRODUCTION
r. The Admissibility oj the application and the Applicant's allegations on the merits: some introductory
remarks.
First of all, the Italian Government reiterates its objection to the admissibility of the application
for the reasons set forth in Part III of the Counter-Memorial (l) and further developed
in Part III of this Rejoinder.
With regard to the facts, it may be useful to summarize at the outset the contentions made
in the Applicant's Reply, which contains severa! discrepancies with respect to the Memoria!.
The unlawful behaviour attributed by the Applicant to the Italian Government allegedly
consists of four welldefined acts or omissions, namely: the requisition of the ELSI plant by decree
of the Mayor of Palermo acting in his capacity of government official; the Prefect's delay
in rendering a decision on the appeal; the failure of public autohorities to protect ELSI's property
from the factory workers' occupation; the interference in the bankruptcy proceedings in
order to discourage private purchasers and allow IRI to buy up the plant at a price well below
its fair market value (2).
All the above-mentioned behaviour is alleged to be the result of a diabolica! plot hatched
by the Italian public authorities at many different levels (centrai government, or at least severa!
ministries, regional and local officials, State-owned companies, bankruptcy institutions, etc.)
all clone to take over a << technological jewel "• i.e. ELSI, on the cheap.
This plot allegedly led to the bankruptcy of ELSI, which would otherwise have been wound
up in an « orderly liquidation "· It also meant that in the bankruptcy proceedings the realized
value of the company's assets was much smaller than their true value so that Raytheon and Machlett
suffered damage to the extent of the difference between the actual amount received and what
would have been obtained if ELSI had been sold as a « going concern "• or at least on the base
of its quick-sale value, in the frame of an orderly liquidation (8). To be added to this are the
legai costs incurred and the compound interest on both items.
(1) Counter-Memorial submitted by Italy (Case concerning Elettronica Sicula S.p.A.- ELSI), hereinafter
referred to as ~ The Counter-Memorial &,
( 2) The Memoria! submitted by the United States of America (Case concerning Elettronica Sicula S.p.A.
- ELSI), (hereinafter referred to as ~ Memoria! >>), also contained (p. 22 expecially at note 18) a further accusation
against the Italian authorities: publicly-owned banks claimed that Raytheon, as << dominant partner&, should pay
ELSI's unsecured debts.
This reference has been dropped in the Reply submitted by the United States of America on 18 March 1988,
(hereinafter referred to as << Reply >), (see p. 128) and it should be acknowledged that the Applicant no longer intends
to pursue a claim on such point and the arguments supporting it. United States Government counsel has apparently
realized that it would be absolutely untenable and contradictory to claim that the publicly-owned Italian
banks would go against their own interests and ruin someone who owed them money, thus losing ali their unsecured
loans. As chance would have it, the loss incurred by the banks would have been equivalent in economie
terms (about lire 4,ooo million) to the profit made by IRI according to the charges made by the Applicant (Memoria!,
Annex 13, schedule E).
( 3) The quantification of the alleged damage has increased with time .. While the Claim of the Raytheon company
and Machlett Laboratories, incorporated against the Government of Italy in connection with Raytheon-Elsi
S.p.A. (hereinafter referred to as the « 1974 Claim >), contained in Counter-Memorial, Unnumbered Documenta,
Vol. I, II, III, refers exclusively to the quick-sale value, and the Memoria! to the book value and, in the second
instance, to the quick-sale value, in the Reply the Applicant mentions a higher value, justifying the increase by the
profits a • going concern & would expect to make. These ever increasing contentions ring particularly strange with
reference to a company whose history is marked solely by losses growing from year to year.
184 RASSEGNA DELL'AVVOCATURA DELLO STATO
As set out above, according to the United States Government the facts represent a series
of violations of the 1948 Treaty of Friendship, Coxnmerce and Navigation between the United
States and Italy and of the 1951 Supplementary Agreement and thereby give the United States
Government title to reparation of the losses allegedly incurred.
2. The facts represented by the Respondent.
The Respondent has clone more than merely indicate the gaps and inconsistencies in the
version of the facts presented by the Applicant and its patently tendentious nature. The Italian
Govemment has also attempted to clarify the order in which the facts actually took piace.
For instance, with regard to the requisition decree, the Respondent illustrated its legai basis
under Italian law and pointed out that its aim was not to deprive ELSI of the ownership of its
plant but merely to regulate the use of the plant for a period of six months (4). As far as the
« orderly liquidation >> is concemed, an outline has been given of the content of the decision taken
by the ELSI board of directors on 16 March 1968 (i.e. two weeks before the actual requisition (8),
and confirmed by the shareholders' meeting of 28 March (6), i.e. immediate cessation of production,
of ali coxnmercial activities and of employment relations as from 29 March (1). Moreover,
the Counter-Memorial examined expectable results of an « orderly liquidation » taking into account
the precarious economie and technical conditions of ELSI (8). Precise figures have been
given to show how the chance of avoiding bankruptcy implied the need to get the banks to which
ELSI owed money to accept the recovery of only so % of their credits (9). Therefore, the fact
that ELSI filed a petition for bankruptcy on 26 Aprii 1968 was an inevitable consequence of
its state of insolvency and not of the requisition decree. This was attested by the Palermo Court
of Appeal in its decision of 23 November 1973 (1°).
With reference to the alleged manipulation of the bankruptcy procedure by the Respondent,
it has been pointed out that, in ltaly, this type of proceeding is carried out by a receiver
appointed by the Court, who acts in cooperation with the presiding bankruptcy judge and also
consults a comxnittee composed of the creditors. Ali this contributes to ensuring that the proceeding
is objective. Furthermore, the Counter-Memorial also anlaysed the way in which the
bankruptcy auctions were organized and the prices fixed for the sale ofthe plant and equipment(11).
The conclusion was reached that the price paid by the purchaser was quite reasonable (12
), even
when compared with the estimated quick-sale value stated in the 1974 Claim by the Raytheon
and Machlett companies.
As to the occupation of the factory by the striking work force, it has been pointed out that
it began in early March 1968, when the plant was under exclusive ELSI contro!, and not after
the requisition. Moreover, the occupation did not prevent the winding-up operations from being
carried out regularly (13).
As to the delay with which the Prefect of Palermo rendered the decision upholding the ELSI
appeal against the requisition decree (22 August 1969), documentary evidence has been produced
to show that the average length of such procedures is 12 months, which is not substantially less
than the time actually taken in that case (16 months). It has also been pointed out that each petitioner
has the right to make a special request that the decision conceming him be expedited.
In the ELSI case, this was clone only on 9 July 1969 (14
).
(4) Counter-Memorial, p. 83.
(5) Memorial, Annex 31.
(6) Memorial, Annex 32.
(7) Counter-Memorial, p. 81.
(B) Counter-Memorial, p; 77-78 and So et seq.
(9) Counter-Memorial, p. 82.
(10) Memorial, Annex 81; see also Counter-Memorial, p. 87.
(11) Counter-Memorial, pp. 88, 89-90.
(12) Counter-Memorial, p. 90.
(13) Counter-Memorial, p. 86.
(14) Counter-Memorial, p. 87.
CONTROREPLICA DEL GOVERNO ITALIANO 185
One further aspect has been stessed: starting from 30 September 1968 (i.e. from the day
on which the requisition decree expired), ELSI lost control of the factory, as a result not of the
requisition decree, but of bankruptcy. The delay in the Prefect's decision was therefore not detrimental
in any way. Lastly, with regard to the Applicant's assertion that no adequate compensation
was paid, it has been responded that, although the decree of the Mayor of Palermo
acknowledged ELSI's right to such compensation, the actual payment .of compensation was
postponed pending the appeal to the Prefect of Palermo, and then the upholding of the appeal
implied that the right to such coi:npensation was replaced by the right to compensation for damages
caused by the requisition. To this effect a sum of money was awarded by Court of Appeal
of Palermo in its decision of 23 November 1973, which was confirmed by the Court of Cassation
on 26 Aprii 1976 (16). The sum was actually paid to the receiver in the ELSI bankruptcy proceeding.
Therefore, in the final analysis, it has to be acknowledged that the Respondent fulfilled
its obligation to compensate the damage caused by the requisition of the ELSI plant.
3· The Applicant's failure to provide evidence to justify its claims.
The Applicant and the Respondent have thus given the Court two widely differing versions
of the facts relating to the present case. This means that the dispute between them concerna not
only the different interpretation of Treaty provisions but, to an even greater extent, the different
statement of the facts to which those legai provisions are.to be applied. However, the comparison
between the two versions in question cannot be based on the assumption that they have equal
weight, and that the Court is called upon simply to establish which of the two parties can prove
its arguments more fully and convincingly. This is not the case, because the Applicant, who
claims to have been unfairly treated and therefore requests a reparation from the Respondent,
must demonstrate that the facts on which its claims are based are true.
W e know that, in international cases, it is very often impossible to identify an Applicant
and a Respondent since the parties may have concluded a special arbitration agreement. Therefore,
it is generally held that the problem of the burden of proof to be shared by the parties
cannot be resolved in the same terms as in a case heard before a national court. Nevertheless,
it is to be pointed out that, in the present case, which has been brought before the International
Court of Justice by a unilateral application, there is an Applicant and there is a Respondent.
And as it is true that the Applicant has put forward certain claims, it is equally true that it must
prove them.
It is interesting to note in this respect that when the Court has had to deal with a question
involving the burden of proof, e.g. the Corfu Channel case - a case centered around an unlawful
act committed in the territory of the Respondent (Albania) - the Court ruled that the sole
fact that this State exerted control over its own territory did not mean that it was obliged to have
a knowledge of all unlawful acts committed in such territory (16). The judgment declared that
the fact of .controlling the territory per se << neither involves prima facie responsibility nor shifts
the burden of proof, (logically, in the sense of freeing the Applicant from this burden). It is likewise
significant that, in an order on the Minquiers and Ecrehos case, the Court, after considering
the position of the two parties (who were both claiming sovereignty over the same territory),
and taking into account two articles of the special agreement concluded by them, stated that
u each party has to prove its alleged title and the facts upon which it relies , (17).
Lastly, it should also be noted that in its judgment of 27 ]une 1986 in the case between Nicaragua
and the United States concerning Military and Paramilitary Activities in and against
Nicaragua (18) the Court considered, among other points, Artide 53 of its Statute with respect
to the situation in which one of the parties does not appear and the other party requests its claims
(U) The English text of these decisions can be found in Memoria!, Annexes 81 and 82.
(16) ICj Reports 1948, p. 18.
(17) ICj Reports 1953, p. 52.
(18) ICj Reports 1986, p. 14 et seq.
186 RASSEGNA DELL'AVVOCATURA DELLO STATO
to be satisfìed (19). On that occasion the Court stated that '' the Court must attain the same degree
of certainty as in any other case that the claim of the Party appearing is sound in law and, so far
as the nature of the case permits, that the facts on which it is based are supported by convincing
evidence » (20). Later in the same decision the Court stated that '' it is of course for the party
appearing to prove the allegations it makes >> (21).
In conclusion, therefore, even though both Parties are called upon to prove their respective
claims in an international proceeding, it seems unchallengeable that in a suit in which the Applicant
complains of being the victim of unlawful acts, of which it accuses the Respondent and for
which it requests reparation, while the Respondent denies any beeach of its obligations and merely
requests that the application should be rejected, it is up to the Applicant to provide evidence
to justify its daims.
4· In particular, the lack of evidence concerning the causallink between the alleged acts and the
alleged losses.
The nature of the present dispute leads to another important consequence concerning the
evidence that the Applicant is obliged to provide. As was said, a series of events involving ELSI
occurred in the years I968 and 1969 for which, according to the Applicant, the Italian Government
is responsible. However, although these facts have a chronological sequence, it stili has
to be proved - an d this proof is necessary - that there is a causai link between them: in other
words, it stili has to be proved that there is any cause-and-effect relationship between them.
In particular, it must be pointed out that the most important circumstances giving rise to
damage the Applicant has complairied of were a direct consequence of the bankruptcy: the nonavailability
of the ELSI factory and plant after the requisition period (i.e. after 30 September
I968), the compulsory liquidation of the company's assets and the sale of the plant to the EL TEL
company. It is a well-known fact that the bankruptcy proceeding was requested by ELSI.
Therefore, the Applicant could attribute the above-mentioned circumstances to the I talian Government
only by asserting that the fìling for bankruptcy was caused by the requisition. However,
this assumption must be supported by evidence, which has not been forthcoming. On
the other hand, the Respondent's evidence to the contrary is substantial.
With reference to the generai problem of the role of causation in the field of State responsibility,
it is interesting to recall the principles adopted in the Draft Convention on the International
Responsibility of States for Injuries to Aliens, established by the Harvard Law School in
I96I (22). Artide I, paragraph I, of the Draft stated the following principle: ''A State is internationally
responsibile for an act or omission which, under international law, is wrongful, is
attributable to that State, and causes injury to an alien ». In Artide 14, paragraph 3, the concept
of causation was defìned in the following terms: '' An injury is '' caused » ... by an act or omission
if the loss or detriment suffered by the injured alien is the direct consequence of that act or omission
». Paragraph 4 added: ''An injury is not '' caused »by an act or omission: (a) if there was
no reasonable relation between the facts which made the act or omission wrongful and the loss
or detriment suffered by the injured alien, or; (b) if, in the case of act or omission creating an
unreasonable risk of injury, the loss or detriment suffered by the injured alien occurred outside
the scope of the risk ».
The restriction of indemnifìable damages to those which are the direct consequence of the
wrongful act of a State coincides with the prevailing jurisprudence of international arbitration
tribunals. This point wili be further elaborateci upon when we come to deal with the daim for
damages presented by the Applicant. For the time being only two observations will be made:
the only direct consequence of the requisition decree of the ELSI plant issued by the Mayor of
(19) ICj Reports 1986, p. 24, para. x8.
(20) ICj Reports I 986, p. 24, para. 29.
(21) ICj Reports 1986, p. 25, para. 30.
(22) American ']ournal of International Law, Vol. 55, 1961, p. 548 et seq.
CONTROREPLICA DBL· GOVBRNO:. lTALIANOé 187
Palermo on 1 April.x.g68 was<its temporary'unavailability to the company to which it belonged.
For this reason,. the damages granted by the Court of Appeal of Palermo (decision later upheld
by the Court of Cassation) were limited to the oortsequences of this unavailability by· its owner
calculated as the equivalent of 5 % of the value of thè requisition assets; ·•· As · tò the · greater losses
for wlùch the Applicant. is clail:ning cOm.pehsation• · they actually · result from the barikruptcy for
whf<l~ EL$l itselffiletla petitiom They are only indirectly :related to the requisition. even if. one
aceeptecldle Applicant's arguriìents that the unavailability of the plant was the cause of the insohrency
(which. is cleady dispro.ved by the· fact. that ELSl had ceased • all commerciai actìvities
as a restilt of the decision of 1.6 March rg68 olit$ Board of Directors)• The truth is that there is
absolutely no relation between the reql;lisition decree and the .fact that the company was liquidated
fòr bankmptcy;. ·
5; ·· The IJ:uestion ojattributìon of the alleged atts to the ltalian ·State.
One further remark must be made concerning the way the Applicant has presented the
facts concerning this case. We bave already pointed out that, in the Draft Convention on the
Responsibility of States for Injuries. to Aliens, established by the Harvard Law School in 1961,
one of the prescribed conditions for a State to be considered responsible for a wrongful international
act is that the act or omission in question must be« attributable to that State>>. A similar
provision is contained in Artide 3 of the Draft Articles on the Responsibility of States, the first
part of which was provisionally adopted by the lntemational Law Commission in 1980 (23).
This text also contains detailed provisions regarding what may be termed « acts of State » under
internationallaw. While the first category of this kind of acts logically consists of the behaviour
of any State organ deemed to be such under the law of the country (Article 5), it is denied that
the behaviour of a person or persons not acting on behalf of the State can be considered an « act
of State » (Artide II).
The reason for mentioning these two drafts is that the behaviour for which the Applicant
considers the ltalian Govemment to be responsible may indeed be partly attributed to the Respondent,
but must partly be attributed to others. In fact, it is not denied that both the requi
sition decree issued by the Mayor of Palermo in his capacity of government official and the decision
taken by the Prefect of Palermo on the appeal by ELSI can be attributed to the Italian State.
The same cannot be said, however, of the alleged interference in the bankruptcy proceeding,
insofar as it occurred through the action of the receiver (who, in fact, represents the creditors
and acts in their interest) under the contro! of the bankruptcy judge. And above all it is denied
that one can attribute to the Italian State any decisions taken by an IRI company (EL TEL)
or by IRI itself outside the exceptional case of a specific Government directive, as it was clearly
shown that the IRI group is legally and effe·ctively independent from the Government. With
regard to the latter point, Article 7, paragraph 2, of the Draft Articles provisionally adopted by
the International Law Commission considers as an « act of State >• the behaviour of the organ of
any agency which is not « part of the structure of the State or of a public territorial community »,
but is « empowered by the intetnal laws of the State to exercise powers of public authority insofar
as the organ has acted in such a capacity in the case in point •>. It is easy to show in the
present case that the organs of IRI or of companies associated with the IRI group have no powers
to act as a public authority under Italian law and therefore have not acted in such a capacity.
The indifference of the Applicant about the existence of a causai relation between the alleged
losses and the actions defined as wrongful, and about the limits within which such an action
rnay be attributed to the Italian State is displayed in numerous assertions contained in the Reply.
By way of example one may quote the passages contained on page 125, where it is stated that the
requisition « prevented Raytheon and Machlett from selling ELSI's assets and thus proceeding
( 23) The English text of the Draft Articles is in the Yearbook of the lnternational Law Commission, 1980, Il,
z, p. 30 et seq.
188 RASSEGNA DELL'AVVOCATURA DELLO STATO
with the orderly liquidation as planned », It is added immediately afterwards that, despite the
steps taken immediately by the two companies to have the requisition removed, « the Respondent
refused to quash the order and indeed told Raytheon that it would continue indefinitely >> (24
).
It must be objected that: (a) it was not the requisition, having only six months' validity, that
prevented the sale of the ELSI plant and the orderly liquidation of the company after 30 September
1968; (b) any impediment was due to the bankruptcy requested by ELSI, and it has yet to
be proved that the latter was to be a consequence of the requisition; (c) it is completely untrue
that the Prefect of Palermo refused to quash the requisition decree; indeed, its decision was to
quash it; (d) it was never intended that the requisition should continue indefinitely: this would
have implied a modification of the decree of the Mayor of Palermo fixing the term as 6 months
from I Aprii 1968, and such a modification was never made; (e) the declarations allegedly made
by the President of the Sicilian Region on 19-20 Aprii to the effect that the requisition would
continue after its norma! expiry were clearly made by a non-competent organ, as personal anticipation
unwarranted and not confirmed by facts. They cannot be attributed to the Italian
Government.
(~4) Reply, p. 125.
PART I
STATEMENT OF FACTS
I. Summary.
In addition to the remarks already made in the Counter-Memorial, the following observations,
concerning in particular:
(A) the requisition;
(B) the Prefect's decision;
(C) the occupation by the Work force;
(D) ELSI's situation and IRI's role, are now submitted to the Court.
2. (A) The Requisition. Italian practice concerning the requisition of plants.
The adoption by the Mayor of Palermo, acting as a government official, of a decree for
requisitioning the ELSI factòry, which was then overruled by the Prefect, is the only allegation
of fact made by the applicant Government. Ali the other allegatiòns made by the Applicant are
merely unproven assertiohs which may be rejected out of hand.
2.1. It was pointed out in the Counter-Memorial (l), and will be repeated here, that during
the period of time under consideration, the requisition of plants by mayors was a common occurrence
throughout Italy and was used mainly to protect the jobs and salaries of the employees of
companies threatened with closure, so that the companies' fìnancial difficulties would not have
a negative effect on employment. Moreover, the requisition of plants was ordered to eliminate
the negative effects on the local economy and on law and order deriving from a prolonged suspension
of production in the requisitiòned plant.
That this was a common practice among Itaiian mayors at the time during which also the
ELSI requisition was decreed, is shown not only by judiciai decisions concerning them, as mentioned
in the Counter-Memorial (l) and which will be again described in detaii in the following
pages, but aiso by the discussions by schoiars of the generai probiem of the mayors' power to
requisition industriai plants.
It is no coincidence that an essay by Professor Bigiiazzi Geri was published in 1969 which
concluded that mayors actually do have the power of requisitioning industriai piants under
Artide 42 (3) of the Constitution. In the essay, some preiiminary considerations concern the requisition
decree by the Mayor of Monsummano (issued on 6 February 1964) of a plant, the closing
down of which had led to the immediate dismissai of ali the workforce. As the author pointed
out, « this decree was, as is known, not unprecedented, since there are reported cases of similar
measures having been taken by mayors in similar situations » (4
).
(l) Counter-Memorial, p. 84.
(2) Counter-Memorial, p. 84.
( 3) Document N. 33·
( 4) Lina BIGLIAZZI GERI, Urgente necessità, requisizione d'azienda e potere del sindaco, in Democrazia e diritto,
1964, p. 93 et seq.
13
190 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Mayor of Palermo of the time, Dr. Bevilacqua, stated in his affidavit (G) that the requisition
decree of the ELSI plant was in accordance with the policy followed by mayors of many
Italian towns at that time in similar circumstances. He also explicitly mentioned the requisition
decree by the Mayor of Florence issued shortly earlier with regard to the «Nuovo Pignone»
company.
It may be useful to describe the most significant cases in order to show that the Mayor of
Palermo conformed to the practice followed by mayors in other parts of Italy, both before and
after the period in question.
One typical instance is the Marzotto case (6), which gave rise to a complex judicial litigation
originating from the requisition of a plant decreed by the Mayor of Pisa on 25 June 1968
in response to the fact that, in view of the serious crisis in the textile sector, activity had been
ceased pending structuring.
The underlying reasons for the Mayor's decree are clearly expressed in the decree itself.
At the beginning it is stated that the management of the company had ordered production
to be suspended indefinitely in one of its factories employing some 8so workmen and derical
staff. The measure was considered to be « socially unacceptable », to have caused a situation of
severe hardship for the Marzotto employees and their families, and to bave consequently strongly
jeopardized the economy of the town. In view of the fact that the Marzotto plant at Pisa, which
had been operating in the wool sector for severa! decades, employing well-trained specialist
personnel, was one of the cornerstones of the economy of the town and the area surrounding it,
the decree also pointed out that the suspension of activity would cause irreparable damage to
the township, as the difficult generai economie situation facing the town would not allow the
dismissed Marzotto employees to find employment elsewhere. Furthermore, the various contacts
with the management had not led to any positive results and it was not possibile to forecast when
the plant might open again. Thus, there was a serious state of public necessity, and urgent and
exceptional measures had to be taken in order to avoid the definitive dosure of the plant and to
preserve the plant and equipment so that production could start again promptly.
A requisition in similar circumstances was decreed by the Mayor of Piteglio on 22 J uly
1968 concerning the Lima paper milis owned by «Stabilimento toscano carta e affini», This
was taken in order to avert a situation which had much in common with the Marzotto case.
It is of great interest to read the grounds on which the requisition decree was issued, especially
in view of the emphasis placed by the Mayor on the principle of the « social function ''
of ownership (Articles 41, paragraph 2, 42, paragraph 2, of the Constitution) (1). He described
as « antisocial » the behaviour of the company, which he expressly defined as « socially unacceptable
», The said principle was also indeed to explain the requirement of << urgent need ». In this
particular case, this need was identified as the serious hardship and irreparable damage the owners'
attitude would cause to the employees concerned and consequently to the whole township.
The terms « public interest » or« public necessity » (in Artide 7 of the Law N. 2248 of r86s: (B)
« serious and urgent public necessity », or in Artide 834 of the Civil Code (9), with reference to
expropriation, «in the public interest ») were given the broad meaning of «generai interest »,
Therefore, this was not intended as referring to the interest of the State or of public agencies,
but also to that of a wider category of subjects, such as the employees and their families and, by
extension, the entire township.
Equally typical is the case of S.p.A. Torrington of Genoa, an associate of the international
Torrington group, which manufactured needles for the textile industry.
( 5) Affidavit of Dr. Bevilacqua, Document N. 2. That this was not an exceptional measure and that many
other such urgent measures were taken by Italian mayors in similar circumstances is also confirmed by Dr. Ravalli,
the Prefect of Palermo at the time of the events in question, in his Affidavit, Document N. 8.
(6) For an accurate reconstruction of the dispute, see L. BJGLIAZZI GERI, L'« affare Marzotto », in Riv. giur.
lav., 1968, I, p. 415 et seq. For the text of the Supreme Court decision see Counter-Memorial, Document N. 23.
(7) Document N. 3 3.
(B) Memorial, Annex 34·
(9) Document N. 16.
CONTROREPLICA DEL GOVERNO ITALIANO 191
The Torrington group carne to Italy in October 1958 when it purchased the Aghi Zebra
San Giorgio plant, which employed some 150 persons. The number of employees subsequently
increased four-fold as a result of increased production, which was remunerative for a time.
However, also as the result of deteriorating working conditions (strikes and absenteeism),
the economie situation took a turn for the worse in I973-I975· Considerable losses were incurred
and the company was wound up.
The trade union organizations decided to occupy the plant. On 6 November 1975 the
Mayor of Genoa requisitioned the same plant.
The Mayor's decree explicitly stated that the prolonged suspension of production and the
dismissal of the employees had had a serious effect on the economy of Genoa. Social tensions
had been sparked off which would inevitably grow and even lead to specific problems of law
and order.
While the Mayor's power to requisition plants was acknowledged on principle by the Consiglio
di Stato, the requisition decree was set aside for reasons relating to the special circumstances
of the case (1°).
2.2. Another case which aroused much interest was that of the Società Italiana Industria
Zuccheri (SIIZ) (11).
By means of a decree of 16 July 1974, the Mayor of Chieti requisitioned the SIIZ sugar
mill of Chieti Scalo for a period of ninety days. The management of the plant was entrusted to
the Abruzzo Development Agency for the purpose of carrying out and administering the I974
sugar beet campaign. It was the company which had intention not to carry out the sugar beet
campaign in the Chieti plant in 1974.
By means of the requisition, the Mayor intended to ward off the economie and social damage
which would befall the employees if the company ceased its operations.
The use of the SITE company may also be mentioned (12).
On 16 September 1974 the employees of the Padua branch, as a result of threats of dismissal
to reduce staff, occupied the plant, thus preventing the construction activities from being carried
on. On 29 September 1974, the Mayor of Padua ordered the requisition of the SITE plant.
A further case concerned the Soc. Manifattura dell'Adda, whose plant was requisitioned
by decree of the Mayor of Berbenno in Valtellina on 20 February 1975, in order to ensure the
continuity of its production, which was considered essential for the economy of the area.
The Manifattura's difficulties, together with those of the Fossati plant in Sondrio, contributed
to the serious economie and social crisis affecting the whole valley. Consequently, also
in Berbenno it was necessary to evaluate the possible effects on law and order that such a state
of uncertainty might have. While the administrative court upheld company's appeal against
the requisition, it nevertheless noted that the Mayor's concerns over a possibile worsening of
the situation and its possible repercussions on law and order were justified (13).
A further example is the case of the San Marco company, the plant of which was requisitioned
in 1975 for the purpose of ensuring, in the interests of local employment, the company's
future activity and, thereby, to safeguard law and order (14).
During the same year, by a decree issued on 2 February 1975, the Mayor of Sondrio provided
for the immediate requisition of the plant of S.p.A. Cotonificio Felice Fossati, in order to
ensure the continuity of the company's activity, considered essential both for the area's economy
and for the public interest (15).
(10) Decision N. 72 of Consiglio di Stato, dated 7 February 1978, in Counter-Memorial, Annex 29.
(11) For further details, see Decision N. 198 of TAR of Abruzzo, dated 30 Dee· 1974, reproduced in
Document N. 7.
(12) See also Counter-Memorial, p. 84.
(13) For the text of the full translation of the decisions of the administrative court. see Documents N. 9 and x o.
(14) Already cited in Counter-Memorial, p. 85.
(15) See Decision N. 2II of T.A.R. of Lombardy, dated 30 Juli 1975, Document N. 9; Decision N. 21 of
the Council of State, V Section, dated 18 Jan. 1977, in Counter-Memorial, Document N. 28.
192 RASSEGNA DELL'AVVOCATURA DELLO STATO
For· the same reasons, on I4 September I974, the Mayor of Brindisi requisitioned the plant
of Società Industriale del Mezzogiorno (SIDELM) (16).
At the end of I973, the management of SIDELM, acknowledged that considerable losses
had been made in previous financial years. Furthermore, it expected the situation to worsen
owing to unfavourable market conditions. The management therefore decided to wind up the
company.
The plant was then occupied by the work force.
The prolonged negotiations and continuing occupation worsened the discontent of the
work force and heightened trade union and social tension. The resulting situ3.tion led the Mayor
to issue a requisiti o n decree o n the basis of Artide 7 of La w N. 2248 of 20 March I 86 5,
Appendix E. The requisition was of six months duration; the management of the plant was
entrusted to the Progresso e Lavoro Cooperative of Brindisi.
As reported by the administrative court in the decision on SIDELM's appeal (17) the decree
stressed that, in view of public demonstrations and the spreading of inaccurate and alarming information
in the press, « the situation had become untenable and unbearable >>. I t also alluded
to possible reactions by the trade union organizations and the employees, who had expressed
their intention « to occupy the railway station very soon ».
In the well-known Eridania Zuccherifici Nazionali S.p.A. case (18) the requisitions
were made because the company intended to close down the plants, and consequently dismiss
the work force. It was considered urgent to reassure the population concerning the future
activity of the plants, which were an indispensable hub of economie life for the whole area
and the intention was to protect law and order which had been jeopardized by the state of
unrest reflected in all the productive and commerciai sectors.
l t may therefore be concluded that mayors had frequently resorted to the use of their power
to requisition industriai plants for reasons of law and order or also in view of social unrest.
The concept of « economie and social law and order » thus emerged. lndeed, the requisition
of plants for reasons of « law and order » was used as a means of protecting public security
in the economie and social sense.
The cases reviewed above show how the requisition decree issued by the Mayor of Palermo
in I968 was a measure that many ltalian mayors have taken under similar circumstances.
3· lnstances of requisition of plants in the United States.
However, the criticism expressed by the United States Government over the fact that, even
in such a difficult period for the ltalian economy, the authorities of this country could, as an
extreme remedy for particularly serious crises, have recourse to the temporary requisitioning of
plants appears even more surprising in view of the fact that in the United States such a practice
is anything but unknown.
« The relatively new technique of temporary taking by eminent domain is a most useful
administrative device: many properties, such as laundries, or coal mines, or railroads, may be
subjected to public operation only for a short time to meet war or emergency needs, and can then
be returned to their owners ( ... ) »: this statement was made by the United States Supreme Court
when, in I 95 I, it was called upon to decide on another case of temporary taking of a plant by the
public authorities in the difficult years of postwar reconstruction (19).
The case in point is of particular interest for the present dispute as i t concerned a coal mine
where production was virtually blocked due to a strike and which, as a consequence thereof,
the Federai Government had decided to requisition and to operate under its own responsibility
(16) Counter-Memorial, p. 85.
(17) Counter-Memorial, Document N. 25.
(18) Counter-Memorial, p. 85.
(19) Pewee Goal Company Inc. v. United States, 71 Supreme Court, p. 670 at p. 673.
CONTROREPLICA DEL GOVERNO ITALIANO 193
for six months in order to avoid total paralysis of coal-mining activities in the country (2°). Far
from considering the requisition as such to be unlawful, the Supreme Court merely addressed
the question of the compensation to be paid to the owner of the mine as a result of the requisition
by the Government. In this context, the Court attempted to rationalize the subject of requisition
or «temporary takings" in the light of its abundant case-law. As the Court stated, «[t]emporary
takings can assume various forms .... There may be a taking in which the owners are ousted
from operation, their business suspended, and the property devoted to new uses ( ... ). A second
kind of taking is where, as here, the· Government, for public safety or the protection of the public
welfare, « takes " the property in the sense of assuming the responsibility of its direction and
employment for national purposes, leaving the actual operations in the hands of its owners as
government officials appointed to conduct its affairs with the assets and equipment of the controlled
company. Examples are the operation of railroads, motor carriers, or coal mines ( ... ) "· (21)
Without making at this stage a detailed examination of the criteria used by United States
courts when determining the compensation to which the owner is entitled in the case of the temporary
taking of his plant by public authorities, it may be noted that it shows that only in a few
cases the principle of « just compensation " has led to the granting of compensation equal to the
« fair market value " of the property taken. In cases in which, because of the economie crisis
and/or strikes in progress prior to the intervention of public authorities, the value of the requisitioned
plant was reduced, the United States courts had no hesitation in allowing only compensation
smaller than « fair market value "·
What is here important is to show that the practice of requisitioning plants in cases of proven
urgency andfor need to safeguard the generai interests of the economy and social peace is a remedy
that has been used also by the United States Government. Furthermore, while in Italy
it is clear that the power of requisitioning of the public authorities only exists if and to the extent
that it is expressely recognized by law, in the United States it is uncertain whether the authorization
of the legislator is in any case required or whether the taking of private property for
public use by an officier of the United States is admissible « as an act of Government >> even in
the absence of an explicit or tacit authorization by an Act of Congress (22).
4· (B) The Prefect's decision.
As already clarified in the Counter-Memorial (2 3), contrary to the Applicant's assumption,
ELSI waited a good 19 days before making its appeal to the Prefect and more than one year
before urging the Prefect to take its decision. The Prefect, as shown by the Affidavit of Dr.
Ravalli (24
), had formed the reasonable conclusion from ELSI's behaviour that the company
had no strong interest in the result of the appeal.
This is confirmed by the fact that the company filed a petition for bankruptcy barely one
week after lodging the appeal with the Prefect. Thus, a favorable decision of the appeal would
not have had as the consequence the free management of the assets.
What the Applicant states on its Reply (See p. rso), namely that « if the requisition had
been rescinded, the bankruptcy could have been avoided by ELSI "• is totally inaccurate. I t was
ELSI's long-standing insolvency that led to its bankruptcy. Only if the state of insolvency
had been uprighted - an unlikely event within those few days - bankruptcy could have
been avoided.
(20) The same mine has been subjected to a total of 4 separate temporary takings by the Federai Government,
ranging in duration from three months to one year, although the reason was always the same, namely that « of ending
strikes and restoring the production of coal in the national interest » (cf. Pewee Goal Company, I ne. v. United
States, 161 F. Supp. 952, at p. 955).
(21 ) 71 Supreme Court, 670, at p. 673.
(22) For the negative case see Youngtown Sheet Tube Co. et al. v. Sawer, Secretary of Commerce and nine other
cases, 103 F. Supp. 569, at p. 573; the case involved a requisition order issued by the Secretary of Commerce following
an Executive Order by the President of the United States himself regarding the main steel factories in the country,
w hich had been hit by a wave of strikes called for an indefinite duration.
(23) Counter-Memorial, p. 87.
(24) Document N. 8.
194 RASSEGNA DELL'AVVOCATURA DELLO STATO
The truth is that the Prefect's decision:
(a) was irrelevant to ELSI's state of insolvency, and indeed the company filed for bankruptcy
without waiting for the decision on the appeal and without urging it; it was in any event
irrelevant after the expiry of the sixth month, in view of the temporary nature of the requisition;
(b) was rendered within the period of time representing the average of this type of appeal
(25);
(c) was taken as soon as ELSI (or the receiver acting on its behalf) urged the decision,
after 14 months.
Therefore to argue, as the Applicant does in its Memoria!, (see pp. 21-22) and in its
Reply (see pp. 125-126 and p. 132), that the decision was rendered by the Prefect only after
EL TEL had acquired the company assets amounts to captiously exploiting a chance time
sequence to obtain a facile effect.
It must Iikewise be stressed that the complete reading of the Prefect's decision, instead of
a quotation of fragments out of context (as the Applicant does in the Reply see p. 38), leads
to the appreciation that the Prefect acknowledged that the Mayor was entitled to exert the powers
of requisition in accordance with the laws referred to, although he actually quashed the order
because in actual fact it was not possible to achieve the intended result, i.e. the reopening of
the plant.
5· (C) The occupation by the work force.
The Applicant's assertions over the occupation of the plant are incorrect. The work force
occupied the plant more than two weeks before the requisition, as is shown by a judicial decision
and press reports (26
) and not afterwards, as the Applicant would have it (27).
6. (D) ELSI's situation and IRI's role: the Applicant's contentions.
According to the United States Government, the Italian Government and IRI first boycotted
the attempt to proceed with the « orderly liquidation » of ELSI, and then interferred with the
bankruptcy proceeding so as to allow IRI to acquire the plant through one of its subsidiaries at
a price lower than its fair market value.
This argument is based on the following three assumptions, which form the heart of the
Applicant's presentation (28):
- ELSI was a going concern, in good, although not perfect, financial health at the time of
the events in question;
- the ELSI industriai complex was competitive and thus attractive to the market in that
i t was capable of the « manufacture of high quality and highly sophisticated electronics »;
- finally, IRI or one of its subsidiaries, is alleged to have « boycotted » the first three auction
sales in order to decrease the market value of the plant which was subsequently purchased by
ELTEL.
Ali three of the above contentions are totally gratuitous in that the United States Government
does not produce a shred of evidence in support of them. Furthermore, they are not true.
This objection, already expressed in the Counter-Memorial of the Italian Government (29),
(25) Counter-Memorial, p. 88.
( 26) Cf. the decision of the Court of Palermo, in Memoria!, Annex So, in particular at p. 8, and the artide
appeared in L'ORA, ro March 1968, Document N. 30.
(
27
) Memoria!, pp. 53-54· Reply, p. 133, note 39· The distinction between actual and occasionai sit-ins, which
was suggested by the Applicant, lacks of any supporting evidence. The truth is that, the occupation having taking
piace in March, there was no reaction on the part of ELSI, which obviously had lega! interest in the matter.
(28) Reply, pp. 127, et seq.
CONTROREPLICA DEL GOVERNO ITALIANO 195
was not cballenged in tbe Reply, as tbe passive repetition of the originai arguments wbicb bave
been proved unfounded cannot be taken as a cballenge. Consequently, tbe Italian Government
can justifìably claim tbat tbe basic premises of tbe application are not founded on evidence presented
in eitber tbe United States pleadings, but is merely conclusory, assertive, and argumentative.
7. ELSI' s economie and financial situation.
ELSI's crisis, wbicb was stabilized wben tbe events in question occurred, is evident from
tbe very statements made in tbe Memoria! and Reply of tbe Applicant Government, namely
tbat:
(a) ELSI's debts, according to tbe Memoria!, p. II, amounted to Lire I6.66 billion;
(b) its assets, wbicb bad a book value of Lire I7.05 billion, could not, as even Raytheon
admits (Memoria!, p. II), be assigned a quick-sale value of more tban Lire I0.84 billion;
(c) tbere was consequently a negative balance of about six billion lire, and since Raytbeon
itself admitted tbat ELSI was unable to meet its obligations, it must be assumed tbat tbe part
tbat could not be met amounted to at least six billion Lire.
Nor can it be argued tbat tbe above-mentioned negative balance was due solely to tbe
probable lower price obtained on tbe market in tbe course of a quick-sale. Indeed, ELSI's state
of insolvency would certainly bave been known to a conscientious management since it bad been
in existence sin ce late I 967. Three points are of interest in this regard :
(i) In I967 ELSI incurred a loss of more tban Lire 2,ooo million (after losing Lire 326
million in I962, I,228 million in I963, 284 million in I964 and 36I million in I965) (30) and was
obliged to proceed to reduce and tben increase its capitai. Despite this, in I967, ELSI again
lost more tban one tbird of its capitai, tbus revealing beyond any doubt tbat it was incapable of
producing event tbe minimum amount of income it needed to survive on tbe market. Tbe
disastrous trend tbat now begins to be outlined is certainly not compatible witb the image of a
« going concern » and solvent enterprise suggested by tbe applicant Government. Furtbermore,
this was formally recognized by Raytbeon management (31);
(ii) The ELSI fìnancial reports leave ampie space for doubt. Dr. Giuseppe Mercadante,
w bo analysed tbem on bebalf of tbe Bankruptcy Court, noted, among otber tbings: the need for
writing down stock for an amount « oscillating between Lire I ,soo,ooo,ooo and Lire 2,ooo,ooo,ooo
(3 2
) tbe inclusion of non-existent assets in tbe balance sbeet (for instance, an entry of
Lire 246,296,774 against a certain Neg Alfred Anateckmer of Quickborn (W est Germany), wben
the goods forwarded to this client bad already been returned by tbe latter and were stili beld in
customs (33
) ; and again direct << accommodation bills discounted witb tbe banks » for an amount
of Lire. I,2oo,ooo,ooo. (34) Consequently, ELSI's true losses for I967 alone, wbicb are obtained by
adding to the amo un t entered un der tbis beading in tbe official balance sheet (Lire 2,68 I ,3oo,ooo)
tbe decreases in value due to tbe above mentioned items, actually wiped out tbe company's sbare
capitai, even tbougb tbe latter bad only recently been increased; ali tbis in a company whicb,
in order to acbieve liquidity, bad been obliged to discount « accommodation bills », i.e. bills tbat
do no t relate to any commerciai transaction;
(29) Counter-Memorial, pp. 77, et seq.
(30) Counter-Memorial, p. 77·
( 31) See Project for the Financing and Reorganization of the Company « I967 Report *• prepared by
Raytheon-Elsi S.p.A., Memoria!, Annex 22.
(3 2) See the Technicai-Accountancy Advice on Raytheon-Elsi S.p.A., Counter-Memorial, Document N,
36, at pp. 2I-22 of the new translation presented by the Italian Government.
( 33) Ibidem, p. 23.
( 34) Ibidem, p. 3 x.
196 RASSEGNA DELL'AVVOCATURA DELLO <STATO
(iii) As indicated in the Affidavit of Mr Joseph A. Scopelliti (3~), already in early 1968
Raytheon had to transfer Lire 150 million to the First National City Bank of Milan to cover the
demands of an ELSI creditor who would not be fended off with vague promises of future payment.
ELSI was therefore unable to meet even the smallest of its commitments with its own
resources, thus revealing that its insolvency was not only economie but also financial.
The concept of " orderly liquidation » sounds quite odd against such a background. This
even more so, as also the concept of "going concern » mentioned by the United States Government
displays some very peculiar features. The production Iines were closed and, in early 1968,
the only activity of ELSI was to complete a number of unfinished products. Moreover, on 2
March 1968 the workers actually began an occupation of the plant and the management deemed
it prudent to remove ali the accounting files from the head office and take them to a small office
in Milan. Thus, the overall picture was as follows: the company had a chronic deficit; its production
Iines were shut down; its work force was occupying the plant; its management had practically
disappeared.
8. The responsibility jor ELSI's crisis.
The economie and financial disaster described above may be attributed direcly to erroneous
company management and misguided speculation by Raytheon. It is important to state it, because
the Applicant wrongly contends that" Raytheon and Machlett did nothing to create ELSI's
financial problems ».
Suffice it to recall a few financial figures :
(a) Dr. Mercadante, in bis 1968 Report to the bankruptcy Court, points out that, in the
ELSI financial reports of the previous three years, the royalties paid to Raytheon, the costs of
Raytheon technical assistance and Raytheon technical consultants' costs appeared to be blown
<up out of ali proportion both in absolute terms and compared with the cost of surveys and experiments
also paid for by the company. Dr. Mercadante's report states that it is not clear
" why the company spent so much on studies, research an d development (not counting amongst
others the high cost for technical consultants) while paying royalties to its holding company
which should have permitted a well-organized production adopting the production Iines Iaid
down by the same », while " there are indications that the company, after a number of years' production,
had not yet defined its production lines >> and « that the main losses resulted in the SCD
sector (electronic equipment), revealing it to be a complete failure and on which huge amounts
of money had been spent » (36);
(b) ELSI debts amounted to an average of Lire 12 billion, on which it had to pay a huge
amount of interest. In the previous three fiscal years (37), ELSI on average paid interest of Lire
8oo million per year (lire of the time), excluding the interest paid on medium-term loans. Taking
into account the much smaller amount of equity invested by Raytheon, this means that ELSI
was undercapitalized from the start and therefore doomed to go bankrupt unless it could obtain
a resounding commerciai and industriai success (38).
Dr. Mercadante pointed out that, if ELSI management had had « greater technical rectitude
» it would not bave allowed the " large costs » on surveys and research, etc. in view of the
<< fact that the overall aim of the company has not been achieved after so many years of activity
» (39), and that these expenses were "not justifiable » (40).
(3~) Memoria!, Annex N. 17, p. 8.
(36) See the Tecnichal-Accountancy Advice by Dr. Mercadante, (supra, nota 32), at p. 35·
(37) Ibidem p. 19.
( 38) Affidavit of Ing. Busacca, Counter-Memorial, p. 78 and Document N. 44·
(39) Mercadante Report, p. 3 x.
(40) Mercadante Report, p. 17.
CONTROREPLICA DEL GOVERNO ITALIANO 197
One may add that obsolete equipment had been acquired by ELSI (e.g. the semiconductor
production line, which proved to be the most ruinous) (41).
Some reasonably criticai analysis of the matter is quite sufficient to dose the argument of
ELSI's «high quality » and « highly sophisticated » electronics (which, anyway, found no market)
and to show that Raytheon and Machlett had more than some responsability in creating
financial problems for ELSI.
9· The obligation to file a petition for bankruptcy.
In its Reply, the Applicant Government stresses the fact that ELSI management was under
no obligation simply to file for bankruptcy. To this effect it cites the opinion of Professor Franco
Bonelli (42). Yet, the contention is groundless. In 1967, Raytheon's officiallosses amounted to
Lire 2,681.30 million. Accordirlg to Dr. Mercadante, afurther sum of Lire I,200-I,soo million
must be added for over-evaluation of stock and at least 3-400 million for non-existent credits.
The situation must have been worse {43) since it would otherwise be impossibile to explain the
large gap of six billion lire between book value of ELSI's assets and the value acknowledged by
Raytheon itself in the case of a quick-sale. This leads to the foliowing conclusions: (a) ELSI's
capitai (amounting to 4,ooo million) was complete~y lost; (b) the failure to cali a meeting to immediately
restore share capitai to the minimum level required by law or, alternatively, to wind
up the company, actually represents an offence committed by the management (see Articles 2447
and 2621 of the Civil Code (44); (c) the management was liable for prosecution for simple bankruptcy
(see Artide 2I7, N. 3 and 4 of the Bankruptcy Law (45) since, notwithstanding the
company's insolvency, no petition for bankruptcy was filed; and (d) the offence of misuse of
credit (Articles 2I8 of the Bankruptcy Law), insofar as the management, by concealing the
company's financial difficulties, continued to live off loans, including the ISO million received
from Raytheon in early 1968 to pay off a recalcitrant creditor. Thus, it is clearly established that
not having increased ELSI's capitai, and having come to know that the shareholders had no
intention of doing so, ELSI's management should have filed for bankruptcy (46).
Under these circumstances, the hypothetical « orderly liquidation », envisaged by the Applicant
Government, could certairily not take piace. In fact, things were quite different. After
acknowledging that it was unable to pay its debts, as is clear from the fact that it was intended
to satisfy unsecured creditors claims to the extent on only so%, ELSI was now trying to avoid
bankruptcy in the hope that the creditors would accept large cuts. At the same time, contrary
to the Applicant's contention, Raytheon never showed willingness to provide ELSI with sufficient
liquidity to proceed with an orderly liquidation.
After ali, an orderly liquidation, and not only in the Italian legai system, requires the IOO %
satisfaction of creditors, while Raytheon and ELSI suggested so o/o.
In fact, the Applicant appears to consider the hypothetical « orderly liquidation » as a remedy
which would be available also to an insolvent debtor, while under Italian law an insolvent
debtor is from the outset under an obligation to file for bankruptcy, and therefore cannot maintain
possession of its assets, manage them, and freely liquidate them.
Therefore, to speak of « orderly liquidation » as the natura! way of winding up ELSI, and
to criticize the failure to allow Raytheon to do so, is also the result of a distorted view of the applicable
law to the case in point.
In this connection it is not inappropriate to recall that in I January, I968 President Johnson
promulgated an executive order establishing a mandatory program restraining USdirect in-
(41) Affidavit of Ing. Busacca, Counter-Memorial, Document N. 44, and Affidavit of Ing. Ravalico
Document N. 14.
(42) Reply, Annex 1.
(43) See, for instance, on the state of the art, the remarks of Ing. Ravalico, Document No. 14.
(44) Document N. 16.
(46) Counter-Memorial, Document N. 21.
(46) For these considerations and for the obbligation of ELSI's management to file for bankruptcy, see the
Opinion of Professar Pier Giusto Jaeger, Document N. 32.
198 RASSEGNA DELL'AVVOCATURA DELLO STATO
vestment abroad (47). Although not mentioned in the US pleadings, this program had a broad
and important negative effect on the ability of US businesses such as Raytheon to lend or invest
additional funds and working capitai to their foreign subsidiaries, or to perform guarantees
of indebtedness of such subsidiaries. (48)
The effect of the Regulations was particularly harsh on parents of subsidiaries such as ELSI,
operating in Western Europe (49).
The effect of the Regulations was to force US parent corporations to o:ffset their « direct
investments » in their subsidiaries by making « long-term foreign borrowings » in the Eurodollar
market (50). However, in addition to the increased expense of any such borrowing, under the
Regulations, a repayment would eventually be « charged against » the permissible activity of the
US parent in future years; in 1968 there was no way of knowing when and how this unprecendented
and severe program would be dismantled (51
).
Most importantly, for a new guarantee of indebtedness of a foreign subsidiary to be authorized,
there were requirements for certification that the parent company « has no reason to believe,
under existing circumstances, that the affiliateci foreign national will be unable to pay or otherwise
satisfy such indebtedness without resort to performance under the guarantee >>(52
). No such
certification could have truthfully been made as to ELSI. Concerning payments of preexising
guarantees, the US parent would have had to « determine ... in good faith that (its foreign subsidiary)
... has not sufficient funds available to it to pay such indebtedness » (53).
The difficulties perceived by Raytheon in handling its overseas business in view of these
regulations were mentioned neither in the Memoria! nor in the Reply, although doubtless they
were a contributing (and governmental) cause of Raytheon's announced intent to terminate
ELSI's operations in 1968 (54).
xo. The claims brought by Italian banks against the sole shareholder of ELSI.
Perhaps the stubborness with which the Applicant Government claims that ELSI was entitled
to proceed with an orderly liquidation and that the bankruptcy petition became necessary
only as a result of the requisition decree and the consequent loss of free access to its plant, may
find its reason in the fact that, perhaps unconsciously, it tends to argue in terms of the bankruptcy
law of the United States. In fact, there are severa! basic differences between United States
law and Italian law which will be clarified here in order to avoid further use of concepts which,
in spite of their identica! nature, have completely different meanings when referred to one legai
system rather than to the other.
(47) See << Message to the Nation on the Balance of Payments • and Executive Order N. II387, reproduced as
Annexes (I) and (2) of Federa! Reserve Bank of New York Circular N. 6090 of January 4, I968. Document N. 25.
( 48) See Regulations of the Secretary of Commerce, dated January I, I968 (cfr. Title I5, Ch. X, Part Iooo),
reproduced as Annex (3) of Federai Reserve Bank Circular N. 6090, and in praticular Sec. I000.3I2 (a) and (e) of
the Regulations. Document N. 25.
(49) Ibidem, Regulations Sec. I000.3I9 (c).
(50) Ibidem, Regulations Sec. Iooo.504 (b).
(Vl) See for example speech delivered by the Vice President, Tax-Legal, of the National Foreign T rade Council
on October 9, I968, at pages 3-5. Document N. 26.
(52) See Generai Authorization N. I of January 22, I968, Sec. 2 (a) (I), contained in Federai Reserve Bank of
New York Circular N. 6102 of January 25, 1968. Document N. 27.
(53) Ibidem, Sec. 2 (a) (2).
( 54) In materia! filed with the United States Securities and Exchange Commission for the Fiscal Y ear ended
December 3I, 1968 (form 10-K Annua! Report Pursuant to Section 13 or 15 (d) of the Securities exchange Act
of 1934, enclosing the Prospects of Raytheon Company dated Aprii 15, 1968, (see Document N. 24), Raytheon said
in respect of ELS I an d its other foreign subsidiaries and affiliates that << The planned operations of these foreign
companies are dependent, to an unpredictable degree, upon United States government regulations on foreign investments
... >> (page 8 of Prospectus; page 30 of Filing); and in item (e) of Part I of its 10-K filed for the fiscal year
ended December 3I, 1971 (see Document No. 23) at page 12, Raytheon wrote that « Continuation of the United
States Foreign Direct Investment Regulation which became effective in 1968 might restrict the Company's ability
to develop its international operations >>, showing that the problem with these Regulations persisted for severa! years
after 1968.
CONTROREPLICA DEL GOVERNO ITALIANO 199
Unlike Italian bankruptcy law and that of the majority of other continental systems, ali
of which are notoriously « creditor oriented », the main characteristic of United States bankruptcy
law has always been that of being « debtor oriented », In other words, in Italy, and in continental
Europe in generai, bankruptcy is mainly considered as a sanction which befalls the insolvent
debtor in order to safeguard the prevailing interest of the creditors in a prompt and equitable
satisfaction from the proceeds of the sale of the debtor assets. On the contrary, in the United
States bankruptcy is rather a means placed at the debtor's disposal, to discharge his previous
debts and resume his activity on a fresh footing (<< fresh start doctrine ») irrespectively of its insolvency
(55). Thus a bankruptcy petition may be filed also by a solvent debtor (<< Voluntary
Cases »: Section 301 Bankruptcy Act), whereas in case of insolvency, the creditors may file a
bankruptcy petition against the debtor (<< Involuntary Case ": Section 303 Bankruptcy Act), but
there is no obligation for the debtor to file a petition himself. Furthermore, even an insolvent
debtor may choose between a bankruptcy petition under Chapter 7 of the Bankruptcy Act (<< Liquidation
") and a petition for reorganization under Chapter II of the same Act (<< Reorganization
»). In the first case, a trustee is appointed, who proceeds to liquidate the debtor's property
and consequently distribute the proceeds among the creditors. In the second case the debtor,
who normally retains his assets and continues to operate his business, prepares a <<~plan of rehabilitation
>> containing a complete list of creditors divided up into classes, indicating those who
will su:ffer impairment of their rights and those w ho will not, and how the payments will be made.
The pian will be binding for all concerned if it obtains the approvai of the majority of members
of each class of creditors or, failing this, if it is considered << fair and equitable >>by the competent
bankruptcy court.
What are the inferences that can be drawn from this with regard to the present case ?
First of all, there is no doubt that, at least as from March 1968, ELSI was to be considered
as << insolvent >> even under the United States bankruptcy law. Indeed, Section 19 of the Bankruptcy
Act prior to the 1 979 reform reads as follows: << A perso n shall be deemed insolvent within
the provisions of this Act whenever the aggregate of his property ... shall not at a fair valuation
be sufficient in amount to pay his debts "· ELSI had acknowledged its inability to pay the larger
creditors more than so % from the proceeds of the sale of its assets. Yet, the company would
have been << insolvent" also under the new criterion introduced with the 1979 reform (Section
303 (h): << ... the debtor is generally not paying such debtor's debts as such debts become due ... >>).
In fact, at the beginning of March, ELSI was going to face a complete lack of cash, as was confirmed
by the company management itself, and specifically by John D. Clare, who, at a meeting
with the President of the 'Sicilian Region on 20 February 1968 openly announced that <<(a) Feb.
23- Board Meeting; (b) Feb. 26-29- lnevitable bank crisis; (c) March 8 -W e run out of
money and shut the plant >>. (56)
Under United States law, ELSI would however not have been obliged to file a petition of
bankruptcy, notwithstanding its insolvency. The company would also have been free to choose
between a (voluntary) bankruptcy petition under Chapter 7 and a (voluntary) petition for reorganization
under Chapter I r. In the first case its assets would have been liquidated immediately,
(55) • One of the primary purposes of the Bankruptcy Act is to relieve the honest debtor from the weight of
oppressive indebtedness and perrnit him to start afresh ... »: Local Loan Co. v. Hunt, 2.92. U.S. 2.34, at p. 2.44· On
this point, see, also for further references to case-law, K!NG-CooK, Creditors' Rights- Debtors' Protection and Bankruptcy,
Matthew Bender, 1985, p. 777 et seq.; EPSTEIN, Debtor-Creditor Law, 3rd ed., W est Publishing Co., 1985
p. 138 et seq.; COLLIER BANKRUPTCY MANUAL, Matthew Bender, 1961, p. 176 et seq.
(56) Cfr. Document N. 19, containing the origina! handwritten minutes of the meeting. The Counter-Memorial
quoted the passage in the minutes of a meeting held on 2.0 February 1968, in which the President of ELSI,
John D. Clare, was reported as having drawn <<a percise time chart showing (a) Feb. 2.3- Board Meeting; (b) Feb.
2.6-29- Inevitable bank crisis; (c) March 8- W e run out of money and shut the plant » (Counter-Memorial, p. 81).
By a letter of 13 January 1988 addressed to the Court's Registrar the applicant Government supplied a photocoy
of the manuscript version of the same minutes along with an attempt to justify why a different text had been annexed
to the Memoria!. The Italian Government prefers to refrain from making any comment on this explanation,
but wishes to point out that the photocopy of the manuscript version fully confirms the accuracy of the quoted
passage. The President of ELSI really drew his • precise time chart » over a month before the requisition decree.
lf this fact was suppressed in a later version of the minutes, the only conceivable reason is that whoever altered the
text of the minutes thought that it could be embarrassing for Raytheon.
200 RASSEGNA DELL'AVVOCATURA DELLO STATO
while in the second case ELSI would have been able to continue its activity, in the hope of convincing
its creditors or, failing to get their approvai, to have the judge impose on them the « plan
of rehabilitation » providing for the so % payment of credits or even less. All this of course is
only theoretical because, in practice, it is anything but certain first of all that United States banks,
placed in the same situation of the Italian banks vis-à-vis ELSI, would have waited patiently
as long as the latter did, instead of filing an involuntary bankruptcy petition as they were entitled
to do. Moreover, in a reorganization procedure, the confirmation of an advantageous plan of
rehabilitation to a large extent depends on the actual capacity for recovery of the insolvent company
and ELSI could hardly be said to meet that requirement .... Be it as it may, it should not
be forgotten that ELSI was a company incorporated under Italian law and as such was subject
to the bankruptcy law of Italy and not that of the United States.
I I. More. The «lifting of the corporate veil » doctrine in Italian and United States law.
Again with regard to possible misunderstandings that could arise over the present case as
a result of actual or supposed differences between Italian law and United States law, the Respondent
Government wishes to point out that the action brought by the Italian banks against
Raytheon and Machlett, as the sole shareholders of ELSI, in order to recover the credits claimed
from the latter, can in no way be considered as discriminatory, or worse, as the product of the
umpteenth plot carried out against the two United States companies.
It has already been emphasized that judicial action of this kind is normal practice in !taly
in view of the widespread acceptance in legal theory and practice of applying the principle of
the sole shareholder's liability for the company's obligations, as established in Artide 2362 of
the Civil Code, also in the case in which a negligible number of shares are attributed to another
partner who is a pure figurehead (67).
But since in its Reply the Applicant Government continues to include among the damages
to be paid by the Italian Government also the legal costs incurred by Raytheon and Machlett
in the suits in question (68), it is worth here, in addition to recalling the remedies concerning the
situation under ltalian law, to note that the result would be exactly the same if the case was considered
under United States law.
In fact, also in the United States, the problem exists as to whether and to what extent shareholders
are liable for the obligations of their corporation. The conditions required « to disregard
the corporate entity » or « to pierce the corporate veil », in a given case are stili controversia!;
however, all authorities agree that, in some circumstances and in some particular cases, the corporation
may be disregarded as an intermediate between the ultimate person or persons or corporation
and the adverse party ( ... ) (69).
Generally speaking, the common significant factors which would have justified disregarding
a corporate entity have been under-capitalization, failure to observe formalities, non payment of
dividends, siphoning off of corporate funds by dominant shareholders, the insolvency of the
debtor corporation at the time, non functioning of other officers or directors, missing corporate
records, use of the corporation as a front for the operations of the dominant shareholder (60).
The conclusion to disregard the corporate entity may not, however, rest on a single factor but
often involves a consideration of a number of the above-mentioned factors; in addition the particular
function must generally present an element of injustice or fundamental unfairness. Thus,
to mention only those factors which are of particular interest in thé present case, the courts are
in generai more willing to « pierce the corporate veil » when the defendant is a corporation rather
than an individuai, and are particularly likely to find the parent business entity liable if, for in-
(67) Counter-Memorial, p. 93·
(68) Reply, pp. 156-157·
(59) FLETCHER CYCLOPEDIA CORPORATIONS (1983), l, p. 388 et seq. (with further references to both case-law
and scholarly writing).
( 60) FLETCHER CYCLOPEDIA CORPORATIONS, cit., p. 428 ,et seq. (with further references); HAMILTON, The
Law of Corporations, 2 ed., West Publishing Company 1987, p. 8x et seq.
CONTROREPLICA DEL GOVERNO ITALIANO 201
stance, the subsidiary and the parent are running parts of the same business, and the subsidiary
is under-capitalized, and/or if the subsidiary has eventually been forced into bankruptcy (61).
This being so, it seems clear that on this issue there are striking similarities between Italian
law and the law of the United States or, more precisely, the law applied within each of the individuai
states of the Union. On both sides of the Atlantic Ocean there is no hard and fast rule
as to the conditions under which the corpora te entity may be disregarded; at the same time,
according to both the Italian and the United States laws, as a generai rule, the « corporate veil »
may be « pierced », and the liability of the shareholder(s) for the obligations of the corporation be
aftirmed, whenever the corporate fiction is being used by the corporation itself to defeat public
convenience, justify wrong clone either to third parties dealing with the corporation or internally
between shareholders, or to perpetrate fraud or other reprehensible conduct.
This is no t the piace to express an opinion on whether or no t the I talian courts w ere right
when, although asked to do so by a number of banks having suffered substantial loss because of
ELSI's insolvency, they repeatedly refused to « pierce the corporate veil » of that corporation
and to allow the banks to recover their credits directly from its two shareholders. More than
one distinguished scholar, when commenting on the decisions rendered, has argued that on that
occasion the courts may not have taken into sufficient account the fact that ELSI was a typical
example of a wholly owned subsidiary- Raytheon owned 99.15 % of the shares while Machlett,
who held the remaining o.85 %, wàs just another wholly owned subsidiary of Raytheon- which
long before it went bankrupt was kept in a condition of clear under-capitalization by its parent
company (62). In the light of the foregoing remarks, however, it should be clear at least that
there was absolutely nothing unusual in the fact that the Italian banks tried to recover from Raytheon
and Machlett what they had been unable to get from ELSI. Any competent lawyer in either
ltaly or the United States would have urged the banks to do so, and it may well be that in the
United States the banks would have been more successful than they actually were before the
Italian courts.
12. The quality of ELSI's plant and production.
The considerations made so far concerning ELSI's insolvency already contradict the contention
that the company purchased by EL TEL was an industriai jewel, to gain possession of
which a sort of plot was hatched. Indeed it does seem strange that such a highly productive
company should have such a negative economie performance and that its promoters should
make the decisions they did (i.e. Raytheon decided not to invest further money in ELSI, while
ELSI dismissed the entire work force).
In fact, the following has to be saicl:
(a) ELSI's production was of a low quality. The expert of the bankruptcy court, Dr.
Mercadante, expressly mentioned in his Technical-Accountancy Advice goods being returned
by customers and defective products left in customs, etc. (63).
(b) An unhappy site had been chosen for the plant, with some of the sections actually
situated at different levels (64).
(c) The way the plant was structured was completely negative, because it was badly built
and there was no adequate planning (65).
(61) FLETCHER CYCLOPEDIA CORPORATIONS, cit., p. 455 et seq. and p. 472 et seq. (with further references);
HAM1LTON, The Law of Corporations, cit., p. 91 et seq.
(62) See, among others, PELLIZZI, Unico azionista e controllo totalitario indiretto, in Giurisprudenza commerciale
I98I, II, p. 6IS et seq.; S. ScoTTI CAMUZZI, Unico azionista, gruppi,« lettres de patronage >), Milan, I979, pp. 30
et seq.
(63) Technical-Accountancy Advise on Raytheon-Elsi S.p.A., Counter-Memorial, Document N. 36.
(64) Affidavit of Ing. Cavalli, Document N. I and the Remarks of Dr. Alessandro Alberigi Quaranta, in
Document. 20.
(65) Affidavits of Ing. Cavalli, Document N. I, of Ing. Ravalico, Document N. I4, and the Affidavit of Ing.
Cammarata, Document N. I 3.
202 RASSEGNA DELL'AVVOCATURA DELLO STATO
(d) The production lines were lacking in concrete functionality. The products had no
market attraction and the semiconductor production has turned out to be a failure. Only a small
proportion of the television components which were produced could be absorbed by the television
set market. Other devices for television were now obsolete as they applied to blackand-
white TV, while colour was becoming increasingly popular in Italy. This is proved by the
fact that when EL TEL purchased the company, in 1969, it changed its entire production (66).
It is probably worth reporting fully what was declared by Ing. Busacca, who was working
for ELSI at the time and was in charge of microwave tube design, and by Mr. Ravalico, the
manager of EL TEL. The words of those having actually experienced the events are self explanatory.
According to Ing. Busacca:
'' ( ... ) As at 29.3.I968 Raytheon-Elsi had five production lines:
I. Semi-conductors
2. X-ray tubes
3· Black-and-white cathode ray tubes
4· Telephone surge arresters
S. Microwave tu bes.
The company's technical and economie situation can be described as follows:
- Semi-conductor line: the machinery was unserviceable and idle because i t had been designed
for germanium technology, which had been obsolescent for many years; an attempt was
in progress to produce silicon diodes which, although technically valid, had no significant market.
- X-ray tube line: the machinery was very old and the manufacturing processing was carried
out at great risk to the operators. The product was quite good but there was no scope for
the research required to develop it, for improvement to the plant or for winning a share of the
market away from the large electromedical apparatus constructors, who had their own production
lines.
- The black-and-white cathode-ray tube line involved the majority of the active work
force in operations, and ought to have been automated but it was not because black-and-white
consumption was heading for certain decline. The processes were rather uncertain although the
quality often happened to be good.
- The telephone surge arrester line was based on the exploitation of a patent and utilized
makeshift equipment and involved high risks, since Cobalt 6o radioactive materia! was included
in the products during processing.
- The microwave tube line was based on the nÌarket represented by the HA WK missile
system and a small research activity had been started up.
- On the whole, the plant was to be considered uneconomical: The plant engineering and
available technologies were generally obsolete. The machinery was intensively exploited, old
and hard to manage. The work force was comparatively unskilled. A negligible impulse had
been given to independent research and there was no available pian to renew the production lines
(even by means of licensing) ( ... )" (67).
According to Rag. Ravalico, on the other hand:
« ( ••• ) IRI cc interested" SIT-Siemens in proceeding with the acquisition of the bankrupt
company, ELSI.
The term cc interested" is actually inexact, because no one was cc interested" in ELSI because
of its well-known technical obsolescence and commerciai incompetence. But to prevent trade
union unrest- the year was 1968 - and sit-ins in via Veneto in front of IRI head office, it
(66) See again Affidavits of Ing. Busacca, Counter-Memorial, (Document N. 44), of Ing. Ravalico, (Document
N. 14), and of Ing. Cammarata, (Document N. 13).
(67) For the whole text of the Affidavit, see Counter-Memorial, Document N. 44·
CONTROREPLICA DEL GOVERNO ITALIANO 203
was necessary to « take an interest in the business», mainly for reasons of law and order. I per·
sonally directed the take-over operations in my ( ... ) official capacity.
After obtaining possession of the ELSI company, initially as lessees, we found the following
situation:
I. The generai facilities . were inadequate, dilapidated an d badly designed from the yery
beginning. The company had not grown according to an organic economie development plant.
l t had developed on a day-to-day basis. One of the consequences of this was that the production
facilities had been sited haphazardly, in temporary structures etc. As a result, most of the generai
facilities - after we had taken possession of them - were only scrap metal, and were sold off
as such, because they · necessarily had to be replaced by viable generai facilities.
2. The production lines were ali old, broken down and obsolete. The semi-conductor line
(the most bankrupt), the x.:..ray tube line, the microwave oven line etc., which had been of inefficient
production capacity ab origine, were ali written off at once as scrap. It was not that they
were obsolescent as a result of having been shut down pending the bankruptcy proceedings.
They were obsolescent due to prior industriai and technical reasons. An attempt was made to
salvage the TV cathode ray tubes line, and the line producing microwave tubes for military use.
The first was a failure, and the sècond was successful thanks to considerable intervention.
The cathode (picture) tube line was organized using absolutely outdated technology, and it
manufactured products that were completely useless on the market. These were black-and-white
23" picture tubes that were totally unsaleable on the Italian market in those years. And they
were made using glass from Russia, with absolutely prohibitive transportation costs to Palermo,
as one can well imagine. Since the technology then being used was no longer sound, an attempt
was made to negotiate to be able to continue using RCA technology. But even this attempt proved
negative.
It was not enough to change the technology: it was necessary to start ex novo, with huge
new investments to cater for the demand of a market that was now moving towards colour TV.
ELSI's commerciai network was almost non-existent, and it had a bad commerciai image.
The microwave tube line was continued, because the prospects existed for the products
to be absorbed on the market, providing work fora few dozen members ofthe company's x,ooo·
plus work force.
But it became necessar.y to renegotiate the assistance contracts with Raytheon, in order to
be able to obtain the technical information and updates needed, in view of Raytheon's extremely,
and quite unjustifiably, high royalties. Mter a short time, it became clear that this attemp could
not proceed further, and it became necessary to think about starting up work on completely new
products that would enable the company to retrain severa! hundred workers for new jobs.
3· The stocks were not able to cover even the cost of managing them. The stores were
full of unsaleabie picture tubes, above ali, and old, wholly unusable materials that were for the
production lines that were going to sold off as scrap.
4· Through EL TEL S.p.A., which it controlled, SIT-Siemens had to invest over Lire
4,ooo,ooo,ooo immediately in order to buy up Raytheon at the judicial bankruptcy auction held
on 12 July I969.
It later had to invest about 3,500 million between 1969 and 1972 to restructure the plant,
generai facilities, and the machinery and production lines, and to retrain the work force.
5· ELTEL then moved the production of the electronic parts of the power units for the
telecommunications facilities from L'Aquila to Palermo, at the former ELSI factory. The only
way to keep the local jobs was to rebuild the whole factory, in practice, because as Raytheon had
left it, the factory was absolutely useless in technical and production terms, and had only been
taken over as a bankrupt concern on purely sociai grounds ( ... ) >>,
(e) The ELSI company was Iacking not oniy in industriai features but aiso with regard
to its commerciai functions. Among other things the oversized work force meant prohibitiveiy
204 RASSEGNA DELL'AVVOCATURA DELLO STATO
high costs, such that the products, which were in any case delicate, were not competitive on
the market;
(f) the only real advantage ELSI had was its work force, even though it was too large for
a company of that size. The work force appears to be technically well trained (although not
everyone agrees with this: see Ing. Busacca) (68), and this explains why someone ultimately purchased
the company in question. However, the existence of well-trained labour is not enough
to render an off-market company attractive.
Furthermore, the company had ceased to be a going concern directly because of the ELSI
management. The halting of the production lines took piace in early March 1968 (69
). Therefore,
when the events lamented by the Applicant Government took piace, ELSI was no longer a functioning
company. Thus, the hypothetical orderly liquidation would therefore have involved
nota company that was operating somehow or other, but the remains of a structure which had
proved so uneconomical as to have been already dosed down. Ali that was worth keeping, was
the work force which the ELSI management had already proceeded to dismiss and who saw their
jobs disappear.
12.1 ELSI's requests for benefits to which it was not entitled.
One further consideration is to be added. Again in its Reply the Applicant Government
complains of the failure to grant benefits that were promised (it is not dear when or by whom),
for which it blames the Italian Republic.
The truth of the matter is that either ELSI was entitled by law to such benefits, in which
case it should have taken legai action if they were withheld (but this was not the case and ELSI
did not in fact take any action), or it was not, as we shall now proceed to demonstrate; in the latter
case, the only alternative was for ELSI to request that benefits to which it was not entitled
be granted out of « benevolence n. This is what ELSI asked, receiving the refusal that anyone
requesting an illegal favour should expect to get.
Even for the type of production concerned, ELSI was not entitled to such benefits.
The Applicant complains of the failure to apply to ELSI's favor Artide I of Law N.
835 of 6 October 1950 according to which the State administration was under an obligation to
reserve the « supplies >> of materials provided for in legislative decree N. 40 of 18 February 1947
to existing industriai facilities in the Mezzogiorno (Southern Italy). In particular, according to
Artide 16 of Law N. 717 of 26 June 1965, in force at the time of the events, the Government
was supposed to reserve 30 % of its supply contract for companies operating in the Mezzogiorno
(7°).
Under Italian law the supply contract is a contract by means of which one party (in the
present case, the Government) purchases goods or services, on a continuai basis, from another
party for its own use and (in the case of the public administration) to carry out its statutory tasks.
This means that the materials in question have to be purchased ready for use immediately, without
requiring any further assembly or convertion. This obviously did not apply to ELSI's products,
since they were simple components and not finished products, and were therefore of no use at
ali to the Government, who would have had to sell them to other companies to be assembled
and used in different products. This is not allowed by Italian law, since it would mean that the
Government would in some way act as « go-between n between private companies.
(68) Counter-Memorial, Document N. 44·
(69) See the dismissal letter addressed to the employees of ELSI, dated 16 March 1968 (Document N. 21)
and to Ing. Busacca (Document N. 22). It would be appropriate to point out here that a partial - and regretfully
unfruitful - effort to make ELSI operative again was carried out by the Mayor of Palermo himself, through the
assignment - conferred upon Ing. Laurin, an ELSI senior company director - to direct and take care of the plant
during the requisition. This remark, already made in page 84 et seq. of the Counter-Memorial, is ignored in the
US Reply.
(70) The texts of the relevant rules are reproduced in Document N. 34·
CONTROREPLICA DEL GOVERNO ITALIANO 205
I t is for these reasons, which are seen to be based putely on legai provisions and dd not include
any intention to harass ELSI, that the Italian Goverrunent could not grant the benefits
requested, as also Minister Andreotti pointed out in his speech in Parliamentof 25 July ig68 (71) •
.. ·. Again with reference tothe benefits extended un der Italian legislation to companies operating
in the Mezzogiorno, the Applicant notes that also other norms involving special freight discounts
for materials used or produ(;ed by such companies were ndt .applied to ELSI.
However1 also thè ahove norms were not applicable to ELSI's products, and for the same
reasons · ptevit:n;iSly outlined, ·
Artide 15 ofLaw N. 717 of 26 }une 1965 and the respective ministerial decrees implementing
i t, both dated 29 March I 967; provided for benefits in the following cases:
(a) r11w materials and semi-finished products to be used for production purposes;
(b) b\lilding. materil'!ls, lllachinçry and anything else required for the reconstruction,
transformat1on,. extension and modern.ization of industriai plants;
(c) transport outside Southem ltaly of fint"shed products .
. Raytheon requested precisely the application.. of the. benefits provided for in section (c)
aboyel since, !Il> w;:t.fl stil,ted als<,>. in the MemOJ;il;l,l, the size and weight of the products meant high
freight costs. . . . .· . .· .
However, as can be seen from the te::;:t of the provision, the only and decisive condition for
its app}iqation w:as represente~;l by the fl'!ct that the products concern.ed were finished products
and therefore required no fùrther assembly. This was not true in the ELSI case.
Therefore, it Wl'IS n,ot possibile t(). grl'lflt even this benefì,t to ELSI.
It Wl'IS therefore· not that the Italian Government caused damage to ELSI but rather that
ELSI was <;lemanding benefits from the Italian . Govemmel;lt in the form. of « aid n beyond i t
was legally entitled to. After realizingthat it hadmade a l:>ad investment and that it had mismanaged
it, Ra}rtheon in other words did its best to pin the cost of all its own mistakes on the
Italian G()vernment. T o try and achieve this it exploited the n.eed, which was particularly strongly
felt .in ltalyat the time, to protectjobs, :Failin.g to attain this objective, the decision was taken
to close. down. the plant, an act which was als.o in line with the policy of generai reduction of
United States investments abroad.
13. The terms of the sale.
'I'he Applicant Govemment .contends that « either as a total package or individually to maximi~
e the reaJizable price )) e~), (( each productline could b,e sold as a separate package, including
the respective tedmology, contracts, customer and supplier bases, and established name and
reputation. to buy~s elsewhere in Italy, Europe or Japan.>> (13). This inference is drawn by the
.1\pplicant Government froin the Affidavit of Mr Scopelliti. But what prospects could there have
been for such a; badly structured plant, production lines resulting in such large failures, products
of suçh little worth that they were often returned. to the seller (and in any case had no market
appeal), techn.ologies that proved to be so ineflicientas to bring criticism also from the Bankruptcy
Court expert, Pr Mercadante ? In order .to be able to reason from inferences, such as
the likelibood of selling ELSI as a going · concern (74), the. inferences must based on adequate
premises. Otherwise they may turn out to be purely gratuitous. In the case in point, the necessacy
premises are not to be found, becaus.e the poor industria! performance resulting in the
ELSI debacle, theproduction and marketing deficiencies observed, the structural shortcomings
found in the plant, ali add up to an overall picture of the Palermo plant such as to render improbable
any course of action other than to sell the plant as a whole.
14
(71) Memoria!, Annex 46.
( 72) Reply, p. 127.
(78) Memoria!, Annex N. 17.
(74) Reply, p. 130 e' seq.
206 RASSEGNA DELL' AVVOCATU::..:R::..:A~D::..:E::..:L::..:LO~S::..:T::..:A::..:T.::_O ___________ _
14. IRI's role in the acquisition of the plant.
In the light of what has been seen above, it has little meaning to speak of IRI'S interfering
with the bankruptcy proceedings. It is easy to prove the inaccuracy of the contentions presented
by the Applicant Government in this context. (15)
IRI was established by RDL (Royal-Decree Law) N. 5 of 23 January 1933, converted into
Law N. 512 of 3 May 1933 (16). It was subsequently modified by RDL N. 905 of 24 May
1937. An institution was set up, whose action would be directed mainly towards the technical,
economie and financial reorganization of national industriai activities.
IRI became a public agency with a permanent structure, which was given the task of managing
the shareholdings in its possession, of undertaking new industriai ventures, also in cooperation
with private capitai, and of carrying out initiatives in the field of vocational training.
The lnstitute's activity has therefore to be set in the broader framework of State holdings,
i.e. of publicly owned shareholdings in profit-making companies.
It is true that IRI enjoys financial independence, having its own << endowment fund » (Artide
x8 ofthe statute as approved by Decree-Law N. 51 of 12 February 1948)(77). It directly owns
the shares that it possesses, which differs from the case of the direct participation of the State,
which become part of the latter's assets. IRI operates in accordance with the profitability criteria
typical of a market economy. It has its own organizational structure, consisting of a President,
a Vice President, a Director Generai, a Board of Directors, and a Board of Auditors.
In other words, the IRI group comprises a group of companies, which operate in accordance
with the laws of the free market.
The << social » side of State holdings comes from the special attention focussed on the creation
and preservation of jobs. However the purpose of IRI is neither to salvage lame companies
(for this purpose there is another agency in Italy, GEPI, for those cases in which the salvaging
of a lame company presents particularly important social aspects) nor to engage in initiatives
according to choices made by public authorities. Only occasionally IRI participared in the acquisition
of unprofitable companies, acting on the instructions of the Italian Government.
In the telecommunications sector the IRI companies are grouped under STET, a jointstock
company quoted on the Milan Stock Exchange. FINMECCANICA, with whom ELSI
had meetings at the time it was seeking an ltalian partner, is not a << division » of IRI, but a
jointstock company which, like STET, is wholly subject to the norms regulating private companies,
and is quoted on the stock exchange.
Raytheon had already contacted IRI at a time when ELSI had not yet met its inevitable
doom. However, IRI was not, and could not, be interested in entering into partnership with
a company in such disastrous conditions. Subsequently, when deadlock was reached in the
ELSI bankruptcy proceeding, IRI was obliged to intervene, mainly to safeguard employment
and the situation of the Palermo workers who had been thrown out of their jobs.
The heart of the matter remains the question of whether the ELSI company was worthless
or not. We have seen that the company had no value. This explains why the attempts by the
politica! authorities, especially the local authorities, to find ways and means of salvaging it were
unsuccessful. The cost of possible comprehensive solutions for running an obsolete plant was
obviously too high for an organization that must compete according to the rules of the market.
The formula of the sale of ELSI as a going concern is constantly repeated by the Applicant Government.
The Reply goes as far as to state that, while the Italian Government had publicly
announced its intention to purchase ELSI, EL TEL - an IRI subsidiary - << boycotted the first
three bankruptcy auctions, seeking to buy only some of the assets at a lower price» (18). However,
this is contradicted both by the facts of the present case and by other events in which IRI has
been involved.
(76) Memorial, pp. 16, et seq.
(76) Document N. 31.
(77) Document N. 28.
(78) Memorial, p. 16.
207
CertainlYi ELSl was of no interest t& lRl as ìt was< This waa confirmed by the fact that,
after the p'Urchase, EL TEL had to spend large amounts _,. as much as Lire· 3,soo,ooo,ooo (79) .,...._
to .. r!).strUctiJre .the plant an d completely. changé its production,; ·. even transferring · to i t some
proctnctt()n Ui:les ~hich were previ()USly operating elsewhere. ·.· A,fter !ts .• purchase• · by ELTEL,
th:l} $l..SI 'Pll:lri~•wl!.s ;<:t:~nve:rt;ed.f(}r t:he· I>tt'ftiuction mainly• of•electric contro}·· panels~·· aproduction
~1W~~à=~~a@)~~n~\W~ùfl~&tm# ~ni~~~~~~~~n~2;n~;:~;~~ ~:sst!tf~d!t:!:~~\:!:~~~
·• .a ·~QÌllg cot:tcematalh•··•'Yhlìt• 1;hey lii(Jtq~llyJ:ìutchased.was the•·si~··on which 1;he. ELSI · plant was
Iocated, taxqng over its oversiied but qualified work force~ It is. thérefhre. pointless to claim no w
t11a.t ... IRJ.pl()t~e<:l.•~:ì114.com'~Pjr~<:l .. to..ol>tlliJ:l .. th~.··l?J:Q.dvcti()i:l .. linell •.• whiç1tweredi!!fl"l<'l:tltled, .... sold for
sérap and té{;llaced by others, or to obtain thé technology, whiéh was not use<:l, b!)cause, as well
a.s ()psole:ter it)Vas not relevant to the industriai aims then actually pursued. · .· It. is. thus not surP#
st#g thatlRl a:nd• S'l'ET were reb.tct~;~nt to t!ike·over à plai:lt wlll:ch they,··like everybody else,
lhlewto be useless as a specific oper:~;~ting structure and ·in tbe predictable need of productive
reorganizatlon. .· ·. . . . . . ..•.. .. . . . ·.. ·.· ... · .. · .. . . .. . . .·. .·• . .· ·.. •
· · • Futthermore; if ELSl hati been; ifhot an. i( industriai j~el >>, atdea:st something witli some
m~;~rker appeal,. as. the Applicant Gov~riUl'lent. is now c;laitning, '\VhY \Vas . it that no bìdder cain.e
fot\V~rd, p~~t~()Ulttrly whe11 t~e J:>à~p.tcy àftct16:Q~ )'itere clese.tted f' The ij;eply :us~s the term
Ì~tY~:!~il'~le{~;~··~ti~!~~~s~a;I~11~~~A&tg..f(~lWcit•••~f9~1~a~~r·sWeh~:: ·~~!v~!u!~;
~volve<:l, ~ (ii~çussions with ~LSI, had to neglld::tte the reo:rg~;~nization of the Jtalian thermoengln~
er1ng :sector with other entrepren.eurs. As the newspapers reported, FINMECCANICA
a11<:1. .. its s'!ll:!s~cti<'IJ:Y A.nsaldo IOit>seci thtì. hoì.lt: F:ranç() T o sì a.nd .A.SEA Brown . :B<Jveri deemed it
~tifJt~~h~~i~!r!~]i~~irt:i!~~~~jUi~~jt~!lib~~eiliaf~t~Jiall~\We~l~f~fCJt~~~t~0tW!:~;
the E:C.$1 ~pp{ej( they h11ct a rili:t14, J(), jl,lst ~;~s. no grw preventecl. Francg Tosi·. (a member of the
ft{Jf&W~~YR~é~t.·~e1~6i.·(~J?~fti~h~e~a!~o~•·ffȧW,~!~lf;l~r~itc~:~~tJ!1·~1~u:g ~~
bujr the allfigéd << indusùiial jewet >i. clltiri<>f be a:scri~ed. to. boycottirig by· IRI, · which ìn any case
has ;never been proved. I t '\VI,'IS m,uch t;~:t(>re simply due to the easily understandable fact pointed
o(lt earlie:r;. i; e., that no orie wanted thé Palérmo .. pian t,. eitheJi as a whole or in part. And to tell
the truth, no>evidence has.>even been produced of anybody else's interest being boycotted.
Wl>,~;~t is true.is that the .bankruptcy auctions fall..ipto line. witb wh~;~t .. h~;~s already been demonStr~
ted: ELSiwas nota goin.g concer~ but a ruipect companYt which nobody wanted. And
wll.en .the groupJeacìer .S'l'ET was oblige<:l tq}nteJ:Verie in ord!.lr to s~;~ve the jobs of the now
uri.emJ?Ioyéd ELSl work force, ELTEL had simply to make thebest <>f a bad. bargain.
15. Concluding remarks • . ·
ln actl.lalJac:;tthe. c:ritic~ms advanced. by thl:l Applicll:J:lt· QoyeriUl'lentare hase<:l on .ey~n m<;~ re
cot'hplicatec:l c:;oJ:lsidel'ìtt1cu:1s and \lse a retbo#c~i • tdc:;k tb~tt can easily be exposed. Anyone rea(,lmg
th.~ <:locq_ments presented to the Gov:rt, starting witi;I.Jhe latest one, can see that the Reply. praç.,.
tically takes for granted what is set out btiefly in the Memoria:! and explained at greater length
in the 1974 Claim. In other words, by no longer going into the facts in detail, an attempt is
Itiade to gi:.Ve the ltnpression that the àiieged facts are obvious .. On the contrary, these are merely
assertions, or ìtiferences, which are wholly unproven and actually do not stand to reast>n;
(79) Affidavit of Ing. Ravalico (Document N. 14).
(SOl Affidavit of Ing. Ravalico (Document N. 14), and more generally, Affidavit of Ing. Cammarata, (Document
N. 13).
(81 l On these facts and in particular on the disappointment o.f IRI for · the agreement it failed to reach,
see the article published in Il SOLE-24 ORE, 3 October 1987, (Document N. 29).
208 RASSEGNA DELL'AVVOCATURA DELLO STATO
The 1974 Claim devoted considerable space (26 consecutive pages) (82) to describing, without
proving, as must again be emphasized, a basically fraudulent plan to acquire the allegedly valuable
ELSI plant at below its fair market price.
The contention of the United States Government is based on the following premises: the
alleged existence of a sort of plot hatched by State holding companies, the Mayor of Palermo,
bahks and the bankruptcy receiver, focused on a valuable company, that IRI managed to
acquire in an underhand way. As has been pointed out above, no such valuable company existed
and therefore the hypothesis cannot be true. But the logical and legai coherence of the entire
argument is also open to criticism.
The sequence of events that emerges from the outline of the facts contained in the 1974
Claim is as follows: '
- on realizing that it lacked the capacity to attain a competitive size on the market, ELSI
started looking for a possible I talian partner;
- IRI was approached, but was no t interested;
- the bahks, controlled by IRI, refused the proposals made by Raytheon and the ELSI
management;
- the Mayor of Palermo issued the requisition decree;
- the bankruptcy trustee leased the plant to an IRI controlled company;
- an IRI subsidiary, EL TEL, purchased the plant after forcing the price down.
However:
(a) the need to find a strong partner is the first clue to the fact that ELSI by itself was
not capable of attaining a competitive size. The tone used in the applicant Government's Reply
was one of substantial reproach to the Italian Government and IRI for not having rushed to
ELSI's aid. No one appears to have explained, however, why this should have been done, or,
if it was true that ELSI was a valuable company, for which compensation is now being demanded,
why the participation of a third party, i.e of the State holding companies, was being begged;
(b) IRI's refusal was explained at the time by its lack of interest in investing in a company
with a production like ELSI's; and in fact, when EL TEL, an IRI subsidiary, did purchase the
company from the bankrupt's estate, i t immediately set about changing the production lines (83);
(c) the banks' refusal to accept an « orderly liquidation" which would halve their credits
is presented as an irrational and in any case spiteful attitude on their part, and basically attributable
to IRI, by whom it is assumed that the bahks were controlled, and through it, by the Italian
Government. However:
(c1) when a debtor offers to pay only a part of his debts, he is the one who is normally
reproached and not the creditor who refuses the deal. Furthermore, under the Italian Civil Code
(see Artide 1181) (84), the creditor is entitled to refuse partial payment;
(c2) not all the bahks to which ELSI owed money are controlled by IRI, which in its
turn cannot be portrayed as an agent of the Italian Government, so that the lihk between the
behaviour of the bahks to which the money was owed and the Mayor or the Prefect of Palermo
is non-existent; in this case i t is hard to see w ha t the Applicant Government has to complain
about;
(d) in Italy there is the separation of powers, especially between the judiciary and the
executive. Therefore, to assume that there could be a concerted attitude between the receiver
appointed by the bankruptcy court, the Mayor of Palermo, and IRI is not only a contemptous
argument vis-à-vis the Italian judiciary, but also an argument quite out of place.
(82) See Counter-Memorial, Unnumbered Documents, vol. I, pp. 41-67.
(83) See Affidavit of Ing. Ravalico, Document N. 14.
(84) For the English text of Article n81, see Document N. 16.
CONTROREPLICA DEL GOVERNO ITALIANO 209
In ali probability the matter is much simpler than the highly imaginative version served
in the Memoria! and Reply of the Applicant Government. The Respondent could simply rest
its case on the statement that · the Applicant Government has produced no evidence of linked
behàvìour, and linked unlawfully, between conipanies, local authorities and judges. And in view
of the seriousness of such a ()barge, reasonable caution should be exerted when asserting that
suchlinlfs eXisted. However, thefa.cts alleged bave inducedthe Italian Government to go beyond
a rnere pa,ssive denial of theApplicant's argurnents and to stress the enormity of the allegations.
· ELSl was an unsuccessful deal, at le.ast from 1962 on, or rather an unsuccessful speculation,
becaQse Raytheon believed i t was possible to make a profit by shelvitl.g the State an d local authorities
with the costs of an obsolete company, the~;eby exploiting the need to create jobs in the
Mez~ogiorno ($5),. According to Ing. Busacca, ELSI did not distinguish itself either for its technology,
nor for the state of its plant .. According tq Rag. R.avalico; its .products were obsolete and
o:ff market. According to Dr. Mercadante, ELSI's products were defective. According to its
balance sheets, the company was undercapitalized. Obviously ali it produced were losses, and
more losses.
It was the obvious concern of the Italian local and centrai authorities to provide the maximum
possible employment. In high unemployment areas like the Mezzogiorno, the closing of
a company normally gives rise to tènsion and a necessary degree of solidarity. Raytheon was
ready to take advantage of ali this, both at the beginning, when it benefited from financial inducements,
and in the end, when the wages of its 168 employees were paid by the Sicilian Regional
Government. As part of the generai pressure applied to save the company Raytheon contacted
IRI. However, in view of the economie uselessness of the ELSI plant, IRI made the correct
managerial decision not to bave anything to do with it, fully aware that once it was caught up
in the a:ffair it would bave trouble coming out of it unscathed. Raytheon then made another
attempt using an illusory rehabilitation pian in which it claimed that the banks were prepared
to accept so% payment. However, to anyone examining the matter thoroughly, it was clear
that no such conclusion was warranted since the ELSI plant had no market value except on the
scrap market (and most of the plant was actually sold o:ff as scrap) (86) while no commitment
to « cover >> ELSI was forthcoming from the parent company (since the promises mentioned by
the Applicant Government are only hypothetical). With no further hope of (a) receiving government
orders, as no reason exists for giving them to a company that produced badly, (b) of association
with the State holding system, which had no reason to waste its money on a company
that produced losses, and (c) of an agreed rehabilitation pian, which was intrinsicaliy unfeasable
and in any case involved cuts in the creditors' share which the creditors would bave no reason to
accept, particularly since in Italy the bankruptcy proceeding is required by law; Raytheon stiffened
its attitude in the hope that the State holding companies or the local politica! authorities
would give in at the last moment (the payment of the wages of 187 employees by the Sicilian
Region raised hopes of a possible bail-out) (87). ELSI issued a communiquè, which was given
wide circulation, to the e:ffect that, as from x6 March 1968, the company would cease ali activities
and that as from 29 March the employees would be laid o:ff. I t is interesting to note the ton e of
the ELSI communiqué: it said in effect that Raytheon had invested many billion lire, and that
the Italian Republic did not intend to mount any rescue operation. The only thing it omitted
to communicate, and indeed tended to ignore, was the fact that the company was economicaliy
worthless and financially ruined, and that the Italian legai system does not consider that an insolvent
debtor has the right to receive aid from anybody, particularly when he is responsible,
as ELSI was responsible, for having wasted someone else's money (see the financing received)
in products capable of making only losses.
( 85) Therefore, for instance, ELSI benefited from soft loans, which were provided for in the law: see
Counter-Memorial, pp. 77 and 78. The Reply, however, avoids any mentioning of these soft loans.
(86) See Affidavit of Ing. Rabalico, Document N. 14.
(87) On the attitude showed by ELSI's management in those criticai days, see the article published in
L'ORA, Document N. 29.
210 RASSEGNA DELL'AVVOCATURA DELLO STATO ---------------------
As was to be expected, the ELSI work force staged several demonstrations (88
). On 25
March a generai strike was actually called in Palermo to express solidarity with the ELSI workers.
The local authorities were thus obliged to intervene. Raytheon, realizing that it now had the
opportunity to blame others, and not its own errors, for the company's debacle, decided to speculate
on the events. This was the beginning of the complaints.
It may be objected that this is only surmise. If it is, it is no different, however, from the
surrnise contained in the contentions of the Applicant Government, except for some fundamental
aspects: the constant losses incurred by ELSI, out of all proportion to the capi tal invested, are
an unchallenged fact; the ruinous state of the ELSI company is an unchallengeable fact, since
it can be worked out from the figures and from the proposal to pay so % to the creditors; the
state of obsolescence of the plant is equally unchallengeable, as it is confirmed in several Affidavits.
The fact is therefore that ELSI and Raytheon were aware of the disastrous situation of the
company and of the impossibility of presenting to the market a company that was losing money
so fast. And yet, despite these facts, one still finds a request for compensation of a « full value »
that has no connection at all with reality.
(BB) On this point, see also the Affidavit of Avv. Maggio, Document N. 3·
PART II
THE JURISDICTION OF THE COURT
Since the two Parties expressly agree that the Court has jurisdiction over the dispute, under
Artide XXVI of the Treaty, «in so far as it relates to the interpretation and application of the
1948 Treaty and the 1951 Supplementary Agreement » (1), it is hard to see why the Applicant
finds it expedient to point out that « the Respondent is now barred from raising an objection » (2)
Over many years of negotiation on the daims put forward by the United States Government on
behalf of Raytheon and Machlett, no intention of raising an objection to the Court's jurisdiction
with regard to an application based on the Treaty has ever been voiced by the Italian Government.
The Respondent Government only expressed the view that, given the new position taken
by the United States Government on many issues in its Memorial, the ltalian Government would
have been entitled to insist that « the basic contentions concerning the interpretation or the application
of the Treaty should have first been put forward in diplomatic negotiations >> ( 3). However,
as the Counter-Memorial made dear, «in the interests of a complete settlement of the
dispute, the defendant Government refrains from putting forward » any request for the Court
« to dedare that the conditions set forth in Artide XXVI of the Treaty have not been fulfilled » (4).
There is little accuracy in the Reply's contention that « the United States has repeatedly
raised with the Respondent since 1972 the legai daims now before this Court» (6). As a perusal
of the Memorandum of Law presented in 1974 and of the Memorial shows (6), the Applicant
Government has significantly altered its basic contentions concerning the Treaty and the Supplementary
Agreement. This may be an embarrassing fact for the Applicant Government to
acknowledge; i t cannot be denied by noting that the same Government has persistently daimed
compensation (1).
(1) Counter-Memorial, p. 97· In quoting this passage the Applicant Government's Reply (at p. 133) omits
the words << in so far >>. The omission may be inadvertent, as the jurisdiction of the Court over the dispute dearly
rests only on Artide XXVI of the Treaty, which reads as follows: << Any dispute hetween the High Contracting
Parti es as to the interpretation or the application of this Treaty, which the High Contracting Parties shall satisfactorily
adjust by diplomacy, shall be submitted to the International Court of Justice, when the High Contracting
Parties shall agree to settlement by some other pacific means ~.
(2) Reply, p. 135.
(3) Counter-Memorial, p. 97·
(4) Counter-Memorial, p. 97·
( 5) Reply, p. 30.
(6) See Counter-Memorial, pp. 97·
(7) The Reply (p. 135) condudes as follows: <<Since the Respondent has consistently refused to pay compensation
for the damages suffered by the United States, the dispute has not been satisfactorily adjusted by diplornacy
and is now properly before this Court pursuant to Artide XXVI of the Treaty ~.

PARTIII
THE ADMISSIBILITY OF THE CLAIM
The Italian Government has contended in its Counter-Memorial that « the United States
Government's claim is inadmissible in view of the fact that local remedies were not exhausted
by the two United States corporations on behalf of which the claim is put forward » (l). The
Applicant Government attempts to justify the admissibility of its claim in its Reply (2
). However,
the United States Government does not contest that the objection that local remedies were
not exhausted may be made in relation to a claim under the Treaty. It is also common ground
that, in order to establish whether local remedies have been exhausted, '' the only possible test
is to assume the truth of the fact on which the claimant State bases its claim » (3
).
One of the Applicant Government's contentions is that « the Respondent is estopped from
asserting that there exists any requirement to further exhaust local remedies » (4
). It is difficult
to see on what basis the existence of an estoppel could be alleged. At no time did the ltalian
Government say that local remedies did not have to be exhausted. N or could a waiver be implied
in the alleged fact that. « the Respondent made statements that it was willing to go to arbitration
with the United States » (5). Objections relating to nonexhaustion of local remedies have frequently
been considered on their merits in arbitration decisions over claims put forward by a
State against another State on behalf of individuals. As the arbitrai tribuna! said in the Case
Concerning the Air Services Agreement of 27 March 1946 (United States v. France), « the rule of
international law relating to the requirement of exhaustion of local remedies, when making a
distinction between the State-to-State claims in which the requirement applies, and claims
which are not subject to such a requirement, must necessarily base this distinction o n the juridical
character of the legal relationship between States which is invoked in support of the claim. Consequently,
with respect to the applicability of the local remedies rule, a distinction is generally
made between " cases of diplomatic protection >> and " cases of direct injury » (6
).
Moreover, far from being an unexpected issue, the question of exhaustion of local remedies
had been discussed at length in the Memorandum of Law submitted by the Applicant Government
in 1974 (1). It was reasonable for the same Government to take into account the fact that
the issue would have to be considered in arbitration or judicial proceedings. The Defendant
Government's constantly expressed view that the claim is unmeritorious certainly does not affect
the application of the local remedies rule. As the arbitrator noted in the Finnish Shipowners
(1) Counter-Memorial, p. 99·
(2) Reply, pp. 137-138.
(3) This passage, taken from the arbitrai award in the Ambatielos case (12 Reports of International Arbitrai
Awards, p. I 19), was quoted in the Counter-Memorial, p. 98; the Reply, p. I 37, nt. 2, refers to the pages of the award
containing the same passage.
( 4) Reply, p. I 35.
(5) Reply, p. I35· The Reply, also criticizes the Respondent for having failed to « suggest or request
that Raytheon and Machlett enter Italian courts and sue on the basis of the Treaty •· Does this imply that, according
to the Applicant, a State is under an obligation to recommend legai action against itself?
( 6) Decision of 9 December 1978, 54 International Law Reports, pp. 304 et seq. and p. 324.
(7) Unnumbered Documents submitted by ltaly, Vol. I, pp. 133-137·
214 RASSEGNA DELL'AVVOCATURA DEI.LO STATO -------------------------- -------------
case, « every relevant contention, whether it is well founded or not, brought forward by the daimant
Government in the international procedure, must under the local remedies rule have been
investigated and adjudicated upon by the highest competent municipal court ». (8)
The Applicant Government seeks support in the circumstance that « assuming for the sake
of argument that an action based on the Treaty could be brought -- the statute of limitations on
that action has now expired » (9). It is hard to see why the said circumstance should be relevant,
as it is well known that the local remedies rule fully bars an international daim when local remedies
which have not been exhausted become unavailable: the arbitration award in the Ambatielos
case (1°) provides a good example to this effect. In any case, the five-year deadline set by Artide
2947, paragraph I, of the ltalian Civil Code (11) for daims relating to damages arising out of a
wrongful act had already elapsed for any act committed in 1968 by the time the United States
Government submitted its daim on 7 February 1974 on behalf of Raytheon and Machlett (1 2
).
Therefore, any attitude that the ltalian Government may have taken after that date can in no
way be considered as the cause of the remedy not having been exhausted.
The very attempt to build an argument of estoppel on such a slender basis conveys the impression
that, even in the Applicant Government's view, there are no substantial reasons for
overcoming the objection to the admissibility of the daim. The objection rests on the fact that
Raytheon and Machlett -- apart from not taking adequate steps to prevent some of the measures
that the Applicant Government assumes to be wrongful (13) -- failed to bring an action against
the Italian State daiming compensation for damages arising from the alleged wrongful acts committed
by public authorities. The generai rule in the Italian Civil Code concerning compensation
for damages arising from wrongful acts -- Artide 2043 (14) -- is often invoked by individuals
against the Italian State and substantial sums have been awarded to the daimants where appro-
(B) Also this passage, which is taken from 3 Reports of International Arbitrai Awards, p. 1503, was quoted
in the Counter-Memorial, p. 99· The Reply, p. 137, nt. 2, again refers to the pages of the award containingthe same
passage.
(9) Reply, p. 139.
(10) See 12 Reports of International Arbitrai Awards, p. u8.
(11) Under the said paragraph the deadline is five years from the day on which the wrongful act took piace
(<< The right to compensation for damages arising from a wrongful act expires five years after the day in which the
wrongful act took piace>>).
(12) Unnumbered Documents submitted by Italy, Vol. I, p. 3·
(18) For instance, Raytheon failed to appeal to the Court of Cassation against the decision by the Court of
Palermo of 20 June 1969 concerning the terms of the fourth auction, while Machlett does not appear to have taken
any steps to challenge the bankruptcy judge's decision.
(14) << Compensationfor wrongful acts. Any act committed either wilfully or through fault which causes wrongful
damages to another person implies that the wrongdoer is under an obligation to pay compensation for those
damages » (the Italian text with full translation is reproduced in Document N. 16).
With regard to the daim for compensation of damages arising from wrongful acts, which is available under
Artide 2043 of the Italian Civil Code, it is to be pointed out that Raytheon and Machlett, if convinced that the behaviour
of Italian officers (the Mayor, the Prefect of Palermo, etc.) had been inspired by an intent of jeopardizing their
interests in favour of IRI, could have also brought a criminal action against such authorities, in compliance with
Artide 323 of the Italian Criminal Code («Innominate abuse of power») (see Document N.17). This criminal action,
if successful, would also have implied, in favour of Raytheon and Machlett, a right to compensation, under Artide
2043 of the Italian Civil Code (in the Italian legal system, damage caused by a crime gives always rise to the right
to compensation according to Artide 185 of the Criminal Code).
In other words there were two ways available to the United States shareholders for seeking compensation:
a criminal suit coupled with a civil suit or an independent civil suit, both allowing the shareholders to invoke Artide
2043 of the Civil Code.
The different opinions given in the affidavits submitted by the Applicant, except for several incorrect premises
on which they are based (e.g. on page 15 of the La Pergola's Opinion, it is taken for granted that the requisition
would have continued, which it did not; on page 16, the Prefect of Palermo is said to have made a statement conceming
the cause-and-effect relationship between requisition and bankruptcy which he never made and whose
existence has never been proved) do not consider that, when a shareholder, as has been alleged in the present case,
has suffered not only indirect damage resulting from damage inflicted to the company, but is instead the direct
victim of a persecution by public authorities which cause him an immediate, personal and direct damage, he is entitled
to compensation under Italian law.
In such a case, and irrespective of his nationality, any such shareholder can bring an action for damages against
the public official responsible for such action, as well as against the branch of the public administration on behalf
of which the latter was acting.
CONTROREPLICA DEL GOVERNO ITALIANO 215
priate. In the present case, if one assumes, as one is supposed to do under the local remedies
rule, that the Applicant Government's contentions are correct - Raytheon and Machlett suffered
damages caused by Italian public authorities in violation of the Treaty and the Supplementary
Agreement - the provisions of the Treaty and the Supplementary Agreement would
have made it necessary for an Italian court to conclude- on the basis of the same assumption
- that the Italian public authorities' acts were wrongful acts when applying Artide 2043 of
the Civil Code. (15)
No set of fact similar to that to which the United States Government's application refers
was ever invoked before an Italian court. The receiver, when he brought an action for compensation,
(16) only complained of the requisition decree. (17) N or did he invoke -or indeed could
have invoked, as he was acting on behalf of ELSI, an Italian company under Artide II, paragraph
2, of the Treaty - any provision in the Treaty or the Supplementary Agreement. Hence, the
receiver's action can in no way justify the lack of initiative on the part of Raytheon and Machlett.
In order to contend that there were no local remedies available to Raytheon and Machlett,
the Applicant Government refers to three opinions: two given to Raytheon in 1971 and the third
one, which is dated February 1988, given to the United States Government by Professar Elio
Fazzalari, who had acted over 13 years as Raytheon's counsel in relation to the claim- a fact
which is mentioned neither in the opinion annexed to the Reply nor in the Reply, but results
(15) In addition to the remedies referred to above, there were other remedies provided for by the Italian legai
system and available to the two United States companies. Such remedies are offered by the bankruptcy legislation
in favour of ali the creditors of the bankrupt company.
(a) Raytheon was in fact a chirographary creditor of ELSI for the sum of Lire I,I43,8oo,ooo (see Memoria!,
p. 6o and Annex I4), in addition to the sums guaranteeed and paid as guarantor. However, this credit was never
claimed in the bankruptcy proceedings (see Memoria!, Annex 26, p. 9 and Annex 30, p. 5) upon recommendation
of the Raytheon counsel, who was obviously well aware of how much below the triumphant forecasts the true value
of the bankrupt company's assets really was.
(b) As for the complaints about the unfavourable conditions in which the ELSI sale took piace (the absence
of any foreign companies at the auctions and the genera! complaints about « irregularities •) that the allegations are
groundless and the bankruptcy proceedings took piace in full respect of Italian law.
However, it is a genera! principle of ltalian bankruptcy legislation (Artides 23 and 26 of the Bankruptcy
Law, text reproduèed in Document N. I8) that ali the acts of bankruptcy judges can be appealed against by petition
to Courts, whose decisions can be reviewed by the Court of Cassation, according to Artide I I I of the Italian Constitution.
In fact most of the decisions of the bankruptcy judge w ere not appealed against and in any case the judicial
review of the Court of Cassation was never asked for.
(c) With regard to the specific terms of the sale, Artide Io8 of the Bankruptcy Law states that they are set
by the bankruptcy judge at the receiver's request and that the sale may be suspended when the price offered is much
lower than the market price. In the case in point it was apparently not considered necessary to use these powers
of suspension.
However, it is legally unchallengeable, and therefore an applied principle in the ltalian lega! system, that the
sale order issued by the bankruptcy judge, who thereby obviously deems it not necessary to exert the powers of suspension,
can be appealed against in a court of higher instance and, eventually, in the Court of Cassation.
The deadline for lodging an appeal is quite adequate and in any case such as to guarantee the right of defence
of the parties concerned. The deadline is represented by the order transferring the assets to the purchaser, and is
obviously subsequent to the date of the auction at which they were sold.
The appeal can be made by any of the parties interested in the correct conduct of the bankruptcy proceeding
and in obtaining the highest possible proceeds from the sale. The two parties specifically concerned are the receiver
and the bankrupt.
However, anyone, even third parties who are not involved in the proceeding but who consider that the auction
price is too low with respect to the value of the assets, can make an appeal or request the suspension of the sale,
even after the auction has been held, provided that they do so before the transfer order is issued. They are entitled
to do this irrespective of whether they are willing to malte a higher offer or whether they are reporting irregularities
in the proceeding.
In the case in point, Raytheon made only a few, unsuccessful, appeals to the lower court and never went as
far as the supreme Court of Cassation.
(16) Raytheon's counsel Giuseppe Bisconti argued in I97I that there was no cause of action under Artide 2043
of the Civil Code because « ltalian law provides for a specific remedy against the requisition which is the aforementioned
appeal to the Prefect >> (Unnumbered Documents submitted by Italy, Vol. l, p. I6o). However, the receiver
brought precisely such an action which was partly successful. The fina! decision in this case was given by the Court
of Cassation on 26 Apri! I975· For the English translation of the decision, see Memoria!, Annex 82.
(17) For an English translation of the receiver's lawsuit see Memoria!, Annex 79·
216 CONTROREPLICA DEL GOVERNO ITALIANO
from documents exhibited by the Applicant Govemment (18). The two earlier opinions did not
deal with the question of whether the Treaty could be invoked by Raytheon and Machlett before
Italian courts. The Reply's assertion (19) that Professor La Pergola<< considered in I97I whether
Raytheon could sue based on the Treaty >> is unsound, not only grammatically. Professor La
Pergola's Opinion is a discussion of diplomatic protection of shareholders. In the English translation
of this Opinion, annexed by the Applicant Government to its I974 <<Memorandum of
Lawll, the only argument given with regard to local remedies runs as follows: ((The bankruptcy
status prevents any direct initiative by the company towards reintegration or restoration in a
situation in which it would have found itself had it not been for the illicit action. On the basis
of the principles confìrmed by intemationalistic jurisprudence, this constitutes another element
permitting immediate protection of the shareholders by the State of which they are citizens.
Hence, the question of eY.hausting internai remedies does not apply since remedies, in this situation,
would not have been directly available to the shareholders. The latter have suffered
a specifìc injury of their interests since the illegal conduct of the State made the liquidation impossible
>> (2°).
On the basis of Professor Fazzalari's << independent >> Opinion, the Applicant Government ·
puts forward only one argument in order to contend that the Treaty would have been of no avail
to Raytheon and Machlett. The argument runs as follows: << Although the Treaty and Supplement
at issue here were incorporated into Italian legislative acts, the provisions argued before
this Court are not complete enough to permit a suit for compensation by a United States national
against the Government of Italy in Italian courts )) (21). In other, and perhaps simpler, words,
the United States Government's contention is that Italian courts would have ignored all the
provisions in the Treaty and the Supplementary Agreement which could have been invoked by
the two United States companies notwithstanding the existence of specifìc legislation designed
to ensure the application in Italy of the Treaty and the Supplementary Agreement (22).
The Reply does not quote, directly or indirectly, any single case in which Italian courts
would have talten the view that any provision in the Treaty or the Supplementary Agreement
is not self-executing. The Applicant Government attempts to diminish the importance of what
the Reply calls the << only Italian case cited by the Respondent in support of its argument >> (2 3).
This was a decision by the Italian Court of Cassation (24) in which Artide V, paragraph 4, of the
Treaty which had been invoked before the Italian courts by a United States corporation, was
applied to its benefìt. The Reply's comment that there ((were no damages awarded in that case>> (25)
is misleading, since no damages had been daimed; nor is the observation that the case << did not
involve the Government of Italy >> (26) any more pertinent: when a treaty provision is regarded
as self-executing in the relations between private parties, it is certainly applied also in a case
brought against public authorities.
The Italian Court of Cassation confìrmed its attitude in favour of considering the Treaty
provjsions as self-executing when it applied Artide XIV of the Treaty in a criminal case, in re
Walsh (27). In Italy, as the daimant Government rightly noted in another context(28), (([a]lthough
the opinion of the Supreme Court is not binding outside the case in which it is rendered, it is
highly persuasive authority in subsequent cases in Italian courts ll, Hence, the two decisions by
(18) See Memoria!, Annex I3 (Schedule K) and Annex 40 (Exhibit A).
(19) Reply, p. I 38.
(20) Unnumbered Documents submitted by Italy, Vol. I, p. I7Z· The English translation of the full opinion
has been omitted in Annex 3 to the Reply.
(21) Reply, p. I 38.
(22) The two legislative acts which provided the relevant « implementing orders >l (ordini di esecuzione) were
referred to in the Counter-Memorial, p. IOO).
(23) Reply, p. I 38.
(24) Decision N. zzz8 of 30 July I96o, The Durst Manufacturing Co. v. Banca Commerciale Italiana. The
text of this decision, to which the Counter-Memorial referred on p. 98, is reproduced in Document N. u.
(2 ~) Reply, p. I39·
(26) Reply, p. I 39·
(27) Decision No. Z579 of 6 December I983 - 17 February I984, Commissione Tributaria Centrale (I984),
II-II43, reproduced in Document N. IZ.
(28) Reply, p. I 39, nt. zz.
CONTROREPI.,ICA DEI, GOVERNO ITAUANO 217
the Court of Cassation mentioned above give a strong indication of what would have been the
attitude of ltalian courts if Raytheon and Machlett had brought a claim and invoked provisions
in the · Treaty an d the Supplementary · Agreement; ·
An. attitude in .. favour · of the self-executing · character of treaty provisions was shown by
the Italian Court of Cassation .also when. individuals . invoked; · in • cases. brought against public
authorìties,. provisìons.oftreatieslike GATTwhichwere taken not to be self-executing by some
non-:-Italìan coutts. For instance,. deeision N; 1455 of 21 .May 1973, Ministero delle Finanze
v.S.p,a.Manifattura. Lane Marzottq, held thatArticleU(b) of GATT << is immediately applicable,
without the need f0r futhe1: .. legi~;~Iative .intervention, not only to the participating State but
also to the subjects of the internalsystem, which gives rise. direcdy to rights and obligations >> (29).
The Reply (80) referred to a decision concerning Article 78, paragraph 4, of the Peace Treaty
with Italy, which concluded that << the said Article constitutes a relationship enforceable in internallaw
» (31). With regard to the $ame .provit!ion, in decit!ion N. 107 of 14 January 1976, Ministero
del Tesoro v. Mander Brothers Ltd., the Supreme Court stated that the said paragraph,
<< in providing that the Itaiian Government be charged with the obligation to indemnify citizens
of the United Nations for losses suffered, from wartime events, following injury or damages
caused to their property in ltaiy, gives rise, along with an international obligation of the Italian
State vis-à-vis the other Contracting States, to a direct legai relation of a binding character,
between the first State and the individuai citizens of the United Nations. Such relation, complete
in all its essential elements, is immediately effective in the domestic legai system, without the
further requirement of a normative act of integration or of implementation, and therefore, as
was pointed out by the Sezioni Unite of this Supreme Court, it is actionable by the same citizens
before Italian courts » (32). This reasoning hardly supports the Applicant Government's assertion,
with regard to the Treaty, that << although there is provision in Article V for indemnification by
the Government of Italy of those individuals or corporations who have been deprived of their
property, that Article is still not sufficiently complete » (38).
The Reply's further contention, that ((since Raytheon's and Machlett's claims are those of
shareholders, Italian law would prevent a suit seeking compensation based on the illegal requisition
because ltalian law reserves such a right to ELSI alone, despite the existence of the
Treaty » (34), is an inaccurate rendering of Professor Fazzaiari's <dndependent» Opinion to which
it refers : the final part of the Opinion, in which the argument was put forward, was written on
the basis of << [h]aving excluded that the treaty has introduced into the internallaw claims and
judicial remedies stronger an d different from those aiready available in the I talian legai system
>> (
35). Hence, this argument, whatever its merits, in no way affects the question whether
the Treaty could be invoked before Italian courts.
The Counter-Memoriai quoted a decision by the United States Court of Appeals for the
Fifth Circuit, which held that the treaties of Friendship, Commerce and Navigation <<are selfexecuting
treaties >> ( 86). The Applicant Government has in no way chailenged this appraisai of
the attitude of United States courts towards treaty provisions whose language is identica! or
similar to that of the provisions which could have been invoked before Italian courts. Nor has
(29) 96 Il Foro Italiano (1973), I-2444. English translation in 2 The Italian Yearbook of International Law
(1976), pp. 383-384. See Document N. 5·
(30) Reply, p. 138 and nt. I I.
(31) Decision N. 3592 of 13 November 1974, Ministero del Tesoro v. Di Raffaele. English translation in 2
The Italian Yearbook of International Law (1976), pp. 366-368.
( 32) 99 Il Foro Italiano (1976), I-2463. English translation in 3 The Italian Yearbook of International Law
(1977), p, 349-350. See Document No. 4·
( 83) Reply, p. 138. Under Italian law, the fact that in some instances there may be a doubt as to whether a remedy
exists before an ordinary court or an administrative court never implies that no remedy exists or that a provision
in a treaty may be taken as not being self-executing. The decision quoted at nt. 31 was in favour of the
competence of ordinary courts. No doubt, also a claim for damages under Article 2043 of the Civil Code should
be brought before an ordinary court.
(84) Reply, p. 138.
(35) Reply, Annex 2, Part. II.
(86) The reference to the decision in Spiess v. Itoh. & Company, 643 Federai Reporter, 2d Series, p. 353 et.
seq. (1981) was made in the Counter-Memorial, p. 1oo, nt. 6.
218 RASSEGNA DELL'AVVOCATURA DELLO STATO
--------------------~~~~~~~.
theApplicantGovernment given any compelling reason why Italian courts should have disregarded
these provisions. The decisions quoted above point, on the contrary, to an attitude which is
certainly not less favourable to the self-executing character of treaty provisions. Thus, Raytheon
and Machlett, in seeking immediate recourse to diplomatic protection (37), did not use the local
remedies available to them, as they were required to do under the local remedies rule. As was
said by Mr. Becker, the Agent for the United States Government in the Interhandel case:« Even
if by violation of a treaty an international wrong would have been committed, that wrong still
would not be sufficiently definite and complete so as to give rise to a claim between States. In
order to give rise to an international claim, a treaty violation must have become definite and complete;
it must have passed beyond the stage where domestic judicial action of a country can
rectify the violation (38).
(37) The request for an opinion on the admissibility of diplomatic protection {Unnumbered Documents sub.
mitted by Italy, Vol. I, p. 161) shows where their main objective was as early as 1971.
(BB) l.C.j. Pleadings, lnterhandel Case (Switzerland v. United States), p. 505.
PART IV
TRE INTERPRETATION AND APPLICATION OF TRE 1948
TREATY AND TRE 1951 SUPPLEMENTARY AGREEMENT
I. Aims pursued by the 1948 Treaty and principles on which it is based.
In Part Five of the Reply, in which the legal basis of the claim of the United States is examined,
some remarks are addressed in the first place to the question of the aims characterizing the
Treaty of Friendship, Commerce and Navigation of 2 February 1948. The Italian CounterMemorial
(l) had stressed the importance that the object and purpose of a treaty have in the
interpretation of its provisions in accordance with Artide 3 I of the Vienna Convention on the
Law of Treaties (2). The Counter-Memorial emphasized the great variety of aims pursued by
the 1948 Treaty and showed that the provisions to which the Applicant refers cannot be interpreted
solely as a function of the interests of United States investors in Italy.
In fact, as the Applicant asserts in its Reply, the Treaty provisions show that "both Parties
were concerned with the property and interests therein of each Party's corporations in the territory
of the other » (3). Rowever, for this very reason it is essential to ascertain accurately the
extent to which the above-mentioned provisions refer to the property and interests owned by
the Raytheon and Machlett corporations in Italian territory.
A further preliminary question is that of the principles on which the 1948 Treaty is based (4).
The Applicant argues that the principles of national treatment and of most favoured nation treatment
are not the only ones applied in the Treaty. (5) This is nota pertinent criticism of our reasoning
which consisted in pointing out that these are the only two principles explicitly mentioned
in the Preamble to the Treaty (6). The Applicant itself referred to an .earlier case in which the
Preamble was used by the Court to establish the object and purpose of a treaty (1). This does
not imply denying that "[t]he operative standard of treatment must be analyzed for each of the
articles advanced by the United States » (8). Rowever, one should not neglect the significance
of the phrase «in conformity with the laws and regulations in force», which qualifies the standard
of treatment provided for in several articles of the Treaty.
(l) Counter-Memorial, pp. I02-I04.
(2) The Counter-Memorial, on p. Ioi, noted that << [a]lthough the 1969 Vienna Convention on the La w of
Treaties does not apply to the interpretation of the Treaty and its Supplementary Agreement; the rules on interpretation
included in the Convention are to be considered as corresponding to those applicable under generai internationallaw
>), This appears to be common ground between the Parties, as in the Reply the « United States agrees
that the rules of the Vi enna convention apply to the interpretation of this Treaty >) (p. I 46, nt. 22).
(3) Reply, pp. I4I-142.
(4) See Counter-Memorial, pp. I04-I06.
(5) Reply, p. 142.
(6) Counter-Memorial p. 104.
(7) Reply, p. 142, nt. 4·
(B) Reply, p. 142.
220 RASSEGNA DELL'AVVOCATURA DELLO STATO
2. The ltalian nationality of ELSI.
A fundamental problem is related to the status of the ELSI company, i.e. of the entity that,
having decided to cease its activities, had its plant and equipment requisitioned and was subsequently
dedared bankrupt at the request of its management, its plant finally being sold. In this
connection it has been pointed out in the Counger-Memorial (9) that, in accordance with Artide
II, paragraph 2, of the Treaty, ELSI, having been incorporated in Italy under Italian law, is
an Italian company, notwithstanding the fact that in 1968 ali its shares were owned by the United
States companies Raytheon and Machlett. In view of its nationality, therefore, ELSI was not
eligible for protection under the 1948 Treaty and the 1951 Supplementary Agreement between
Italy and the United States with reference to its activities in Italy and the events concerning
it which occur.red in Italy. In this regard the Counter-Memorial cited the decision of the Supreme
Court of the United States in the case of Sumitomo v. Avigliano (1°). In accordance with the
Treaty of Friendship, Commerce and Navigation between the United States and Japan (in which
Artide XXII, paragraph 3, corresponds to the above-mentioned Artide II, paragraph 2, of
the Treaty between Italy and the United States), the Court ruled that since the Sumitomo company
was incorporated in New York under New York law « it is a company of the United States,
nota company of Japan », and therefore could not « invoke the rights provided in Artide VIII
paragraph 1 » of the Japan-United States Treaty.
With regard to this case the Applicant only asserts in a footnote (11) that the argument presented
by the United States before the Supreme Court in the case of Sumitomo vs. Avigliano
is not relevant to the present case since it << dealt with language particular to Artide VIII (1)
of the FCN Treaty >>. It is easy to reply, however, that the only argument of the United States
mentioned by the Italian Govemment in its Counter-Memorial (12) was drawn from the brief
submitted to the Supreme Court by the United States as Amicus CUiiae, and consisted in the
observation that, in accordance with the Treaty with J apan, « a company has the nationality of
its piace of incorporation n, This obviously results from Artide XXII paragraph 3 and not from
Artide VIII (1) of the said Treaty. Anyway, what really matters is the passage taken from the
Supreme Court's decision: the Applicant is referred to the quotation on p. 98 of the CounterMemorial
which was summerized above.
Certainly, Artide II, paragraph 2 of the 1948 Treaty represents a provision which is very
dear an d cannot be ignored. Consequently, the heart of the matter is to establish whether-given
the fact that ELSI was not eligible by nationality to invoke the Treaty with regard to Italian
authorities, any rights and interests of the two United States shareholders in ELSI, namely
Raytheon and Machlett, are « specifically protected >> by the provisions of the Treaty referred
to by the Applicant, as is asserted by the latter. On principle, it is possible that certain provisions
of an international bilatera! instrument may be intended to protect specific rights or
interests of the shareholders in a company. This was recognized by the Court in the Barcelona
Traction case. (1 3) While the Applicant cites this well-known precedent (14
), it fails to acknowledge
that the Court's decision stressed the firm distinction between the company's rights and those
of its shareholders (15). This distinction was based on the nature of corporations stock under
domestic law; which was considered to be relevant also in internationallaw insofar as the latter
makes reference to the « rules generally accepted by municipal legai system which recognized
the limited company whose capitai is represented by shares » (1 6). lnter alia the Court stated that ...
« even if a company is no more than a means for its shareholders to achieve their economie purposes,
so long as it is « in essere n, it enjoys an independent existence >> (17).
(9) Counter-Memorial, pp. 106-108.
(10) Counter-Memorial, pp. 106-107.
(11) Reply, p. 143, nt. 7·
(12) Counter-Memorial, p. 106.
(13) l.C.J. Reports 1970, p. 39, para. s8. See also p. 47, para. 90.
(14) Reply, p. 143.
(15) l.C.J. Reports 1970, p. 34, para. 41.
(16) I.C.J. Reports 1970, p. 37, para. so.
(17) J.C.J. Reports 1970, p. 36, para. 45·
CONTROREPLICA DEL GOVERNO ITALIANO 221
·In fact. this is the principle which, ·by means of provisions assigning the nationality of the
companies to the one and to the other Party to the Treaty, is considered to be a fundamental
starting point also by Treaties of Friendship, Commerce and Navigation. It is true that a smali
number of clauses ado p t instead what the Court calis « the process of lifting. the veil >l; the Court
stated that this process, <ç being an exceptional one admitted by municipal law in respect of an
institution of i:ts own makihg, is equally admissible to play a similar role in international law ll,
with the result that << on the international plane also there may in principle .be special circumstances
which justify the lifting of the veil in the interest of shareholders )) (~8). I t is dear, however,
that when cert.ain dauses specifically protect the interests of foreign shareholders in a national
company they must be interpreted restrictively and rigorously, as is in ali exceptional rules (19
).
The argument put forward by the Applicant according to which ali the provisions of the I948
Treaty and the 1951 Supplementary Agreement invoked byit are to be considered as instruments
a:ffording a wide range of protection for American shareholders. of It.alian companies does not
appear to have any legai basis.
3· T'he allege<l interference by Italy in the management and control oj ELSI. Was Article III, paragrapkz,
oj the Treaty violated?
Let us now examine each of the claims advanced by the United States Government, in the
order in which they appear in the Reply. The first wrongful act allegedly committed by the
Respondent is to have interfered in the management and contro! of the ELSI company. This
alleged act would have takenplace, according to the Applicant, first when it was decided to requisition
the plant and equipment, further when the decision by the Prefect of Palermo on the
ELSl appeal against the requisition order was delayed and, lastly, when the bankruptcy proceeding
was thwarted. Italy is thus alleged to bave violated Articles III and VII of the 1948
Treaty and Artide I of the. 1951 Supplementary Agreement.
Artide III isdividedintotwo paragraphs and there is no a1Iegation that Itaiy did not compiy
with the first of these paragraphs in the case in point. Therefore, the Appiicant has impiicitly
admitted that the Raytheon and Machlett companies enjoyed the right of holding shares in ELSI
under conditions no Iess favourabie than those granted to companies of any third country. The
Applicant implicitly recognizes also that ELSI, which was controlied by the said two United
States companies, enjoyed the right to exercise the functions for which it had been created in
conformity with the Itaiian Iaw and reguiations, upon terms no Iess favourabie than those accorcied
to corporations controlled by corporations of any third country.
The dispute concems paragraph z of Artide III which the Appiicant interpreta as permitting
t.he United States companies to organize, contro! and manage Italian commerciai and industriai
corporations subject oniy to the requirements estabiished by Italian law. This right is alleged
to have been violated by the requisition decree.
Such a contention is unfounded. First of ali, with regard to the interpretation of the relevant
section of Article III, paragraph z, it was emphasized in the Counter-Memorial (20) that
the right of United States companies to << organize, contro! and manage >> corporations and associations
in Italian territory has been granted by the Treaty ~in confQrtnity with applicable laws
and regulations)) in Italy; in other words, without prejudice to the powers granted by law to the
Italian authorities. In its Reply, the Appiicant admits that << the way in which management and
controi may be exercised is subject to the regulation under locai Iaw ll, althought it adds that
« the right to manage and contro! may not be abrogateci entirely regardiess of the treatment
accorded to It.alian nationals)) (21). Furthermore, Artide III, paragraph z, is deemed to include))
15
(1B) I.C.J. RBports 1970, p. 39, para. 58. Emphasis added.
(19) Counter-Memorial, p. xo8.
(20) Counter-Memorial, p. III.
(21) Reply, p. 145.
222 RASSEGNA DELL'AVVOCATURA DELLO STATO
« certain mmtmum standards of protection under internationallaw, including protection from
unlawful interference .with management and control » (22).
I t seems dear that the rights in questionare granted within the framework of existing Italian
legislation. In the case in point, the right to organize Italian corporations and associations
does not appear to have been taken into consideration by the Applicant. This is explained by
the fact that ELSI was already organized when the Raytheon and Machlett companies became
its shareholders. Control and management are instead concepts that refer to all those powers
which may be exercised by majority shareholders, as member of the company's Assembly,
i.e. to elect the members of other company organs, to approve the fìnanciai report, to supervise
the company management. In effect, ail these powers were exercised by Raytheon and Machlett
from the time they became majority shareholders of ELSI. And this has never been challenged
with reference to the activity carried on by these companies in the period preceding the requisition.
As to the later period, if it is admitted that management and control are protected by
the Treaty in conformity with the applicable locallaws and regulations, all the interference the
public authorities may exercise under these laws and regulations must be deemed to be compatible
with the degree of protection afforded under the Treaty. Indeed such protection cannot
be considered to be extended to the point that the United States shareholders are exonerated
from the application of imperative measures, which are binding for all subjects; some of these
measures may have an effect on the powers to manage and contro! an Italian company. In this
regard it should be noted that the Italian legai provisions on the basis of which the requisition
decree of I Aprii I968 was issued without doubt pursues public policy aims and could be characterized
as police regulations.
What must be anyway ruled out is that Artide III, paragraph 2, includes a minimum
standard of protection as established by customary internationallaw. No such standard is in
fact provided by paragraph 2. Moreover, it has been seen that generai international law gives
no protection to foreign shareholders in national companies (there is no need to make any further
reference to the Barcelona Traction case). Furthermore, the Applicant itself asserts that the standard
in question includes the « protection from unlawful interference with management and
contro! » (23), and certainly not protection from interference based on locai laws.
It remains to compare the fact which the Applicant alleges to be unlawful with the provisions
of Artide III, paragraph 2. In the Counter-Memoriai it was fìrstly noted that the requisition
decree of I Aprii I968 did no affect the shareholders' control of the ELSI company, but
only the company's control of the requisitioned assets (24). Secondly, it was pointed out that the
effect of this decree was only to temporarily suspend, and not to curtail defìnitively, the company's
contro! of the requisitioned assets (25). Thirdly, it has been emphasized that the invalidity
of the requisition decree, as ascertained by the decision of the Prefect of Palermo, does not alter
the fact that it was issued by the competent authority on a regular legai basis (26).
The Applicant contends in its Reply (27
) that only the United States companies which were
ELSI's shareholders had the right to decide upon its liquidation, and that the requisition deprived
ail potential purchasers of access to the plant, thus making it impossible to sell it as a going concero.
Furthermore, according to the Applicant, the illegitimacy of the requisition insofar as it
was not capable of achieving the purpose declared by the Mayor of Palermo would mean that
it was not in accordance with Italian law. Lastly, the alleged interference by the Itaiian Government
in the bankruptcy proceeding further diminished Raytheon and Machlett's right to receive
any of the benefìts of a normai bankruptcy sale.
These contentions appear to be largely irrelevant and in any case groundless. The unlawful
act alleged to have been committed by the Italian Government is to have prevented the
United States shareholders from managing and controlling the ELSI company. It has already
(22) Reply, p. I46.
(23) Reply, p. I46 and nt. I9.
(24) Counter-Memorial, p. In.
(26) Counter-Memorial, p. III.
(26) Counter-Memorial, p. I I I •
(27) Reply, p. I#.
CONTROREPLICA DEL GOVERNO ITALIANO 22:)
been explained that the requisition of the ELSI company was directed towards its plant and
equipi:nent, which thus became temporarily unavailable to the owner. A t the same time, the
United States shareholders continued to exercise management and control over the company.
This is shown by the fact that they allowed the Board of Directots to file a petition for bankruptcy
during the period that the requisition was in force.
There are two logical an d legai flaws in the atguments advanced by the Applicant: the
tendency to confuse the rights .of the shareholders, which are protected by the Treaty, with those
ofthe Italian eompany ELSI, and the tendency to present as e:ffects of the requisition what
were in actual fact effects of the bankruptcy. If these two flaws are reì:noved, the situation becomes
clear. In particular: it is true that the shareholders had the right to wihd up the company, but
it was the bankruptcy petition resulting from insolvency and not the temporary requisition,
which · prevented this right from being exercised. With regard to the right of access to the plant
by potential purchasers, suffice it to say that uritil 30 September 1968 this entailed obtaining the
approval of the custodians of the requisitioned assets, and after that date, ofthe Receiver in the
bankruptcy proceeding; in either case, however, they were replacing ELSI's company
officials an d not its shareholders. As to the rights of Raytheon an d Machlett companies to receive
any benefit from the bankruptcy sale, these could come into being only at the end of the bankruptcy
proceeding. They could have no possible relation with the right to manage and control
ELSI. In any case, the << interference ·>> by the Italian Government in the bankruptcy proceeding
has not been proved.
Moreover, the temporary nature of the requisition cannot be overlooked when discussing
the e:ffects of the decree by the Mayor of Palermo on the availability of the requisitioned assets.
The fact that these effects ceased on 30 September 1968 canriot be denied; it emerges from the
text of the decree and was dearly taken by the Court of Palermo as one of the factors, when calculating
the compensation to be paid to the ELSI bankruptcy Receiver. In its attempt to sup·
port its allegation that the requisition completely prevented the United States shareholders from
mana:ging and controlling ELSI, the Applicant has added to the requisition period that of the
bankruptcy, without any concern for the fact that the latter was not caused by the Italian Government;
Finally, the circumstance that the requisition in question was considered to be illegitimate
under Italian law does not produce a conflict between the said measure and the phrase << in conformity
with applicable law and regulations" contained in Artide III, paragraph 2, of the Treaty.
As stated above, this phrase is used to impose a generai restriction on the scope of the powers
of managing and controlling Italian companies attributed to United States shareholders. Although
the Prefect of Palermo ultimately quashed the Mayor decree on the ground of its inefficacy in
obtaining its stated purpose, the requisition was nevertheless the act of an authority duly empowered
to take such a measure. In any case, Artide III, paragraph 2, can certainly not be used
to assert an obligation, under internationallaw, for the Italian Government to respect the Italian
laws governing requisition; the Italian Government is only under an obligation to recognize
certain powers to foreign shareholders- in particular to manage and contro} Italian companies
-,- within the framework of Italian legislation. Moreover if it is correct that the requisition did
not affect those .. powers,, the issue of the specific relevance of the phrase «in conformity with
applicable laws and regulations >i cannot be of any use to the Applicant's assertion.
4· W as there a violation of Article VII, paragraph I· of the Treaty?
lt has already been recalled that, according to the United States Government, interference
by the Respondent in the powers of management and control of ELSI held by the two shareholding
companies allegedly violated Artide VII of the 1948 Treaty, and paragraph I of this artide
in particular. I t was pointed out in the Counter-Memorial (28) that this provision grants to the
(28) Counter-Memorial, p. uo.
224 RASSEGNA DELL'AVVOCATURA DELLO STATO
nationals, corporations and associations of each Party the right « to acquire, own and dispose
of immovable property or interests therein »in the territory of the other High Contracting Party,
under condition of reciprocity. A preliminary objection addressed to the Applicant was that
~he ELSI plant belonged to ELSI, and certainly not to its United States shareholders; the only
relevant assets possessed by the latter companies may be said to be the shares themselves.
The Applicant's Reply (29
) is based on two points. On the one hand it points out that Artide
VII. refers to « immovable property or interests therein », and asserts that the term « interest in
property » is sufficiently broad to include also the hypothesis of property owned indirectly through
a subsidiary company. Furthermore, the Applicant points out that even if Raytheon and Machlett
could claim protection oQly for their shares, one should take into account the fact that their
value was allegedly reduced to zero by the requisition.
With regard to the first point it must be remarked that the terms contained in the English
version of Artide VII, paragraph I-<< immovable property or interests therein »-corresponds
in the Italian text to the words << beni immobili o altri diritti reali », thereby referring to the
right of ownership of immovable property and to other absolute rights of a more limited extent.
This must lead anyone interpreting them to exclude completely that the term << interests » can
have in the Treaty ·the meaning attributed to it by the Applicant. The fact that ltalian law does
not recognize any « indirect >> ownership of immovable property (of which the .two United States
companies would be the ownets in the present case through an Italian subsidiary owned by
them) leads to the conclusion that if the United States actually did intend, at the time of the
1948 Treaty, to protect property in the sense indicated by the Applicant, this intention did not
emerge or prevail. This is shown by the difference observed in the two texts, which are equally
authentic according to Artide XXVII of the Treaty.
Therefore Artide VII, by guaranteeing the availability to Raytheon and Machlett of immovable
property o altri diritti reali in Italian territory, certainly protected the availability of the
ELSI shares to them but not that of the plant, of which the latter company was sole owner.
As for the allegation that the market value of ELSI shares was reduced appreciably as a result
of the. requisition, it must be pointed out that the protection afforded to the United States shareholders
under the 1948 Treaty could not be extended to the point of guaranteeing the market
value of their investments!
5· ..• or of Article I of the 1951 Supplementary Agreement?
The alleged violation by Italy of the obligation to allow the United States shareholders of
ltalian companies to exercise the management and contro! of such companies is, according to
the Applicant, an act which is incompatible also with Artide I of the Supplementary Agreement
of 26 September 1951 between the United States and ltaly.
Under the provisions of this artide the nationals, corporations and associations of each
Party << shall not be subjected to arbitrary or discriininatory rrl.easures within the territories >>
of the other Party whenever such measures would have the effect of: <<(a) preventing their effective
contro! and management of enterprises which they have been permitted to establish or
acquire therein ». A different effect is considered in section (b), but this will be discussed in
the following paragraph. By requisitioning the ELSI plant, Italy is alleged to have violated the
above-mentioned prohibition.
The first objection raised in the Counter-Memorial was that the requisition decree was
addressed to the Italian company ELSI and not to its shareholders (3°). l t was also pointed oùt
that although the requisition temporarily deprived ELSI of the availability of the requisitioned
assets (plant and equipment), it did not prevent management and contro! of the company from
continuing to be freely exercised by the statutory company organs with regard to ali aspects of
management other than those requiring on immediate need to have access to the requisitioned
(29) Reply, pp. 147-148.
(SO) Countex-Memorial, p. III.
.· .. · ..... ··.· .. · ... ··.
(~l) GQ~te~c'Memorial,. p. 1.12..
(32) Re~ly, p. 146. . .
(:13) Reply'; p; r46.
(34) Counter-Memorial, pp. na-u4.
(35) Reply, p. 147.
(36) Reply, t'; r47, . ·
(87) See Art1cle 7 of the Law N. 2.2.48 of ao March x86s, Annex E, Memorial, Annex 34·
225
226 RASSEGNA DELL'AVVOCATURA DELLO STATO
to the regional economy, substantial risk for law and order - seems to indicate that, despite
the formai irregularity of an improper use of power, the requisition decree was not the result
of any intention by the administrative authorities to harass ELSI (or its shareholders), but was
instead justified by a number of circumstances.
Last but not least, it is necessary to examine whether the measure in question can be considered
discriminatory. l t was already noted that, in the context of Treaties of Friendship, Commerce
and Navigation, which are mostly based on the principle of national treatment, a discriminatory
measure is essentially equivalent to a malicious distinction based on the nationality
of the beneficiaries. According to McKean (38): « the word discriminate alone is commonly used
in the restricted sense of an unfair, improper, unjustifiable or arbitrary distinction, and it is this
meaning that has come to be employed in international law ». The same author insists on the
« special meanÌilg » acquired by the term « discrimination » in international legai use, pointing
out that « it does not mean any distinction or differentiation, but only arbitrary, invidious or
unjustified distinctions ». In the case in point, even if one assumed that the requisition had directly
a:ffected the United States shareholders, nothing authorizes one to believe that it may
have implied the intention to apply a di:fferent and unfair treatment to the United States investors.
It is recalled here that a large number of examples of the requisitioning of plants of Italian
companies for reasons related to employment crises was mentioned in Part I of this Rejoinder.
On the other hand, the Applicant, realizing that it is impossible to assert that the requisition
was « discriminatory » in the sense defined above, asserted the existence of discrimination
in favour of the Italian company controlled by IRI, which purchased the ELSI assets at
the bankruptcy auction. However, it seems unnecessary to dwell on this flight of fancy. l t would
mean that an alleged << plot » hatched by the Italian Government, the bankruptcy proceeding
officials and the IRI group had already been arranged in view of depriving Raytheon and Machlett
of their supposed technological jewel! Such a method of presenting the facts of the case is
another dear example of the superficiality with which the Applicant has approached both the
problem of the causai connection and that related to the notion of act of the State when speaking
of the wrongful acts allegedly committed by Italy.
6. The alleged impairment by Italy of the United States companies' rights and interests.
The second act by the Italian Government deemed to have violated the obligations imposed
to it by the 1951 Supplementary Agreement with the United States consists in the alleged impairment
of the interests of the Raytheon and Machlett companies. This complaint is based on
Artide I of the Agreement, which has been examined above, with specific reference to Artide
I (b). When read together, the provisions put nationals, corporations and associations of either
High Contracting Party in a position not to be subjected to arbitrary or discriminatory measures
within the territories of the other High Contracting Party, resulting in impairing the other legally
acquired rights and interests in the enterprises « which they have been permitted to establish or
acquire herein » or in the investments which they have made, whether in the form of funds (loans,
shares or otherwise), materials, equipment, services, processes, patents, techniques or otherwise.
The measure which the Applicant asserts to be incompatible with these provisions is again
the requisition.
The main objection to this contention consists in the remark that, if the requisition measure
was neither arbitrary nor discrhninatory, as the Italian Government submits, none of the provisions
contained in the said Artide can be applied to the present case. Moreover, the Claimant
asserts that ali the rights and interests impaired by the bankruptcy fall within the scope of the
above-mentioned Artide I (b). This makes it necessary to repeat once again that the bankruptcy,
for which a petition was filed by ELSI, was not caused by the requisition. No proof whatsoever
of a causai link has been produced by the Claimant because its argument is unfounded. In fact
the bankruptcy was the result of ELSI's insolvency, which preceded the requisition. In any
( 38) The meaning of discrimination in international and municipallaw, in the British Yearbook of International
Law, 1970, p. 177 et seq.
CONTROREPLICA DEL GOVERNO ITALIANO 227
case, however, the action of the organs conducting the bankruptcy proceeding cannot be referred
to the Italian Government, and this is even more true if one considers the actions of Raytheon's
creditors! It is quite absurd that the Claimant should attempt to include within the scope of
application of Artide I (b) of the 1951 Supplementary Agreement even the financial losses suffered
by Raytheon in defending itself in the suit brought against it by the Italian banks to which
it owed money!
7· The alleged Italian taking of interests in property of Raytheon and Machlett.
According to the Claimant the third of the alleged wrongful acts by the Italian Government
consists in the " taking of interests in property >> to the detriment of the Raytheon and MachJett
companies. The provision invoked in this connection is Artide V, paragraph 2, of the 1948
Treaty, with reference to paragraph 1 of the Protocol. Under Artide V, paragraph 2, the expropriation
of property belonging to national corporations and associations of either High Contracting
Party within the territories of the other is inadmissible «without due process of law and without
the prompt payment of just and effective compensation >>. The Protocol, which bears the
same date as the Treaty, establishes in its first paragraph that << The provisions of paragraph 2
of Artide Vproviding for the payment of compensation shall extend to interests held directly
or indirectly by nationals, corporations and associations of either High Contracting Party in
property which is taken within the territories of the other High Contracting Party >>,
In the Counter-Memorial three arguments have been clarified: firstly, that the e:ffects of
the requisition of ELSI assets were quite di:fferent from those of an expropriation; secondly,
that on the basis of an interpretation which takes into account also the Italian text of the Protocol,
the provisions of Artide V, paragraph. 2, shall .extend to the rights and not to the mere
interests of United States companies in property which is taken in Italy, lastly, that the Protocol
cannot be interpreted as giving to the assets of an Italian corporation controlled by United States
shareholders the same protection as is granted to an United States corporation under Artide
V (89). The Applicant's reply to these arguments may be summarized as follows: a taking of
property is generally recognized as including not merely outright expropriation but also any
unreasonable interference with the use, enjoyment or disposal of property; the English term
« interests >> properly refl.ects the meaning of «diritti))' (and in any. case the Protocol refers to
interests held directly or indirectly by nationals, corporations and associations of either Party
in property taken within the territories of the other Party); lastly, the standard of protection
guaranteed by the Protocol is exactly the same as that provided by Artide V, paragraph 2 (
40
).
The three arguments outlined above may be further elaborateci upon. It is a known fact
that, in the decree of 1 Aprii 1968, the Mayor of Palermo provided for « the requisition with immediate
effect and for the duration of six months, unless further extended, and without prejudice
to the rights of the parties and third persons >> of the ELSI plant and equipment. The decree
referred to Artide 7 of Law N. 2248 of 20 March 1865 Annex E, as well as to Artide 69 of the
regionallaw governing local authorities (Decree N. 6 of the President of the Sicilian Region of
21 October 1955). It must be pointedout here tha.t a temporary requisition is quite different
from expropriation, while the Italian text of Artide V, paragraph 2, of the 1948 Treaty only
concerns «beni espropriati>> (expropriated property) and «esproprio dei beni>> (expropriation of
property). Furthermore, under Italian law, Artide 7 ofLaw N. 2248 of 20 March 1865, Annex
E, empowers the administrative authorities to « dispose without delay of private property in the
case of serious public necessity ))' while making no reference at all to expropriation (which is regulated
by another legislation act- Law N. 2359 of 25 June 1865). In its turn, Artide 69 of
the Decree of 21 October 1955 of the President of the Sicilian Ragion empowers mayors to take
the steps deemed necessary to cope with emergency situations, again without mentioning expropriation.
Therefore, if the characteristics of the case in point are compared with Artide V, paragraph
2, of the 1948 Treaty, taking into account the Italian text, it is dearly to be excluded
that this provision applies to the temporary requisition of the ELSI assets.
(89) Counter-Memorial, p. 109.
(40) Reply, pp. ISO-I53·
228 RASSEGNA DELL'AVVOCATURA DELLO STATO
Logically, in order to introduce a claim based on Artide V, paragraph 2, the United States
would have to assert that only the English text of the Treaty should be considered, and also that
the expression « taking of property » has actually such an extension as to include a temporary
requisition. However, the dominance of the English text is denied by the above-cited Artide
27 of the I948 Treaty, according to which the Italian and English texts are" both equally authentic
», Under Artide 33 of the Vienna Convention on the Law of Treaties this means that, except
in the case of specific mutuai agreement to the contrary, « the text is equally authoritative in each
language », However, Artide 33, paragraph 4, of the said Vienna Convention establishes that
when the comparison of identica! texts reveals a di:fference in meaning which cannot be removed
by applying Articles 3 I and 32, « the meaning which best reconciles the texts, having regard to
the object or purpose of the treaty, shall be adopted ». In the light of this principle the only way
to reconcile the English and Italian texts of Artide V, paragraph 2, of the I948 Treaty, is that
to assume that a taking of property under Artide V, paragraph 2, must be considered to occur
only when it possesses the characteristics of a definitive deprivation of property. In the Italian
text, this characteristic is indicative of expropriation and is found in the majority of cases where
a << takin gof property » in a wider sense is involved. This would lead to the exclusion from
the scope of Artide V, paragraph 2, of ali cases of any temporary requisition «in use » such as
that applied to the ELSI asserts on I Aprii 1968. ,.
However, even if one assumes that the use of the expression « taking of property » should
be accepted (which would amount to subordinating the Italian text to the English text!), a requisition
in use, which has the nature of a temporary form of Government contro! over private
property, could not be said to be equivalent in any case to a« taking of property » as set out in
the English text of Artide V, paragraph 2, of the Treaty between United States and Italy. The
vast amount of literature on the subject written in English seems to indicate that the abovementioned
forms of contro! should rather be defined as (( indirect takings·» e1) and that only the
interferences in physical property « which significantly deprive the owner of the use of his property
>> amount to a taking of that property (42). One must rule out that an interference limite d
to six months, i.e. a short suspension of the availability of the assets, could be defined as a significant
deprivai of the owner's use of property.
In conclusion, there are good reasons for sharing the view expressed by the United States
Arbitrator George Aldrich in the case ITT -Islamic Republic of Iran (43): « while the taking of contro!
over private property by a government does not automatically and immediately justify the
conclusion that the property has been taken by the government ... such a conclusion is warranted
whenever events show that the owner was deprived of fundamental property rights and it appears
that such privation is not merely ephemeral >>, In the case in point, the deprivai of the use
of the ELSI plant for the duration of six months cannot be equated to the deprivation of fundamental
property rights.
Certainly, the Mayor of Palermo was exercising a power granted to him for reasons of public
necessity in order to remedy temporarily a situation of social unrest and to prevent disorders.
In other words, he was using a regulatory power, more precisely a police power, and the exercise
of such a power can hardly be assimilateci to an expropriation measure (44).
In a study (46
) based on practice, the following conclusion was reached: « A State's declaration
that a particular interference with an alien's enjoyment of his property is justified by the
so-called « police power >> does not preclude an international tribuna! from making an independent
determination of this issue. But if the reasons given are valid and bear some plausibile re-
( 41) See Rosalyn HIGGINS, The Taking of Property by the State, in Collected Courses of The Hague Academy
of International Law, 1982 III, p. 322 et sea.
(42) Ibidem, p. 324.
(
43
) This opinio~, concurrent with that of the Tribuna!, is cited by SWANSON, Iran- U.S. Claims Tribuna!:
A Policy Analysis of the Expropriation Cases in the Western Reserve Case,Journal of International Law, 1986, p. 327.
( 44) Ibidem, p. 334·
(
46
) See CHRISTIE, What Constitutes a Taking of Property under International Law, in The British Yearbook
of lnternational Law, 1962, p. 338.
CONTROREPLICA 1)1lL GOVllRNO I'l'AUANO 229
latiònid1ip to• thè< action takent an attempt may be made to search .deep.er and see wh()ther the
State was .. activated by • some illicit motive il. · ·. ·
Even iri the• case law of the. United States'. courtS;· there. are. some precedents that arednte•
);~sting in the• prl:lsent çòritext; · • In partic:IJ;lar it is worth referririg again • to a <ial!e oonc(:lrning the
sei~ute of a c:o~l 11:\Ì~~ by or<il,'e of tlle hi~l:lest •. authorities of. the> e:x:ecutive · powe:r; P.~ee>Coal
.KC4lk~~~lr$!!~~ f{)J" 9PetatioP. of !iuchmin€1!1) ~d the• $eCl,'et~t)r .. of. Interior issued orderf'or takingpo~s~ssion
ofmiile an d tequìted. mine offidal$ to agree tri con.duct operations as agents fot the govetntfient,
thete Wa~ .a .lì talting>l of pidvl)l,te property for puhlic Ul!e · with the: meaning .of the Fifth Aritend-
. ntfliit'll!'hét ist /n ()t~n<g thi a..t .t i/: ttre) ·. hia d. •b.. ... ·e····e·····n····· ·a···· ···s· ..t..r..i...k...e....,.. ...w. •h. .i c··h· h>a>·d•· ·.s.•••t••O•• p<pe d >t•h. e.· . nor·m••··•a·•l· ··o•·p e.r at/i oti/ of a
<ila! tiìjr,ie; the jridgment stressed .the fact. that the order. was justiiied by public use·/that is to
sar) bl anlothte 'ìl\rhi~h is equiv~lent the publicpurposewhich justified the requisition decree
adopte<i ~l the Mayor of :Palet:rnQi on I A_pril 1968. . .• .> / ..• . •· .
·······•·····In:••his•••9Q11C:l!rrin,g o:pìnìori•·#t•·the•same.case;.••Judge· Reed·•.said•·that·.~r·'··•·•the;· rel~tively•.new
.tt;dmiq1,1:~•·Q.f•.~€1Il:lP<ìt~~··t~ing'··W:•.ewinll.nt••4omain··is .~·•:rnol!t•.\tl!eftd··•;tdmil;listtative•·•O:evice·:·•ma.ny
piopettieS: (•;;) i.nay be subjeçted to publie operations onty !m: a il~prt time to meetwar or ~ergency
nee(Jsr ìll}d·· c~~·th~J1·.~e··retl,lmed••to ~ei:r •• o~llerl! ·~;· .. About• the• il!sue•·()f. compensati<>J1• to.·b~· at~ri•
J:>uted.t() the own.ers, Ju<f~ ~eed, aftei:. C()nsidering tnt} \lncéft;U.nty of the me~tsUte of~maf-ket
vitltteycdncluded that: <tThe reasonable S:olution. is t'O award cofupensation·to the•owner ìls de-
.t~:r::a~~·~~:~:·~d;e~~!eo~~e::t~~~~~:::e:tgA;:;~:~;:s~;;he.United··$tates·District.
Courtin..t~e··.;vou?tgstozo''Sh~etqnd.·1fi(be0ornf?any•'li'Sawyer.(Seeretary.ofStateforCommerce)
anq o;~ersì in; \Vhìch an El:etu.tive On:ìer issued by the Ptesident ofthe• UnitedStates related to
a: diàputet)etwt;ell: a .nund>er of steel t)t'oducing companies aridtheir work force; • Thejudgment
no~d. that the dispt~te ha4: not J:>ee,n settled l:>Y :rn1;1ans of collective barg:aining; or as a result of
tb,ìi} et{orts ofthe G()yeitunent, aild that the\Yòrlters had: therèforegone·.on strike .• ···The Coul,'.t
·a1s(l Jiecalled: thereas()ilf:l!underlying tlle l>rel!ideP,tfs ;Execu~j.ve: Order, stating, ·•inter alia: .«In
arder to ensure the continued availability o~ steel it :w'as netéssary .that the Uruted States take
possession o(and operate the plantl! ». Another reason urtderlined the gravity of the situation,
in that << ••• The breakdown of collective bargaining negotiations created an immediately impendipg
.. national emergen:cy: \:)~:;c~tJ;~E; ~t~~:uption of s1;eel D:\art:l.lfacturefol,' even, a brie(period would
sedously en<langer the well-b€)1ng and safety of' the United States in a criticai situation » •. Thus,
eyenif Q.ne asl!umes Jhat the J:equish:i9n; o( the ELSl.plant.was a taking · of property, one could
not deny that i t wa$ fully jl'«!tined undet . the ci:tcumstances, .. · · ·
,S •. Discr;ep~n~y be;tzqeen:t~~Jtngijsh a:nttltdlian. texts of Article V, paragraph 2, Oj ,the itreaty.
~Biflt\1111,1i ties f!,'<iÌll wruch ~he condu$ÌOn Wa!> d,raV\fn ~ha.t Òll;lY the more resttictiye fueaning. CQt'tesp<>nding
tOthe ~taliétl.te:Xt may be taken.as.rec()nciling\x)th te:x:ts. The AppliCaritl'ul.s .. Stres$ed th,atalso
the rights indireetly held by riationals of eithér Party are protecte<i under tbe Pt'otocol ancLconsidered
that the United States shareholders in question held « indirect rights » ovet the ELÈII
(46) See supra, Part I, nt. :ao and :ax.
.._ ·-~ .r7'
230 RASSEGNA DELL'AVVOCATURA DELLO STATO
plant, which could therefore be taken by Italy only in conformity with the provisions of Artide
V, paragraph 2. However, under Italian law, the shareholders can hold rights only towards the
company and have no rights on the assets of the latter. The international significance of the
distinction between the rights of a company and the rights of its shareholders appears to be supported
by the above-cited Barcelona Traction judgment. « Indirect » rights of shareholders in
a company can only be those which will accrue at a later step, for instance, after the company
has been wound up, when the compensation initially granted to the company accrues to those
who were shareholders in it. This is related to the interpretation of paragraph I of the Protocol
as a norm essentially governing the payment of compensation for expropriated property; indeed,
reference is made in the text to the provisions of Artide V, paragraph 2, « which provide for the
payment of compensation ».
Nor can it be said that the provisions concerning the property of United States companies
in Italy, contaìned in Artide V, paragraph 2, can be extended to the United States shareholders
of the Italian companies controlled by them. This does not amount to a discussion of the level
of protection granted by the Protocol, which explicitly extends certain provisions of Artide V,
paragraph 2. It is an assertion that the owners of rights over the property taken, which are protected
by paragraph I of the Protocol, do not include the United States shareholders of controlled
Italian cotnpanies but only refer to United Sates nationals, corporations and associations
holding rights over the taken "property other than ownership (e.g. usufruct). In other words,
it is anything but certain that paragraph I of the Protocol is one of the rules intended to « lift
the corporate veil » of an Italian company to which the taken property belongs. In any case, this
is by no means explicitly provided for.
It should also be noted that no investigation of the conditions prescribed by Artide V,
paragraph 2 (« due process of law and prompt payment of just and effective compensation »)
was made in the Counter-Memorial for the simple reason that the plant requisitioned belonged
to ELSI, which, as is known, was of Italian nationality and therefore not entitled to any protection
for its property in Italy under the Treaty. Even if one assumed that they were recognized
under paragraph I of the Protocol, the only relevant rights of the United States shareholders
would concern the payment of compensation for the « expropriated » property. The advent
of the ELSI bankruptcy after the requisition also had the effect that the compensation for damages
awarded by the Court of Appeal of Palermo (in replacement of the compensation for the
requisition of the plant) was paid to the bankrucpy receiver.
9· The alleged failure by Italy to provide protection and security for ELSI.
The last of the four unlawful acts for which the Respondent was allegedly responsible has
been defined by the Applicant as « failure to provide protection and security », with reference
to Artide V, paragraph I and Artide V, paragraph 3 of the I948 Treaty. Paragraph I guarantees
the protection and security of nationals and their property of either Contracting Party in the
territories ofthe other Party. It also guarantees full protection and security as provided for under
international law (with reference to property, these guarantees are extended from the nationals
to corporations and associations). Paragraph 3 repeats the promise of protection and security
with respect to the matters enumerateci in paragraphs I and 2 '' upon compliance with the applicable
laws and regulations » under conditions of reciprocity and most favoured nation treatment.
The facts which, according to the Applicant, denote the violation of these norms by the Italian
Government ·were essentially the occupation of the plant by the work force and the Prefect's
delay in upholding the appeal made by ELSI against the requisition decree (47). But in addition
to these two circumstances, the Applicant also again raises the issue of the requisition, which
referred to « the entire entity of ELSI ». Furthermore, he complains in this respect of the failure
to protect ELSI because '' the property of Raytheon and Machlett in Italy was ELSI itself >> (48).
(47) Reply, pp. I52-I53·
(48) Reply, p. 153.
CONTROREPLICA DEL GOVERNO ITALIANO 231
In the Counter-Memorial it was already pointed out that the occupation of the ELSI plant
by the work force began prior to the requisition (49) and that the Prefect's delay in rendering his
decision on the appeal against the requisition lies totally outside the scope of Artide V, paragraphs
I and 3 (50). It was also pointed out that Raytheon and Machlett have no right to complain of
any failure to protect ELSI and the ELSI plant because ELSI was an Italian company and the
plant belonged to it (51). In its Reply, the Applicant argues that paragraphs I and 2 of Artide V
(referred to in paragraph 3) guarantee the protection and security of « persons and property »,
and not of immovable property. (52) This is correct, but is here irrelevant (also because it is obvious
that immovable property represents a category of property). What does appear relevant
and therefore must be repeated, is that, in the present case, the protection and security provided
for in Artide V, paragraphs I, 2 and 3, could only referto the property of the United States companies
Raytheon and Machlett in Italy, but that this property obviously did not include ELSI
nor the equipment and plant of this separate corporate entity.
In conclusion, the reference to Artide V, paragraphs I, 2 and 3, in the case in point does not
add any further arguments to the Applicant's defence. It may therefore be replied simply that
the protection and security of the Raytheon and Machlett companies, and of the property they
possessed in ltalian territory (i.e. money and ELSI shares) are basically extraneous to the subject
of the present dispute.
(49) Counter-Memorial, p. 86 and 109.
(50) Counter-Memorial, pp. 87-88 and 109.
(51) Counter-Memorial, p. xo8.
(52) Reply, p. xsz.

PART v
ISSUES RELATING TO THE CLAIM FOR REPARATION
I. The admissibility of the request jor reparation.
The ltalian Government's Counter-Memorial highlighted the entirely subsidiary character
of the comments expressed by the Respondent in relation to the claim for reparation advanced
by the United States Government (1).
The Applicant takés for granted, in Part VI of the Reply, the responsibility of the Italian
Government for its alleged « wrongful conduct n, and therefore asserts to be entitled to compensation
" in the full amount of the losses " resulting from that conduct (2).
On the contrary, the arguments put forward by the Respondent justify the assertion that
no violation of the I948 Treaty and of the I95I Supplementary Agreement was committed by
Italy with regard to the requisition of the ELSI plant, the bankruptcy requested by ELSI and
its finalliquidation; therefore, no reparation is due for the losses suffered by the United States
shareholders of ELSI. This explains what was defined às the subsidiary nature of the Respondent's
comments about reparation: they are made for the hypotesis that the Applicant's point
of view would be accepted by the Court.
2. Decisions handed down by the Italian Courts.
In the Italian legai system, an issue of compensation for damages resulting from the requisition
was raised by ELSI and was settled by a judgment of the Palermo Court of Appeal, dated
24 January I974, which was confirmed on a further appeal by the Court of Cassation (3). As
i t was stressed earlier, the requisition decree of the Mayor of Palermo (I Aprii I 968) was appealed
against by ELSI (on I9 Aprii I968), with result that the Prefect of Palermo, by a decision of 22
August 1969, declared the decree to be illegitimate, because it did not fit the goal pursued (4).
In this regard, it must be underlined that the requisition decree only referred to the plant
and the equipment belonging to ELSI, and not to the company as a whole. This is relevant,
because it explains that the judgment of the Court of Appeal of Palermo could not, and at all
events would not, have been permitted to make a global assessment of the state of the company
taken as a whole: in fact the claim submitted to the Court referred to a decree whose content
was clearly defined.
Furthermore, it was logical that when establishing the amount of compensation, the Court
should have worked on the basis of the value attributed to the assets by the Technical Consultant
appointed by the receiver in bankruptcy. This value amounted to 4,56o,s88,44o lire. (5).
(l) Counter-Memorial, p. ns.
(2) Reply, p. 155.
(3) Memoria!, Annexes 81 and 82.
(4) Memoria!, Annex 81, p. 22.
(5) Memoria!, Annex 81, p. 22.
234 RASSEGNA DELL'AVVOCATURA DELLO STATO
Using this value as a parameter, the Court calculated the damages occasioned to the company
over the six-month period during which the requisition decree was in force to be
II4,0I4,711. lire This was based on a rate of 5 per cent of the aforementioned value throughout
the said period, plus interest accruing from I October 1968 when the requisition had ended.
3· Unlawful conduct by the State and the obligation to make reparation for any damage.
It was recalled from the outset of this Rejoinder, that no claim for reparation could have
be advanced, unless a direct link is demonstrated to exist between the alleged wrongful act and
the alleged damage, to the effect that the former was the cause of the latter. On the contrary,
the foregoing account of the facts summarizing the dispute clearly shows that the conduct attributed
to the Italian Government does not appear to be the cause of the alleged damage. The
fìrst conclusion to be drawn is therefore that these facts or acts - mainly the requisitioning of
the ELSI plant, then the bankruptcy and the resulting liquidation - cannot be deemed to have
given rise to responsibility on the part of the Italian Government, and to its alleged obligation
to make reparation to the Government of the United States.
On this subject, there is a principle which is inherent in the generai theory of responsibility,
in domestic as well as in internationallaw: the principle of causality. To be able to impute responsibility
to a person or corporation, it is not sufficient that that person performed a specifìc
action and that a damage subsequently occurred. It is also essential to show that the action
itself actually caused that damage. This is not merely a logica! requirement, but a practical need,
which is recognized and affirmed in municipal and international judicial practice.
There are quite numerous cases in which judicial decisions have stated that the causai relationship
between a wrongful conduct and the damage is the essential condition for responsibility,
and hence for the obligation to indeinnify the injured State.
Examining the concept of causality has sometimes led the courts to see whether, in individuai
cases, the causality was adequate to justify a claim for reparation. The practice of adequate
causality is based on the following consideration: only those conditions which made the
damage probable, and hence attributable to the agent, at the very moment they carne into being,
may be considered as conditions of the damage. The adequate causality criterion is mainly applied
in complex cases, where the judge has more freedom to evaluate the facts. It seems to be
particularly appropriate for clarifying the many elements that are involved in the present case.
The Respondent certainly shares what the United States Memoria! states (6); relyirig on
the doctrine it refers to (Reuter, Yntema),: « ••• the injury for which reparation is due is that
which is tied by a chain of causality to the wrongful act ». But, this obviously implies that a
damage which is not tied by an adequate chain of causality with a wrongful act attributed to a
State cannot justify a claim for reparation against that State.
4~ Causality nexus and the measure of reparation.
About the measure of the reparation claimed for the alleged unlawful acts attributed to
Italy, the United States Reply adds nothing particularly new, and mainly re-states the arguments
set out in the Memoria!. With reference to the « duty to pay », in particular, the United States
do no more than restate generai principles, almost as if they were applicable without taking into
account the specifìc facts of the present case.
According to the Reply, it is an established principle of international law that « ••• Damages
should be awarded ... to compensate for alllosses or injury caused by a State's wrongful acts » (1);
the conclusion is drawn that « ••• [a]ll the injuries suffered by Raytheon and Machlett should be
( 6) Memoria!, p. 59·
(7) Reply, p. ISS·
CONTROREPLICA DEL GOVERNO ITALIANO 235
included in the measure of compensation >> (B). But it is an equally unchallengeable principle o(
internationallaw that an injury shall be linked in some way to an act of the State having violated
an international obligation - and the violation shall be proved as existing and attributable to
that State ~ in order to entitle · the injured State to reparation. As was stated by Anzilotti {9),
" [o]n the basis of the princìple that in order to claim compensation for an injury, the injury
must be the result of an unlawful act, it is necessary to see whether the: causality relationship
exists and the relevance of ii: in conjunction with the other causes». In any case, it is essential
to · demonstrate · that there exists a sufficiently close cause-ànd-effect relationship between the
act alleged to be at the origin of the obligation to indemnify and the injury itself.
The international judicial practice is firm in excluding the obligation to make reparation
for an injury that has not been « éprouvé avoir été une conséquence réelle et inévitable » (1°) of
the injurious act, or· when the latter act << was not in legai contemplation the proximate cause of
such a damage » (11),
To more accurately appraise the United States' claims and the specifìc aspects of this case,
it is certainly an interesting exercise to recall some of the grounds on which international courts
have ruled that a sufficient causality nexus between the alleged damage<ànd a State's unlawful
(or allegedly unlawful) act did not exist.
One of these reasons is that the act attributed to the State, while giving rise to a situation
that was favourable to the· occasion1ng of an injurious event,· cannot be·considered the ·direct
cause because the event in question or the damage would have occurred in any case, due to other
circumstances not attributable to the State.
In the Rémy Martin case (12), for example, the joint Franco-German Arbitrai Tribunal re-·
fused to award damages for the lost profìts to a French distillery as a result of an interruption
of its activities following seizure by the German authorities during the war, beeause --'"'" even
without the unlawful act of seizure - the distillery would in any case have remained inactive
as it was impossible for it to receive during the war the French grapes needed for its products.
The joint Gerrnan-Romainian Arbitrai Tribuna!, in the Carnabatu case (18) also· concluded that
the requisition of an asset cannot be considered the cause of the loss of profìts which might have
been earned from selling that asset, considering that the state of war · made the latter course of
action ìmpossible. Even more telling is the Guillemot-]acquemin case (14), in which a French
national sued for the return of two apartments in Rome which she had rented to an I talian public
corporation and had been seized during the war. The Franco-Italian Conciliation Commission
concluded that as rents in· Italy had been frozen at that time by law, even « sans le séquestre et
sans les mesures prises par le séquestrataire, Madame Guillemot-Jacquemin se trouverait,
vis-à-vis de ses deux locataires exactement dans la mème situation que celle don t elle se plaint ...
Tout lien de causalité fait clone défaut entre les restrictions que le gouvernement français voudrait
voir lever et les mesures prises par le gouvernement italien à l'égard cles deux appartements en
tant que biens ennemis » (15).
(B) Reply, p. 155·
(9) Corso di diritto internazionale, Padua, 1955, p. 431.
(10) « Proved that it had been a true and inevitable consequence ~ (unofficial translation), Affaire Yuille et
Shortridge (21 October 1861), Lapradelle et Politis, Recueil des Arbitrages internationaux, ·II, Paris, 1932, p. 78.
(ll). Mexico-U.S. Claims Commission, Armando CabosLopez Case (2 March 1926), Reportsoflnternational
Arbitral Awards, Vol. IV, p. 20. See also the arbitration decision in Responsabilité de l' Allemagne en raison des actes
commis postérieurement au 31 juillet 1914 et avant que le Portugal ne participat à la guerre (30 June 1930), Reports
of International Arbitral Awards, Vol. Il, p. 1035; and the Italy-USA Conciliation Commission, Hoffman Case,
(II Aprii 1952), Reports of International Arbitral Awards, Vol. XIV, p. 100.
(12) Recueil des Tribunaux Arbitraux Mixtes, Vol. IV, p. 415; see also the Lazare Dreyfus Case, ibidem; p. 393;
the Rousseau Case, ibidem, p. 379; and the Lazare Case, ibidem, Vol. VIII, p. 495.
(13) Recueil des Tribunaux Arbitraux Mixtes, Vol. V, p. 228; and Klotz, ibidem, Vol. II, p. 758.
(14) R,eports of International Arbitral Awards, Vol. XIII, p. 70.
(16) « Without the requisition and without the measures taken by the sequestrator, Madam Guillemot-Jacquemin
would have found herself in exactly the same situation vis-à-vis her two tenants as that of which she com-.
plaìns ..• Any casual link is therefore missing between the restrictions which the French Government would like
to see removed, and the measures taken by the Italian Government with respect to the two apartments as eriemy
property ~ ( unofficial translation).
236 RASSEGNA DELL'AVVOCATURA DELLO STATO
5. Adequate causality and the obligation to make reparation.
In certain cases, the reason why the causality link between the unlawful act of the State
and injury caused to a private person has been deemed too remote has been the fact that the
victim's own conduct (or a situation created by the victim himself) had exposed him to the influence
of the unlawful act which, without that conduct or that situation, would not ha ve caused
any injury at all. An example of this is the Dame Simone Reverand case (16
), relating to a house
that had been auctioned in Italy during the war as a result of allegedly unlawful obstacles placed
in the way of the owner, a French citizen, and preventing her from transferring to Italy the necessary
funds to pay the interest due on a mortgage on that house. Since « la situation pécuniaire
de Madame Reverand était avant le IO juin 1940 obérée à tel point que depuis mai 1939 elle
n'a vai t pu acquitter les arrérages de sa dette hypothécaire » (17), the Franco-Italian Conciliation
Commission concluded that « l'on ne peut soutenir dans ces conditions que c'est dO. au fait de la
guerre que l'intéressée s'est trouvée hors d'état de payer les arrérages en question » (18
).
There are other cases, in which the refusal to grant compensation has been determined
not only by « le lien trop lointain qui rattache la perte au fait générateur », but also << par le caractère
trop alèatoire du bénéfice espéré» (19). This happened particularly in cases where the damage
for which compensation was claimed depended on loss of an income which was wholly contingent,
even if the allegedly unlawful act on the part of the State had not been committed.
One may cite on the same line of thought, the Rudloff case, in which the umpire held that
«le cas présenté ici n'est pas celui de la perte de profits prévisibles provenant d'une affaire en
marche ou de bénéfices certains provenant d'un contrat inexécuté; c'est seulement le profit
espéré d'une affaire aventureuse injustement emp~chée dans son accomplissement par le gouvernement
défendeur. Pour cette raison, les gains escomptés par les réclamants ne peuvent pas
~tre retenus parce que ces derniers sont totalement impuissants à démontrer qu'un profit serait
résulté de l'affaire » (2°). Similarly, the umpire in the Rice case concluded that « As to the portion
of damages claimed which may be imagined to arise out of consequential damages, the umpire
desires to lay down as one of the requisites for consequential damage that there must be a manifest
wrong, the effect of which prevents the direct and habitual lawful pursuit of gain, or the
fairly certain profit of the injured person, or the profit of an enterprise judiciously planned,
according to custom and business. A mere device of speculation, however probable its success
would have been or may appear to the projector, cannot enter into the calculation of consequential
damages » (21). All these conclusions were even more concisely summed up by the umpire in the
Mora and Arago case, in the following words: « The loss is in the present case of a very speculative
character as depending upon most uncertain contingencies » (22).
In other words, with all the differences possibly resulting from the different aspects of the
cases in point, international arbitration awards confirm the need to take into account, when deciding
on the obligation to make compensation and on the amount of reparation due, not only
the link between each wrongful act attributed to the State and each injury for which reparation
is sought, but also of the influence of circumstances or acts not attributable to the respondent
State on bringing about that injury.
(16) Reports of International Arbitrai Awards, Vol. XIII, p. 276; see also the Roger Sudreaw Case, ibidem, p. 68o.
(17) « The fìnancial situation of Madam Reverand before IO June 1940 was burdened with debt to such a degree
that since May 1939 she had not been able to pay the arrears of her mortgage debt 1> (unofficial translation).
(18) (l In this situation it cannot be maintained that it is due to the war that the party concerned found herself
unable to pay the arrears in question ~ (unofficial translation).
(19) « The too distant link between the loss and the generating event 1> ••• <l by the too chancy character of the
benefit hoped for ~ (unofficial translation), LAPRADELLE et PoLITIS, op. cit. p. 284.
(20) « The case presented here is not that of a loss of the foreseeable profits of a dea! in progress or ofthe certain
benefits coming from a contract which has not been performed; it is merely the benefit which was hoped to
come from an adventurous dea!, the fulfilment of which has been unjustly prevented by the respondent Government.
For this reason the profits expected by the claimants cannot be held back as the latter are totally unable to
demonstrate that a profit would have resulted from the dea!» (unofficial translation). The Rudloff case may be
found in English in Reports of lnternational Arbitrai Awards, Vol. IX, p. 244 et seq.
(21) MooRE, History and Digest of the lnternational Arbitrations to which the United States has been a Party,
IV,. Washington 1898, p. 3248.
(22) MooRE, op. cit., IV, p. 3783.
CONTROREPLICA DEL GOVERNO ITALIANÒ 237
6. Methods for assessing the damage.. They are unsafe in the instan:t case.
The Applicant shows little concern about the existence ·of an adequate casual link between
the alleged unlawful acts which it attributes to I taly an d the damage for which reparation is claimed;
· From the part of the Reply dealing with compensation it would 'appear that i t was solely the
Mayòr'cuequisìtion decree tba,t gave rise to the alleged irtjury(28). This decree allegedly prevented
the orde:rly liquidation of ELSI; . forcing tbe company to ask · for bankruptcy, art d· thus making
Raytheon Hable for payment of ELSI's de h t$ which ha d been guaranteed by Raytheon. Because
of tbis decree, Raytheon suffered tbe loss of the loarts made to ELSI(24), as well as the charge
of all the legai and allied expenses relatirig not only to the banktuptcy proceedings an d the present
dispute, but also to tbe defen:ce of Raytbeon iti civilsuits instituted against i t by some banks.
The previòus·pages bave amply ·demoristrated·that rio evidence wbatsoevenvas given of the
chairi of causality wbìrih tbe Applìcant alleges. Furthermore, it must be recalled that this alleged
cbain <lf ca,usality seeb:ìs to be b:ìainly based on tbe inere bypotbesis tbat Raytheon would ha ve
beeri able to obtain a quite differerit firiancialresult in the event of an orderly liquidation. The
United States Government maintains that ELSI's creditors would have obtainedtòtal satisfactiòn
if this bad been pÒssible, alìdRaytbeon would bave avoided tbe aforementioned repercussions
steb:ìt:i1irig from ELSI's ruinòus state, Accòrding to tbe Applicartt, all this would have been possible
bed:tùse <ihad tbe Respoiideri:t ri:òt interfered with the liquidation, Raytheòn and Machlett
would have reeovered tbe market ~alue of ELSI as a going concem iri 1968 )) (25).
In the prevìous pages, as well as in tbe Couri:ter.;_Memoi'ial, tbe Italian Government is confident
to bave fully demonstrated that all tbe allegations put forward by the United States Government
against Italy are unfounded. We çould therefore stop here, not seeing any purpose
in commenting evaluation of datnages · which; • in the· opinion · of tbe Respondent Government,
did not exist or were not imputable to the Italian authorities' behaviour. However for the only
sake ofwboleness, tbe Italian Government will offer in the following pages some few comments
on tbe criteria used by the Applicant to evalùate the damages allegedly suffered by Raytheon
and Machlett because of ltalian wrongful acts;
The Applicant coritends that tbe whole book value of ELSI would have been realized in
tbe liquidation ptocess, the book~alue beiilg considered as the closest to its going concern value(26).
This seems hardly practicable for the purposes of valuating the injury allegedly caused to Raytheori,
because according to the priricìple accepted by international la'w judicial practice, the
onus is on the claimant for reparation to. prove that i< so i t en èonsultant le coiirs ordinaire cles
cboses; so i t en s'attacbalìt aux affaires de la parti e Iésée • ou · des dispositiòns prises par elle, il est
probable - non par seulement possible -'- que celle-ci aurait réalisé tel ou tel profit si le fait illicite
ne s'était pas produit ;; (27).
Tbe liypothesis of realiiing ELSI's entire book value thròugh liquidation must, however,
have appeared Utterly improbable 'at tbe timé, and even impossible to RaYt;heon itself, because
ELSI's own management had envisaged a quick-sale valu~ which was far lower than the book
(23) Reply, p. xss.
(2') According to the Applicant, account should also be taken, when computing the damages, of what Raytheon
would have earned as a result of the orderly liquidatiòn; In the attempt of showing that the compensation
requested is relatively modest, the Applicant stresses how their amount would at ali events be insufficient « to recoup
Raytheon's. and Machlett's investment in ELSI; since they would have lost over US $ II million in investments
made since 1956 & (Reply; P• 156)• On what conceivable basis should the Italian Goverriment be liable for
these sums?
(26) Reply, p. xs6.
(26) Reply, p. Ì57· It should be noted that in the United States Government's view, unspecifìed « actions of
the Respondent & « made it impossible for ELSI to become self-sufficiienu; therefore it would have made it itripossible
to compute « the future profìts of the company's continued operations & in the valuation of ELSI as a going
concern. , ,.
(27) « Both by taking into consideration the ordinary course of events and by ·considering the business of the
injured party of the provisions it took, it is probable- no t merely possible -, that it would have made such or suchother
profìt if the illicit event had not occurred & (unofficial translation). The quotation is drawn from the arbitrai award
in the Fabiani Case, to which the Applicant referred on several occasions in the Memorial·and the Reply.
16
238 RASSEGNA DELL'AVVOCATURA DELLO STATO
value, and insistently sought - without success - an agreement with ELSI's main creditors
based on the payment of only so % of the amounts owing to them.
The truth, as demonstrated earlier, is that the scenario of realizing ELSI as a 'going concern
' was wholly at odds with reality (28). In this connection, it is worth noting that, while the
Memoria! considered this as the most optimistic scenario, the Reply surprisingly credits it with
being the only possibility! The proof that this does not correspond to reality, despite the
contentions of the Applicant, may be found (beyond what is said in the relevant parts of the
Counter-Memorial and this Rejoinder) in the fact that in the 1974 Claim, Raytheon's own
valuation of ELSI fell very far short of the so-called ' quick-sale ' value.
Now, the United States Government contends that such valuation was the « worst case
scenario » presented « for purposes of internai corporate planning by ELSI's shareholders )) (29).
However, the United States Government now rejects what had been depicted as «a worst case
scenario» by saying that it was used in the 1974 Claim introducing negotiations «in a spirit of
compromise» (30). This statement is really hard to swallow, and one cannot neglect considering
that two different valuations - one by the bankruptcy receiver, and one by EL TEL - show
far lower figuresl
Having noted this, in passing, the onus is certainly not on the Respondent - who denies
that anything unlawful has been done and hence rejects any obligation to pay any reparation
for the alleged injury - to suggest any alternative method of valuation. As indicated already
in the Counter-Memorial (31), ltaly's remarks are offered solely as a means of showing up « the
dubious contentions of law and the distortions of facts )) in the Applicant's submissions.
7. Further arguments on refunding legai costs and computing interest.
In addition to the considerations expressed in the Counter-Memorial (32), some further
comments may be made on the issue of the legai expenses allegedly incurred by Raytheon. Despite
what the United States Government maintains, the legai costs sustained by Raytheon for
proceedings instituted in ltaly against it by ELSI creditor banks cannot, at all events, be deemed
to be « a direct consequence of the Respondent's actions )) (33). On the contrary, they were a
consequence of ELSI's insolvency.
Anyway these costs, as granted by the Italian Court must be considered as final, without
any further possibility of claims on the part of the Applicant.
The need to take account of the Applicant's delay in submitting its claim to the Court,
in order to decide whether or not the Applicant is entitled to interest on the amounts requested
by it in reparation, is confirmed by international cases. It has been affirmed in international
decisions that the failure of the allegedly creditor State to take action may affect the awarding
of interest, or at least, the determination of the date from which the in.erest is calculated as
accruing (34).
This appears to be fully justified if, in line with the prevailing doctrine, interest is considered
as a possibile element of the reparation and as such, as a lump-sum valuation of the loss of profit
(28) CLAGGETT, The Expropriation Issue before the Iran-United States Claims Tribuna[: Is 'J ust Compensation'
Required by International Law or Not?, in x6 Law and Policy in International Businnes, 1984, pp. 884-885, referred
to « ... the settled and fundamental principle that the value of an asset depends not on its cost or past usefulness,
but on its future usefulness •· He further commented: • An asset may have cost millions of dollars to produce, or
may have yielded tens of millions of dollars of profit in the past, but may have no present value if investors believe
that the asset will produce no profit in the future ».
(29) Reply, p. I 59· I t is quite irrelevant to say that the quick-sale value does not refiect the full value of ELSI
because it does not « take into account the significant intangible value of ELSI's business •, considering that according
to the Claimant, the intangible value is not even taken into account in the book value (p. xss).
( 30) Reply, p. IS9·
(31) Counter-Memorial, p. IIS.
(32) Counter-Memorial, p. I x6.
( 33) Reply, p. xs6.
(34) See the Macedonian Case, LAPRADELLE et POLITIS, op. cit., Il, pp. 203-205.
CONTROREPLICA DEL GOVERNO ITALIANO 239
stemming from the fact that the unlawfully injured party could not dispose of a sum equivalent
to the damage occasioned to it (33). From this point of view, the computation of the interest must
certainly take account of the obligation of the injured party, also sanctioned by international
case law (36), to reduce to a minimum the prejudicial consequences of the unlawful act of which
it claims to be victim.
In praticai terms, it should be noted that the decisions of international arbitration tribunals
about interests were often influenced by considerations of equity. This happened especially
in cases in which the amount involved would be far higher than the << principal » amount due in
reparation because of the long period of time with regard to which the interest would have to
be calculated (37).
Therefore, bearing in mind that international case law is virtually unanimously in refusing
to acknowledge a right to interest - let alone compound interest (38
) - the claim of the Applicant
on this point is to be considered as lacking of a sufficient justification.
(35) ANZILOTTI, Sugli effetti dell'inadempienza di obbligazioni internazionali aventi per oggetto una somma
di denaro, in Rivista di diritto internazionale, 1913, p. 54 et seq.
(36) See, for example, the Coipwer Case, LAPRADELLE et PoLITIS, op. cit. I, p. 348. And the cases cited by DERAINS,
L'obligation de minimiser le dommage dans la jurisprudence arbitrale, in Revue du Droit des Affaires
Internationales, 1987, p. 375 et seq.
(37) See the Macedonian Case and particularly the Yuille et Shortridge Case, cited above.
(38) The Iran-U.S. Claims Tribunal « has never awarded compound interest & Sylvania Technical Systems
v. Iran, cit.).
SUBMISSIONS
The Italian Government makes the following submissions:
« May it please the Courtl
To adjudge and dedare that the Application filed on 6 February 1987 by the United State
Government is inadmissible because local remedies have not been exhausted.
If no t, to adjudge an d dedare:
(r) That Artide III (2) of the Treaty of Friendship, Commerce and Navigation of 2
February 1948 has not been violated;
(2) That Artide V (r) and (3) of the Treaty has not been violated;
(3) That Artide V (2) of the Treaty has not been violated;
(4) That Artide VII of the Treaty has not been violated;
(5) That Artide I of the Supplementary Agreement of 26 September 1951 has not been
violated;
and, accordingly, to dismiss the daim ».
18 july 1988.
Professor LUIGI FERRARI BRAvo
Agent of Italy
DOCUMENTS
TABLE OF CONTENTS
r. Affidavit of Ing. Cavalli, dated 29 Aprii 1988;
2. Affidavit of Dr. Bevilacqua, dated 29 October 1987;
3· Affidavit of Avv. Maggio, dated 29 October 1987.
4· Decision N. 107 of the Court of Cassation, dated 14 Janùary 1976, Foro Italiano, 1976, I,
2463 et seq. Excerpts.
5· Decision N. 1455 of the Court of Cassation, dated 21 May 1973, Fdro!taliano, 1973, I, 2433-
2460. Excerpts.
6. Decision N. 971 of Tribunale ~ministrativo Regionale of Puglia, dated 17 December 1974.
7· Decision N. 198 of Tribunale Amministrativo Regionale of Abruzzo, dated II December
1974·
8. Affidavit of Dr. Ravalli, dated r8 December 1987.
9· Decision N. 211/75 of Tribunale Amministrativo Regionale of Lombardy, dated 16 July 1975.
ro. Decision N. 210/75 of Tribunale Amministrativo Regionale of Lombardy, dated r6 July
1975·
I I. Decision N. 2228 of the Court of Cassation, dated 30 July 1960, Rivista di diritto internazionale,
1961, pp. II7-II9·
12. Decision N. 2579 of the Court of Cassation, dated 6 December 1983-17 February 1984
Commissione tributaria centrale, 1984, II, I I43·
13. Affidavit of Dr. Cammarata, dated 26 May 1988.
14. Affidavit of Rag. Ravalico, dated 26 May 1988.
15. Decision N. 2293 of the Court of Cassation, dated 6 July 1968, Rivista di diritto internazionale,
1969, pp. 328-331.
r6. Articles 834, 835, u8r, 2043, 2447 and 2621 of the Italian Civil Code.
17. Articles 323 and 185 of the Italian Criminal Code.
18. Articles 23, 25, 26, ro8 and 218 of the Italian Bankruptcy Law, Royal Decree of 16 March
1942, N. 267.
19. Minutes of the meeting of 20 February 1968.
20. Remarks by Dr. Alessandro Alberigi Quaranta on ELTEL'S Applied Research Potential,
dated May 1971.
21. Letter to the employees of Raytheon-Elsi S.p.A., dated 16 March 1968.
22. Letter to Mr. Busacca, dated 29 March 1968.
23. Securities and Exchange Commission, Annual Report pursuant to section 13 or 15 (d) of
the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1971.
24. Securities and Exchange Commission, Annual Report pursuant to section 13 or 15 (d) of
the Securities Exchange act of 1934 for the fiscal year ended December 31, 1968.
25. Federal Reserve Bank of New York, Circular N. 6090 of January 4, 1968.
26. Speech delivered by Robert T. Scott, Vice-President, Tax-Legal, National Foreign Trade
Council in Philadelphia, Pennsylvania, on October 9, 1968, at the eighth Annual Tax Conference,
University of Philadelphia.
242 RASSEGNA DELL'AVVOCATURA DELLO STATO
27. Federai Reserve Bank of New York, Circular N. 6102 of January 25, 1968.
28. D. Lgs. 12 February 1948, N. 51 «Approvai of the New Statute of Istituto per la Ricostruzione
Industriale (IRI) "·
29. « The only answer from IRI and Finmeccanica is: Hands off GIE. Ansaldo is bitter over
its rejection ». Il Sole-24 Ore, October 3, 1987.
30. << ELSI repudiates Union Agreements. Rejects requests to withdraw dismissal notices "•
L'Ora, March 10, 1968.
31. R.D.L. N. 5 of January 23, 1933 setting up of the «Istituto per la Ricostruzione Industriale»,
with headoffice in Rome.
32. Statement by Professor Pier Giusto Jaeger, dated ]une 17, 1988.
33· Articles 41 and 42 of the ltalian Constitution.
34· Law N. 835 of October 6, 1960: « Reservation of supply and manufacturing orders for government
offices, in favour of industriai plants in the Southern regions and Lazio, and definition
of the areas to be considered included in Southern ltaly and the islands »;Artide
16 of Law N. 717 of June 26, 1965: « Regulation of actions for the development of the
South »,
35· Law N. 1589 of December 22, 1956: « lnstitution of the Ministry of State Economie Par
ticipation ».
Public sittings of the Chamber held at the Peace Palace,
President Ruda presiding
in the case concerning Elettronica Sicula S. p. A. (ELSI)
(United States of America v. Italy)
VERBAT~ RECORDS
Audiences publiques de la Chambre tenues au palais de la Paix,
sous la présidence de M. Ruda, Président
en l'affaire de l'Elettronica Sicula S. p. A. (ELSI)
(Etats-Unis d' Amérique c. Italie)
COMPTES RENDUS
244 RASSEGNA DELL'AVVOCATURA DELLO STATO
Present:
President RUDA Judges ODA, AGo, SCHWEBEL, Sir RoBERT ]ENNINGS.
Registrar Valencia-Ospina.
The Government of the United States of America is represented by :
The Honorable Mr. ABRAHAM D. SoFAER, Legai Adviser, Department of State,
Mr. MICHAEL J, MATHESON, Deputy Legai Adviser, Department of State,
as Co-Agents;
Mr. TIMOTHY E. RAMisH,
as Deputy-Agent;
Ms. MELINDA P. CHANDLER, Attorney/Adviser, Department of State,
Mr. SEAN D. MuRPHY, Attorney/Adviser, Department of State,
The Honorable Mr. RICHARD N. GARDNER, Ambassador to Italy (1977-I981);
Professor of Law and international Diplomacy, Colombia University; Counsel to the Law Firm
of Coudert Brothers,
as Counsel and Advocates ;
Mr. GIUSEPPE BISCONTI, Studio Legale Bisconti, Rome,
Mr. FRANCO BONELLI, Professor of Law, Genoa University; Partner, Studio Legale Bonelli,
Mr. ELio FAZZALARI, Professor of Civil Procedure, Rome University; Partner, Studio Legale
Fazzalari,
Mr. SHABTAI RosENNE, Member of the Israel Bar, Member of the Institute of International
Law, Honorary Member of the American Society of International Law,
as Advisers.
The Government of Italy is represented by :
Mr. LUIGI FERRARI BRAVO, Professor of International Law at the University of Rome,
Head of the Legai Service of the Ministry of Foreign Affairs,
as Agent and Counsel;
Mr. RICCARDO MoNACO, Professor Emeritus at the University of Rome,
as co-Agent and Counsel;
Mr. IGNAZIO CARAMAZZA, State Advocate, Secretary-General of the Avvocatura Generale
dello Stato,
as co-Agent and Advocate;
Mr. MICHAEL ]OACHIM BoNELL, Professor of Comparative Law at the University of Rome,
Mr. FRANCESCO CAPOTORTI, Professor of International Law at the University of Rome,
Mr. GIORGIO GAJA, Professor of International Law at the University of Florence,
Mr. KEITH HIGHET, Member of the Bars of New York and the District of Columbia,
Mr. BERARDINO LIBONATI, Professor of Commerciai Law at the University of Rome,
as Counsel and Advocates;
Assisted by :
Mr. DAVID CLARK, L.L.B. (Hons), Member of the Law Society of Scotland,
Mr. ALBERTO CoLELLA, Assistant Legai Adviser to the Ministry of Foreign Affairs,
Mr. PIER GIUSTO ]AEGER, Professor of Commerciai Law at the University of Milan,
Mr. ATTILA TANZI, Assistant Legai Adviser to the Ministry of Foreign Affairs,
Mr. ERIC WYLER, Maitre assistant of Public International Law at the Faculty of Law of
the University of Lausanne
as Advisers.
C 3/CR 89/1
Monday 13 Fehruary 1989, at 10 a. m.
. . . .. .
Ma. SoFABR- Ma. MATHESo:N- Ma • .ADAMS
.• · The· PRES:WBNT: Tbe • sitting • is · open .
.••.•. BefQre. pi()~~ecling tQ the b11silless of tbis si~ng. of the Cbamber formed to deal with the
ca.s.e con.. c etJlil1g.• . ·Elettrqnica. S.. icttlq·.·.s,p.IJ, • .( ELS·'l)· , l would like to tak.e this opportu.. ! ilÌty, ~:~.s Presi4ep.
t of the. Q<>urt tq record tl!.e sad losses su:ffered by the Court in recent months, witb the
deathli! sJ.tc<;essi;vely tì.rst of O!le Of its Members; J;DY immediate p.redece~sor as. President, secondly
of a r~~jre4. Me~;nller aJ).cifo.tmer :lill'esi4e1lt ofthe. Co.urt, and tllirdly of a • .i11dge • ah hoc sitting ·in
a•· case l:)ef(}re.·.~~, ... Charnber.of the Couri, ·.. •.. •. ·• .• .· .. ·
On 11 :Oeceiilber l988, Judge Nagendra Singh, Member. andforìner President <1fthe Court
died in The Hague, lt; has already been J;DY melanch<1ly duty to.. pay tributeto tbe memory of
Juctge Sil!).gb at.tlle public sitting of the full C!:mrt.held on 29 December 1988, and I shall not
repe~t :Wilit t $ai4 9ri that.9çca.si()n., $ince ho\Vever J udge Sillgh was also l'resident. of this Chamber,
(():1,'~~4 te;! deal :Wit4 ihe eze.tt:ronicp. Stcula Case, it WQttlc:( no.t be rigl\t tQ let the present sittirig
Jii~~ wii:h{j:u.t reca,llmg <1b,ce again IDe loss tb1:1,t w e bave suffered with his untimely demise .
..•.•... · Qri Jì Jltil.'\.u~ry )9~9.Jo.s~ t~is :Sust!I,J;Dl1l).te y 1\.ivero, f{):rtr~.er Me~;nber and. :President of
this Court, died ìti Ll:rila, Pèru. Judge Bùstamatite had been aMember ofthe Coùrt from I96I
to 197ò, and Wàs President of the Court from 1967 to 1970. Pl"ior to his election to the Court
be had had àrt exceptionally distinguished career, culminating in the Presidency of the Republic
of Peru. In the academic sphere, he had not only held chairs in legai procedure and civillaw, but
also taught philosophy, American archeology and social geography. He practised at the bar in
Peru from 1918 to 1934 and was Substitute Judge and Deputy Public Prosecutor at the Supreme
Court of Arequipa from 19:Z0 to 1934· He entered public affairs as a member of the Arequipa
City Council in 1921 and became Minister of Justice and Education in 1930; he subsequently
entered the Peruvian Foreign Service and served his country as Ambassador and as a Member
oFthe. Delegatioti to severalintetriational confèi"etices. From I94S to 1948 be \vas President
ofthe Republic of>Peru. TWelvè years latèr he was elected to the Coui"t, to which he made a
notable c<lnttibution derìving frdril his sound legai appi:"oa:dt and wide experience of public and
internationalaffairs. Elected President soon after the decision in the South West Africa Case
in xg66; which had giveri. rise tti '\l'ety sttong feelings on both sides, he was able to do much to
restore serénit;y within the Court by the quiet dignìtywith which he discharged the duties of
bis office. ·
··.·•At the end of January 1989 the.Court learnedwith regret ofthe·death, on :z7 Jatmary 1989,
of P:rofessor Michel Virally, .w ho had been appointed to si t as judge ad hoc in the Chamber formed
to deal with the. case concertiing the Land, Island · and Maritime Frontier Dispute between
El Salvador and Honduras. On(Fof the .most distinguished of bis generation of French jurists;
Judge Virally was Professorattbe University·of,Law, Economics-and··Social, Sciences in Paris
and afthe Graduate. institute of I:nternational Studies in Geneva; and Honorary Professo!' at
the Faculty of Law at • the · Uriiversity · of Geneva/ •• In addition to • an active an d· distinguished
career in the academic field, hehad also served as a member of the French delegation to various
sessìons. of tbe United Nations Generai Assembly, the Special Committee òn Principles of
Intematiomil La w concertiing Friendly Relations and Co""òperationamong States, an d the Vienna
Conference · on the La w of Treaties. The · proceedings in the case in which he had been appointed
judge ad hoc had orily reached an early stage an d his friends an d colleagues will greatly regret
that he was not to be given the opportunity of de!.llonstrating his great legai gifts in the capacity
of an. international judge.
May I invite all present to rise and observe one minute's silence in memory of the judges
whom I have mentioned.
(Ali stand).
Tbank you; please .be. seated.
246 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Chamber constituted to deal with the case concerning Elettronica Sicula S.p.A. (ELSI)
sits today to hear the oral arguments of the Parties in that case.
The proceedings were instituted on 6 February I987 by an Application filed by the United
States of America alieging against Italy violations of the Treaty of Friendship, Commerce and
Navigation signed by the two States on 2 February I948 and the Supplementary Agreement
to that Treaty. The United States requested that the case should be dealt with by a Chamber
of the Court, and that proposal was agreed to by the Government of Italy. By an Order dated
2 March I987 the Court decided to accede to the request of the two Governments to form a
special Chamber of five judges to deal with the case, and dedared that at an election held that
day President Nagendra Singh, Judges Oda, Ago, Schwebel and Sir Robert Jennings had been
elected to the Chamber. Time-limits for pleadings were fixed and in due course the United
States filed a Memoria!, Italy a Counter-Memorial, the United States a Reply and Italy a Rejoinder.
Foliowing the death on I I December I988 of Judge Nagendra Singh, President of the Chamber,
the Court proceeded to fili the vacancy in the Chamber by election in accordance with Artide
I7, paragraph 3, of the Rules of Court. At that election, held on 20 December I988, my colieagues
did me the honour of electing me to fili the vacant seat in the Chamber.
In accordance with Artide 53, paragraph 2, of the Rules of Court, the Chamber, after ascertaining
the views of the parties, has decided that copies of the pleadings and documents annexed
shali be made accessible to the public with effect from the opening of the present oral proceedings.
I note the presence in Court of the agents and counsel of the two parties and dedare the
oral proceedings in the case open. I now give the ftoor to the Agent of the United States, the
Honorable Judge Abraham Sofaer.
Mr. ABRAHAM D. SoFAER:
Introduction
Mr. President, distinguished Members of the Court. It is a great honour to appear before
this Court on behalf of the United States. We greatly appreciate the Court's willingness to
constitute a chamber of judges in this dispute. The United States is pleased to be part of this
significant - and positive - development in international dispute resolution. The parties are
also particularly grateful for the President's wiliingness to serve on this Chamber on short notice,
foliowing the death of Judge Singh. Judge Singh was a prodigious and exceptional scholar, a
man of integrity and dedication. His death is a great loss to us ali.
With the permission of the President, the United States will present its case in the following
manner. I wili make a brief introductory statement describing the nature of this dispute,
the daim of the United States and the principal issues raised by the pleadings. My Co-agent,
Mr. Matheson, a Deputy Legai Adviser at the Department of State, will present to the Court
an overview of the undisputed facts and then explain certain areas where the facts are disputed.
I will then conduct the direct examination of Mr. Charles Adams, and Ms. Chandler will conduct
the examination of Mr. John Clare. Professor Bonelli will then address issues of Italian
bankruptcy law as applied to the facts of this case. Mr. Murphy will explain to the Court the
position of the United States regarding the jurisdiction of the Court and the objection of the
Respondent as to the admissibility of the claim. Professor Gardner, who served as US Ambassador
to Italy between I977 and I98I will relate the facts of this case to the violations of the
1948 Treaty of Friendship, Commerce and Navigation between the United States and Italy.
Mr. Ramish will discuss the issue of relief. Mr. Lawrence will provide expert testimony as to
the valuation of the property harmed by the Respondent in this case. Finally, Mr. Matheson
will sum up our position.
Mr. President, the case now before this Court is most important. It concerns an investment
by two companies of one country in a European country during the post-World War II
era, a time when rebuilding Europe was criticai in establishing a lasting global peace. l t concerns
~INGA SOFAER 247
measures taken against that investment by the host. country contrary to the provisions of a bilateral
treaty.
Economie development and social pr()gress ·are the common · concern of the whole international
community. By establishitig legal norms that · encotirage economie prosperity. an d the
weU,,.being of all nations, we help strengthen peacefui relations and co-operation globalty. Chapter
? of the Charter of the United Nations acknowledges that the development of economie an d
soeiai relations creates the conditions of stahility an d well-heing necessary for friendly teiations
axnong nations.
Of course, the public sector - government ~ plays a criticai role in economie development
evecywhere •. ·•· But the private sector also plays ·an important role · i11 economie· development, primarily
throtigh overseas · investment and international trade; Without a reasonable expectattion
of security, itivestors will be•less inclined tovetiture outside the favourable environments oftheir
own countries;.. Without effective legai protection; investors will be Iess inclined to risk their
capitai, and the éòst of capìtal will be proportionately greliter.
Thus, ìti pursuing this suit; the United States is not merely advancing the private interest
of one ofits natìonals. Rlither, it ìs etigagedin assuring the conditions necessary to enable citizens
and gocvernments of ail States to purstie economie deveiopment in the niost effective mamier
possible/
•·•··· · .• The • United · States and tna11Y other • tiations ha ve worked hatd to establish a .legai framewotk
for trade and investment.of capital bòth by us compallies abtoad and by foreign.companies
in the tJllited States. The corner stone ofthis legal framework has been the commerciai treaty;
While commerciai treaties have been part of US poHcy sitice the beginning of the American
Republic; they have played a major tole in this century. In the decade following the Second
World War, the United States completed the negotiation of new còrriinerciai treaties with I6
countries. Among the countries that entered into treaties ofFtiendship, Commerce and Navigatiòn
with the United States at that tim.e were the Republic Of China, Denmark, the Federai
Republic of Germany, Ireland, Japan, the Netherlands and Italy.
These new FCN treaties overhauled pre-existing commerciai treaties. They sought to
im.prove and s:trengthen the protection.ofinvestments .. Since international investment in modern
titP~8J is predominandy by· corporllte rather than. by individuai enterprise, tb.e· FCN treaties
devised ways of providing. adeqt~ately for the protection of companies, not just individuals. For
the fìrst time many of these protections extended, not only to the operations of the companies
themselves in the foreign country, but aiso to the operations of their subsidiaries ineorporated
or chartered under the laws of the foreign country. The phenomenal economie gròwth in the
world economy in the post-War era is in no smail part attributable to these types of commerciai
treaties. ·
The 194S FCN Treaty between the United States and ltaly is especially notable~ In the
aftermath ofthe war, both countries saw great sigllifìcance in normalizing bilatera! commerciai
relations. For the United States the FCN Treaty was the fìrst treaty of its kind negotiated with
any European country following the war, indeed the fìrst since 1934· It encouraged US investment
and business activities in Itaiy, by assuring certain fundamental protections in the face
of t:he extensive involvetnent of the Italian Government in the private sector that had existed
during the Second WorldWar, much of which remain.ed intact in the post~war. era and thereafter.
For Itaiy, this Treaty was one of .many steps in the resumption of Itaiy's customary position
in the family of nations. At the tìme the Treaty was concluded its proteetions were predominantly
applicable to activities of US nationais and companies in Italy. But the protections
involved are granted. with almost complete reciprocity, and ·today Italian activities within the
United States benefìt extensively from the existence of the Treaty. In fact, at the present time
Itaiian investment in the Ullited States has grown to the point that the current fl.ow .of such
investment to the United States approximates or exceeds that of the United States to Itaiy. Italy
has prospered, like many other .countries in the world, due predominantly to the ingenuity and
industry of the Itaiian people. But the FCN Treaty played its part in facilitating capitai investment
in Italy and it now serves and protects Italian entrepreneurs operating in ,the United
States.
248 RASSEGNA DELL'AVVOCATURA DELLO STATO
This case is the story of two US corporations - Raytheon Company and Machlett Laboratories
- that invested heavily in the Mezzogiorno region of Southern Italy. Their investment
began in the form of minority ownership, but then grew to IOO per cent ownership of an Italian
electronics company, located in Palermo, Sicily, named Elettronica Sicula S.p.A., commonly
referred to as '' ELSI ». Raytheon and Machlett tried to make ELSI financially self-sufficient
by investing large amounts of capitai and expertise, but ELSI unfortunately never became financially
self-sufficient. Raytheon and Machlett tried to persuade the Respondent to help by
becoming a partner in ELSI, and by enforcing Italian laws favouring investments in Southern
ltaly. The Respondent refused to do so.
In March I968, Raytheon and Machlett reluctantly decided to put ELSI through an orderly
liquidation process, whereby- either as a whole or by individuai product lines- ELSI's plant
and assets would be sold off, thus minimizing Raytheon's and Machlett's loss in their investment.
As owners, these US companies had the right to end their business in the manner they believed
was best suited to obtain the highest possible return on their investment. Mter careful study,
they concluded that the best return would be obtained from an orderly liquidation.
The .Respondent, however, refused to allow Raytheon and Machlett to accomplish this orderly
liquidation. On I Aprii I968, the Respondent requisitioned the plant and assets of ELSI
for an extendable six-month period, apparently fearing the politica! and economie effect of a
liquidation. This act prevented Raytheon and Machlett from exercising a fundamental right
under the FCN Treaty, that of protecting their capitai through the sale of their property interests.
Moreover, the requisition placed ELSI in a position of not being able to pay its bills as
they carne due, unless substantial further investments were made by Raytheon and Machlett.
Raytheon and Machlett urged administrative officials to rescind the requisiton. On I9 Aprii
Ig68, however, President Carollo of Sicily announced that the requisition would be maintained
indefinitely unless Raytheon abandoned its liquidation pian. He could not have been clearer
in stating his aim of damaging ELSI unless Raytheon subtnitted to his demand that operations
continue and the liquidation be abandoned. Pres' dente Carollo stated:
" Nobody in Italy shall purchase, that is to say IRI shall not purchase neither fora low nor
for a high price, the Region shall not purchase, private enterprise shall not purchase. Let me
add that the Region and IRI and anybody else who has any possibility to influence the market
will refuse in the most absolute manner to favour any sale while the plant is closed ».
The Respondent is clearly responsible for the actions of its officials, which led to the consequences
President Carollo explicitly predicted.
ELSI appealed the Mayor's order to the Mayor's administrative superior, the Prefect.
But the Prefect failed to act. Meanwhile, no steps were taken by the authorities in contro! of
ELSI's plant and assets to continue ELSI's operations. ELSI's assets and work-in-progress
immediately began to deteriorate in value. With debts coming due and no prospect of regaining
custody of ELSI's plant and assets, ELSI's ltalian counsel advised ELSI's Board of Directors
that it should file a petition in bankruptcy. A petition in bankruptcy was filed, and on 7 May
Ig68 ELSI was declared bankrupt.
Four auctions were held during the bankruptcy, but no bidders appeared, just as President
Carollo had threatened. The Respondent in this case claims that this fact establishes that ELSI
had no value. But this claim ili befits the very authorities that precluded Raytheon and Machlett
from implementing its planned liquidation and thereafter effectively prevented any meaningful
bids to be made. As the evidence shows, before the first notice of auction in bankruptcy,
on I I December Ig68, ltaly had taken severa! steps to signal its determination to take over ELSI,
at a price of its own choosing. On 25 July Ig68 the Italian Minister of Industry, Commerce,
and Crafts indicated in Parliament that the Government of ltaly would take over ELSI's plant.
On 3 November I968 the Respondent issued a press release that IRI-STET would take over
ELSI. On 30 November Ig68 a " STET >> sign was placed over the ELSI plant entrance. During
December I968, IRI formed EL TEL for the express purpose of taking over ELSI.
While ELSI officials received enquiries · from prospective purchasers of its product lines
and other assets, they could do none of the normal things that a seller does to bring about sales
ARRINGA SOFAER 249
since they lacked contro} of the vecy assets being sol d. An d when. noti ce of sale in bankruptcy
was issued, the notice called simp}y for the sale of ali of ELSI's assets, a commercially untenable
proposition for any possible purchaser other than ]RI, and completely at variance with the
method of sale which ELSI and Raytheon offi.cials had planned.
Given these preliminary arrangements, IRI's subsidiary ELTEL was able to take its time
in deciding when to purchase ELSI. l t allowed three auctions to go by, with the price dropping
after. each ended without a bid. Then, in the fourth auction, EL TEL bought ELSI's assets
at a far lower price than could.have been obtained through an orderly liquidation.
When this deed had been done, and some r6 months after ELSI had appealed the requisition
order, the Prefect found that the requisìtion was after ali illegal. Even then the Respondent
refused to pay for the damages i t had caused. Instead, i t paid an amount described by the Italian
courts as the rental value of ELSI's plant for a six-month. period.
W e- believe that a review of the evidence reveals that this is a simple case. The relevant
facts and the controlling· law are straightforward,- and largely undisputed. Differences do exist
between the parties, however, about a few material issues of fact and concerning some aspects
of the governing law. In accordance with Artide 6o of the Rules of this Court, our oral presentation
will be directed primarily to the issues that stili divide the parties, and we will not repeat
the facts and arguments · contained in the written · pleadings. Hence, the fact that we do
not address some of the Respondent's argurnents should not be construed as implying a waiver
of our position as stated in our · written pleadìngs.
The Resporiderit raises an objection that the United States claim is inadmissibl~, due to
a failure by Raytheon and Machlett to exhaust local remedies. In its pleadings the Respondent
devotes considérable · attention to provirig the existence of the local remedies rule, but fails to
sustain its burden of showing that · the rule applies in this case an d that remedies exist which
were not eXhausted.
The claim in this case, which is based on violations of a treaty between two governments
should not be found inadmissible; • The rights of the United States under this treaty should be
vindicated by the declaration of this Court that the treaty was violated and that reparation is
due. Indeed, Artide XXVI of the'FCN Treaty states that where disputes cannot be satisfactorily
adjusted by diploniacy, either party may submit the dispute to this Court for interpreation or
application.
Even if the local renìedies · rule is applièable to this dispute, the rule is satisfied. Raytheon
and Machlett pursued ali reasonable methods of overturning the requisition and mitigating the
damage caused d,uring th~ bankrup,tcy proce$s. The Italian courts•were provided several opportunities
to order the Respondent to pay compensation for its acts once the requisition had been
declared illegal by the Prefect.
Left with no further remedy under Italian law, Raytheon and Machlett turned to the United
States Government. When the United States presented a claim to the Respondent in 1974 we
asserted that ali local remedies had been exhausted and that the Respondent had violated its
international obligations to the United States. The Respondent answered this diplomatic _note
four years later. In its response, as well as in subsequent diplomatic communications, the Respondent
argued that no violation of internati.onal law Qr Italian law had occurred, but it never
claimed unti! this a.ction was commenced that Qther remedies existed and should be pursued in
I,talian courts. The Respondent should be precluded at this point, on this record, from asserting
that such remedies existed and should bave been pursued.
The governing law makes clear, moreover, that the Respondent denied to Raytheon and
Machlett severa} rights to which they were entitled un der the FCN Treaty. · These rights ha ve
been carefully ideBtified.in our written p}eadings and include: the right to manage and control
ELSI; the right not to have their legally acquired investment interests in ELSI impaired by the
Respondent; the right to receive from the Respondent protection an d security for their property;
an d the right · to prompt payment of just and effective compensation for the wrongful taking by
the Respondent of interests in property.
The breach of these. international obligations by the Respondent creates a duty to make
reparations to the United States. Reparation in this case should be measured by the injury
250 RASSEGNA DELL'AVVOCATURA DELLO STATO
actually incurred by Raytheon and Machlett. Since ELSI never became financially self-sufficient,
we do not seek reparation in the form of lost future profits of Raytheon and Machlett.
Rather, we have assessed the value of ELSI at the time of the requisition, essentially according
to its adjusted book value, taking into account certain intangible values as well. On this basis,
the United States seeks reparation for injuries suffered by Raytheon and Machlett with respect
to loan guarantee payments, return of investment, open accounts, and legai expenses and costs.
T o aid the Court in the assessment of these damages the United States will present an accounting
expert to analyse the available documentation and to present the methodology relied on in our
computations.
The total amount of damages suffered by Raytheon and Machlett, which is claimed by the
United States, is US$ 12,679,000. The Court is requested to order payment to the United States
in this amount. In addition, the United States requests that the Court award interest on
this amount, at the average annua! rate of the United States prime rate, compounded annually
from the date of the injury to the date compensation is paid. For purposes of simplification, the
United States has in its annexes calculated interest from the end of the calendar year in which
the injury occurred.
In conclusion, I would mention that a sound resolution of the questions in this case is no
more important to the nationals of the United States than i t is to the nationals of the many nat10ns
now engaged in international investment under the protection of FCN treaties or similar agreements.
Investment outlays in the United States by foreign beneficiai owners have recently reached
about us $ 40 billion per year. Companies from countries in Europe, the Middle East, and Asia are
investing heavily in the United States, often under the protection of FCN or similar agreements.
It is essential that nothing be clone to imperil the stability and integrity of the legai régime in
which ali these international investments are made. In short, we are here, your Honours, to
protect not only a US company and US interests, but the interests of ali investors who rely upon
FCN treaties and similar agreements for protection.
This finishes my opening remarks. Following what I understand is the practice in this
Court, during the course of our oral statements we shall not read ali our detailed references and
citations. These references and citations will be given to the Registry and I ask that they be
included in the transcript of these proceedings in full. I trust that this will meet with the approvai
of the Court and will not cause any inconvenience to the Respondent.
I now request that the President invite Mr. Matheson to address in more detail the facts
of this case.
The PRESIDENT: Thank you Judge Sofaer. I cali the Co-Agent of the United States, Mr.
Michael Matheson.
Mr. MATHESON:
Facts
Thank you Mr. President, distinguished Members of the Court. It is my honour to present
to you today the argument of the United States on the facts of the case which is before you.
Although it may not be apparent from the Respondent's written pleadings, the vast majority
of the facts relevant to this case are not in dispute. In a number of instances where the Respondent
does dispute a particular fact asserted by the United States, it has yet to present documentary
evidence of its position. Finally, there exist a few categories of factual evidence whìch the
Respondent has placed on the record but which are irrelevant to the basic dispute before the
Court.
I will not attempt to repeat the materia! that appears in our written pleadings. Rather, I will
begin by summarizing the more important facts which in our view are not disputed. I will then
deal briefly with certain facts asserted by the Respondent which are essentially irrelevant to this
case. Finally, I will explore in greater detail the two important questions of fact which are disputed.
ARRINGA MATHESON 251
Undisputedfacts.
To begin with, we believe that it would be useful for the Court to have before it as çonplete
an indication as possible as to which facts. are not disputed. I will therefore present a brief summatj
of the more important facts which we believe to be in this category. If the Respondent
disagrees .. with .any of these facts we invite the ~espondent to specify them and identify any
documents before the Couit which support i t~. position.
· · First, there is. no dispute with respect to the nationality of each of the parties that play a
part in this proce~ding. · Raytheon Company · (known as « Raytheon »), Machlett Laboratories,
Incorporated · {kn0wn as • « Machlett »), an d Raytheon Europe International Company (known
as « Raytheon · Europe ») are an· U nited States natiorials. Raytheon Europe is· the European management
subsidiary. of Raytheon and is wholly owned by Raytheon. Elettronica Sicula S.p.A.
(E/..Sl) (còmmonly known as << ELSI »), and Istituto per la Ricostruzione Industriale (IRI)
(often known as « IRI »)are halian nationals. ELSI was organized in May I954 and was wholly
owned by Raytheon and Machlett; IRI is a holding company owned by the Government of
Italy.
· The second area of undisputed fact lies in ELSI's financial performance. It is undisputed
that althol)gh Raytheon. aJ:ld. ;Machlett provided financial, managerial, an d technical support for
ELSI, EtSI neverbecanu~ financially self-sufficient. As of JI March I968, ELSI's accumulated
Iosses werè at least 8.5 billion lire (t1S$ IJ,68o,ooo).
Itis further Ut1disp\lted that ELSI's shareholders decided to liquidate ELSI's .assets by
means of an orderly liquidation un.der Italian law. During March 1968, in accordance with its
decision, ELSI ceased full-scale production, dismissed employees except for approximately IJO
needed for wind-up operations, and took · steps to commence an orderly liquidation of assets.
·.· lt is undisputed that the Respondent prevented the implementation of this plan by its requisii:
ion of ELSI's assets. On I Aprii I968 the Mayor of Palermo, acting on behalf of the national
government, issued an order, effective immediately, requisitioning ELSI's plant and related
tangible assèts for « the duration of six months, except as may be necessary to extend such
period ,,,
It is undisputed that the requisition was found to be illegal under Italian law. lmmediately
following the requisition, ELSI represen.tatives sent cables to the Mayol,' and other Italian authorities
asking them to revoke the requisition, but received no response. On about II Aprii I968,
ELSI again petitionedthe Mawrof Palermo to lift the requisition order; the Mayor never responded.
On I9 Aprii Ig68, ELSl filed a formai appeal of the requisition order to the Prefect
ofl?alermo. The Prèfect ruled on 22 At1gust I969 that the requisition was illegal. The ruling
was issued approximately x6 months after the requisition order - but only a short period after
ELSI's assets had been purchased in banki.vptcy by the Respondent.
. . It is undisputed that: officials of the Italian Government made a series of statements, beginning
before the requisition, that evidenced its intention to prevent the orderly liquidation
an d. to take over EL SI for itself. I will give you a few examples of these statements. O n 3 x
March I968, the President ofthe Sicilian Regiori told ELSI's Managing Director that the Italian
Prime. Minister had said that the Governmen.t of ltaly would requisition ELSI's plant in order
to preverit the liquidation. On 20 Aprii 1968, following a meeting with Raytheon officials in
which he advocated additional investment in and continued operation of ELSI, the President
of the Sicilian Region delivered a memorandum to Raytheon stating that liquidation was impossible
for the time being. That memorandum stated that:
« nobody in Italy shall purchase [ELSI] neither for a low nor for a high price, the Region
shall not purchase, private enterprises shall not purchase ... [T]he region and IRI and
anybody else who has any possibility to influence the market will refuse in the most
absolute manner to favor any sale while the plant is closed ».
On 25 July I968, the Minister of Industry, Commerce and Crafts announced the intention
of the Government of Italy to take over ELSI's plant through one of IRI's subsidiaries. On
IJ November I968, the Italian Government announced that an IRI subsidiary, known as IRI252
RASSEGNA DELL'AVVOCATURA DELLO STATO
STET, would take over ELSI's plant. In December 1968, IRI formed a new subsidiaryIndustria
Elettronica Telecomunicazioni, S.p.A. (commonly known as «EL TEL ))) - to take
over ELSI's plant and assets.
It is undisputed that ELSI's bankruptcy petition was filed on 26 Aprii !968 and that ELSI
was declared bankrupt on 7 May 1968. Most of the ensuing events in the bankruptcy process
are also undisputed. Although I will not belabour the Court with a long diversion into the intricacies
of the bankruptcy process, it is important to note a few key events. Despite the Respondent's
announced intention to take over ELSI, neither IRI nor EL TEL attended the first
three bankruptcy auctions. ELTEL acquired ELSI's assets in another manner.
A week after the second auction, EL TEL proposed to the Trustee that it be allowed to lease
and reopen the ELSI plant for an eighteen-month period at an annual rental charge of ISO
million lire (US$24o,ooo). The creditors committee, which included Raytheon Europe, opposed
the proposed lease, but it was approved by the bankruptcy judge on the terms requested.
Raytheon Europe's appeal of the lease to the Civil and Criminal Tribuna! was denied. In fact,
the lease lasted less than four months, since EL TEL acquired ELSI outright in July I969.
The total amount in rent collected by the b!lnkruptcy judge was only 48 million lire (US$77,ooo).
(Memorial, Annex 30, Attachment B of Schedule A.).
In Aprilx969 EL TEL notified the bankruptcy court that it was willing to purchase ELSI's
plant and equipment, with the exception of certain supplies that were not essential for the administration
of the plant. EL TEL indicated that it would bid at the third auction if it could bid
3.205 billion lire (US$5,I28,ooo) for the plant and equipment only. The bankruptcy judge did
not alter the terms of the third auction and EL TEL did not bid.
In May 1969 EL TEL offered to purchase the plant, equipment and inventory for 4 billion
lire (US$6,4oo,ooo). On 9 June the bankruptcy judge ordered a fourth auction and set a base
price of 4 billion lire (US$6,4oo,ooo). Raytheon Europe appealed this decision, but that appeal
was denied.
On 12 July 1969 the fourth auction was held; only ELTEL attended. ELTEL purchased
ELSI's plant and remaining assets for 4.oo6 billion lire (US $6,409,6oo). On 13 July the Civil
and Criminal Tribunal of Palermo approved the purchase and assigned ELSI's remaining assets
to ELTEL.
I t is undisputed that the Trustee in bankruptcy was granted only I I4 million lire (US
$ I71,ooo) in damages for the illegal requisition. On 22 November 1969 the Trustee brought
suit in the Court of Palermo on behalf of ELSI's bankrupt estate against the Minister of the
Interior of Italy and the Mayor of Palermo for damages resulting from the requisition. The
Trustee sought damages of 2.395 billion lire (US$3,834,500) plus interest for the difference
between the book value of ELSI's fixed assets [plantand electronic equipment] on the date of
the bankruptcy and the evaluation made by a court-appointed appraiser at the end of the requisition
period on II October I968, and also requested the same for ELSI's inability to dispose
of the plant and equipment during the requisition period. The Court of Palermo denied the
Trustee's request. Memorial, Annex 79· The Court of Appeals reversed this decision and awarded
damages to the Trustee, but it limited those darnages to the rental value of ELSI for the
six-month period in the amount of II4 million lire (US$171,ooo). Memorial, Annex 8x.
l t is undisputed that, after the sale of the rernaining materials and collection of receivables,
a total of only 6.374 billion lire (910,192,ooo) was realized from the sale of ELSI's assets in bankruptcy.
Memorial, Annex 30, Attachment B of Schedule A. Because the proceeds from the sales
in bankruptcy were insufficient to pay ali of ELSI's obligations, Raytheon lost the full value of
the open accounts and was required to pay all the guaranteed loans, at a total cost to Raytheon
of more than 6.931 billion lire (US$ II,II3,6oo).
Finally, it is undisputed that the United States made extensive efforts to recover compensation
for the Respondent's actions through diplomatic channels. On 7 February I974 the
United States sent a diplomatic note to the Respondent seeking compensation for its actions
against Raytheon and Machlett's subsidiary. The Respondent replied on I3 June 1978 that the
claim was groundless. On 18 Aprii 1979 the United States sent another diplomatic note questioning
the basis for the Respondent's position. The Respondent senta letter to the United
4MING.A MATW!SQN 253
States on 18 Ap:t:il X98.o tepeating that it was jutidicìdly ùnpossible for the Respondent to pay
compensation for the claim. Finally in November 1985 the pa.tties agreed that the United States
should file applicationwith this. Court to initiate .proceedings in this case.
This. concludes my review of the most important undisputed facts. As I .stated a t the outset,
if the Resp9ndent takes the position that. any of these facts ìs disputed, the Respondent should
indicatewhicll, spec~fì.c fact i t disag"tees with; and should refer to the documentary evi dence before
the Court. whichsuppQ:rts .. its position. This.ptocess will narrow the dispute and assist the parties
and 1:he Court .in focusing on the :real issues itt this cas.e.
lr:r~le'l)ant.facts.
/ . I 'l'Vili ne:x:t deal brieily with the considerable amount of factual.material in the Respondent's
w:dt1;eri pleaAiJ.lgs that is ess!mti~lly irre!evant to this case. The.Respondent places great weight
i>i:i ELSI's àsserted unprofitability ai:id the reasons for this situation. The state of ELSI's profìtlll:>
ility is not disputedin this (lase, nor is it relevant to this proceeding, Regardless of the state
0(:J:!;LSI's profìtllpilityi the Resp0ndei:itwrongfully prevented ELSI's shareholders and creditors
ftom. :realiz~ng t}le ftì,ll vlllue <lf thf:! cor,npany througl:l the ordeJ;ly liquidation of its assets.
•..• No~; ~e the :reasoi:is fot ELSl''s financial performance relevant. ELSI's geographic location,
the ;ati; ot ELSl'$ product lines, anci similar t:naterial to which Respondent refers, are all essentill,
lly ittelevant tq . the l:>ll~ic issl1e l:>ef()J:e. ~Pi&. 9o.urt: . whetber the .•. illegal requisition and other
acts ,ai:id gm.issions by the · :Respondenf constitute •. a violation of the .· FCN Treaty. While the
(fi:iited Stàtes has provi4ed complete responses to Respolldent's allegations in this regard -
beca.use ii:i ouryiew t]le :Responc1ent is wrong ~ the Court .simply need not reach these issues.
W}l3tever the reasoil for ELSI's financial performal}ce Raytheon and Machlett were wrongfully
deprived of the rjght tò •• liquidateELSI'sassetsinan orderly fashion. .
N oiJ.etlJ,eless,. ~o. giye th,e Court an accurate pictu,re of these matters, I would like to review
very briefly the evei:its which led up to the planned liquidation of ELSI.
BeginQing in 1967, when Ra}'theqn decided that ELSI. had to be made financially self-sufficient,
th,éy repeateclly met '\VÌth Italian Government oflicials an d o:fféred a number of proposals
to.~voidJlie necessity.of.!t liquidatioll of ELSt .••• · These proposals are outlined in our pleadh~gs
(Memoria!, p. 8; Reply, pp. 128-129) in some detail. The J?roposals had several common ele~
ments: ELSI's shareholders would upgtade ELSl's plant andproduction systems and improve
managerial techniques; new products an d markets would be developed in order to expand and
diversify ELSI's business and make full use of its operating capacity; an influential Italian partner
would be found for ELSI; and the co-operation of the Italian Government would be secur~d.
Beginning in Aprii 1967 Raytheon provided 4 billion lire (Memoria!, Annex xs, para. ::n) to ELSI
in recapitalization and guaranteed credit which it believed would be sufficient to continue ELSI's
operations. for another 12 months. By December 1967 much of ELSl's facilities and operations
had been upgraded. Improved quality, production and scta:p eonttol systètns were implemented.
A worker training programme was established. Production facilities were restructured .
. Raytheon also identified severlll new product lines into which ELSl could expand. This
included the government-dominated telecommunications products - including telephone . switching
equipment - whìch are the very products that ate now being ri:iade by the governtnentowned
company that acquired · ELSI's assets in· bankruptcy.
However, Raytheon was not successful in finding an infiuential Italian partner that could
assist ELSI in competing in Italian markets. An itnpottant govemment-backed Italian partner
would have opened up new markets and access to the Italian business network and would have
assured a rightful piace in the future of the ltalian electronics industry which was doìninated by
government-backed companies.
One possibility ELSI and its stockholders explored was partnership with IRI, which had
extensive commerciai and banking interests and which dominated the telecommunications.,
electronics and engineering industries and markets in Italy. In fact, RaYtheon had already successfully
entered into just such a partnership with IRI and the private company FIA T in an
electronics company on the Italian mainland. Raytheon also explored a relationship with ESPI,
17
254 RASSEGNA DELL'AVVOCATURA DELLO STATO
the Sicilian governmental entity responsible for finding and promoting Sicilian development.
But neither of these ltalian entities were interested.
Likewise, Raytheon was unable to secure the support of the Italian Government. The
Italian Government was a dominant customer, and through IRI a dominant supplier, in the
Italian electronics industries including the telecommunications industry. It was also dominant
in related support industries, such as the transportation system and the Italian banking system.
With government support - and with IRI as an Italian partner - Raytheon and Machlett also
hoped to secure for ELSI the transportation and procurement benefits for investors in the Mezzogiorno
region that had been much publicized but never realized by ELSI.
For nearly a year, between February 1967 and March 1968, Mr. Adams, Mr. Clare, and
several senior Raytheon officials held some 70 meetings with cabinet-level officials of the national
government, with officials of the Sicilian Region, and with representatives of IRI. They presented
them with a centrai plan and with numerous specific proposals for Italian Government participation.
These proposals are fully described in the United States Memoria! (Memoria!, Annex
22).
However, neither the Italian Government nor IRI accepted any of these proposals to invest
in or establish a commerciai relationship with ELSI. Mr. Adams and Mr. Clare expressly told
Italian governmental and industriai officials that unless ELSI acquired an infl.uential Italian
partner and support from the Italian Government, the stockholders could not justify contributions
of additional capitai to ELSI, and ELSI would have to cease operations early in 1968.
By February 1968, the 4·5 million dollar recapitalization (Memoria!, Annex 13, Schedule A)
that Raytheon had contributed to ELSI in 1967 was running out. When neither an Italian partner
nor I talian Government support had materialized, Raytheon and Machlett decided in
March 1968 to place ELSI in voluntary liquidation at the highest possible price to obviate the
need to make substantial further capitai contributions to ELSI and to minimize their losses.
On 16 March 1968, ELSI's Board of Directors voted to cease full-scale production and to liquidate
ELSI. On 18 March, ELSI's shareholders, Raytheon and Machlett, voted to affirm
this decision.
The national government, the regional government, IRI and ESPI were all extended every
opportunity to keep ELSI alive and to keep the workers employed through normal and lawful
means. The Respondent chose, however, not to pursue these opportunities and chose instead
to take the extreme step of requisitioning the company in an unlawful manner and acquiring
ELSI for itself under the distress conditions of a bankruptcy sale.
Disputed facts.
Let me now turn to the centrai issues that are in dispute in this case: first, whether Raytheon's
plan for the orderly liquidation of ELSI was reasonably calculated to maximize the proceeds
of the sale of ELSI's assets, and to pay ELSI's creditors; and second, whether the unlawful
requisition of ELSI's assets precluded an orderly liquidation of ELSI and caused its bankruptcy.
The United States has already submitted substantial documentary evidence of its views
on these two disputed issues. Today and tomorrow, we will present testimony by witnesses who
had direct, personal knowledge of these events. Specifically, Mr. Charles Adams and Mr. John
Clare will testify to relevent events associated with the management of ELSI, the preparation
of the orderly liquidation plan and the e:ffect of the requisition on the orderly liquidation.
We will also call on an eminent professar of Italian bankruptcy law, Professar Franco Bonelli,
to explain in detail the content and e:ffect of Italian law with regard to these events.
The Orderly Liquidation Plan
The first of the two key disputed issues deals with the viability of the orderly liquidation
plan. As both Mr. Adams and Mr. Clare will attest, the plan was reasonably calculated to sell
ARRINGA MATHESON 255
ELSI as a Uve business in order to rnaxitnize tbe sales proceeds; Morevoer, tbe plan was reasonably
calculated to pay all of ELSI's credit-ors.
In eurly I968, Raytbeon and Machlett bad llpJ?OÌnted Raytbeon's Vice President, Josepb
Oppenheun to beccml.e ELSI's Cbahi:nan. Mr. Oppenbeirn, hirnself an electtonics engineer,
was anexpert ori: iiltemational sales and transactioris and was tbus ideally qualifìed to plan and
~atry out the ordetlj1iquidation:~ To assisthim, officials of tbe stockholders and ELSI were to
bédivided into working groups to coriduct tbe Hquidation. One group was to co-ordinate tbe
entire plan; anotber was to deal witb the banks and otber creditors; anotber bad tbe responsibility
ti> • handle con:unìtments to customers · and to collect receivables; an d a fìnal group would
co~ordinaté tbe sale o:f · assets.
Tbe cornerstone of tbe pian was to sell ELSI or its product lines as going businesses. At
tbe eridof'Marchì968, ELSlbad orders in band,work in proce1,1s, customer lists, and a list of
e:xpe:tìenced stlPpliers OftaW materìals àri:d comJ?Onents, all ofwhicb could bave been transferred
to a buyer as goingbusiness lìnes. In addition, ELSI and its stockholders selected I30 employees
to maìntain a light assernbly operation to complete work in process and tbereby maintain relationships
with customers. This combination gave reasonable assurance that tbe plan would bave
been: · carried to à · successftil · condusion.
Sale of ELSf as a going business also entailed sale of ELSI's substantial intangible assests.
ELSI ot its ptòduct liri:es Would be offered witb an established riame and reputation, and' witb
customer and supplier telati0nships iritact. This isknown as «goodwilln and was a substantial,
recoverableelement .o:f ELSI's assets. Iri addition, lUytbeon and Machlett would supply necessary
patent and·tràdexnark licerices to purcbasers. Theywould also provide technical assistance
to the newbuyei:'s ofthe ELSI lines, thereby hacking ELSI's purchasers witb tbeir own worldrenowned
expertise in tbe electronics fìeld. Tbis assured tbat purcbasers would, in turn, produce.
higb~quality products. InclUsion of tbese intangible assets in tbe ELSI package would
obviotìsly attract ··a • wider range of potential buyets ànd maximize ELSI's sales proceeds.
The experienced team whìd:i put togetber tbe Hquidation plan planned to use its knowledge
of tbe electronics · corilponents iridustcy to advertize ELSI world-wide, to seek out potential
buyers;an:d to match oneor more.of ELSI's product lines witb eacb oftbese buyers. Mr. Oppénheim
bad world~wide connections witb potential buyers; and alreàdy bad been in toucb
witb Japanese and other firms regardirigtbe possibile sale of ELSI's product lines, including tbe
work-iri-process and raw materials.
Sale to a company orto a combination of companies in Italy, including IRI, was not to be
overlooked. Tbe Respondent's interest in ELSI is evidenced by tbe statements made by tbe
nation.al government before and after the requisition, by tbe extraordinary steps it took to seize
EL$1'$ assets througb tbe requisition,by ~ts leasethrougb IRI~STET, an.d. by the eventual purchase
in bankruptcy by ELTEL. In sum; tbe sale of ELSI or its product lines as live businesses
was not orily feasible, it. was nearly a reality.
Tbis brings me to tbe second aspect of the orderly liquidation plan: tbe payment of creditors.
Would tbe sale of ELSI's assets bave realized sufficient funds to pay ELSI's creditors ? Again,
the answer is yes. ELSI bad three types of creditors: small creditors; large secured and guaranteed
creditors; an d large unsecured; Unguaranteed creditors. Agreemerit witb tbe plan was to
be obtained witb ali three classes.
Prìor to tbe receipt of any ptoce~ds from tbe liquidation, Raytbeon planned fìrst to pay
tbe debts owed tbe small creditors to tninitnize tbe administrative effort during liquidation.
Raytbeon transferred 150 tnilion lire to tbe Fìrst National City Bank branch in Milan to pay
tbe small creditors in ftìll. Memorial, Annex 17, para. 14 (I sbould point out thatthis transfer
was accomplisbed witbout any difficulty under US foreign direct investment regtìlations). Raytheon
would satisfy ELSI's debts witb tbe remaining creditors from tbe sale of ELSI's assets.
Secured and preferred creditors would, of course, take priority. To tbe extent that funds from
tbe sale of tbe assets were insufficient to pay guaranteed loan.s in full, Raytheon would be called
upon to make up the .difference.
256 RASSEGNA DELL'AVVOCATURA DELLO STATO
In the orderly liquidation, Raytheon and Machlett would have received the value of ELSI's
~tssets to be sold as going business lines - at a price likely to be greater than the book value of
17.os billion lire (US$27,2oo,ooo) (Memoria!, Annex 13, Schedule C1). Realization of book
value would have been sufficient to pay off ELSI's liabilities of 16.66 billion lire (US$ 26,6s6,ooo)
(Memoria!, Annex 13, Schedule E) in full, including amounts owed by ELSI to Raytheon. This
would have left 391 rnillion lire (US$62s,6oo) (Memoria!, Annex 13, Schedule E) which could
have been distributed to Raytheon and Machlett as a recoupment of a small portion of their
total investment.
The liquidation team also prepared a worst-case scenario. They calculated that as an absolute
minimum, ELSI's assets would command no less than 10.8 billion lire (US$ 17,28o,ooo).
(Memoria!, Annex 13, Schedule C1). This so-called quick-sale value was not to be used to establish
an offering price, but only to set the lowest possible figure which could be used by Raytheon
in its own internai corporate planning. It is not to be confused with the proceeds Raytheon would
actually have obtained had the orderly liquidation been allowed to continue. The quick-sale
value artificially discounts ELSI's assets and does not take into account the substantial intangible
value of ELSI's product lines.
Mr. Lawrence of Coopers and Lybrand will discuss the actual value of ELSI's assets in
more detail. Suffice it to say for now that even if Raytheon and Machlett had realized only the
quick-sale value of 10.8 billion lire, the orderly liquidation would stili have proceeded successfully.
Raytheon and Machlett could have paid ELSI's preferred and secured creditors and all
of ELSI's smaller unsecured creditors in full. Raytheon would have honoured its guarantees
to pay any guaranteed creditor not fully paid from asset sale proceeds. Thè major unsecured
unguaranteed creditor class would have been paid on a prorata basis from the funds realized
from the sale of the assets.
I t is impossible tostate precisely how payment of the remaining creditors would have progressed,
because the illegal requisition arbitrarily terminated the orderly liquidation. One possibility
was that Raytheon and Machlett could have settled ELSI's credits with the large unsecured,
unguaranteed bank creditors. It would have been reasonable to expect that the unsecured,
unguaranteed bank creditors would have settled their claims ·at approximately 30-so per cent
of value. As Professar Bonelli will describe, in Italy it is common knowledge that settlement
brings creditors prompt and substantial payment as contrasted to the lesser amounts the creditors
are likely to realize through a court-supervised sale bankruptcy. It is thus common practice
in Italy for bank creditors to make such settlements of their claims with failing companies.
Raytheon and Machlett fully intended to allow alllarge unsecured, unguaranteed creditors to
participate in whatever proceeds would have been recovered from ELSI's assets. As Mr. Adams
will tell you in a few moments, Raytheon and Machlett would have been willing to negotiate a
type of revenue-sharing plan with the creditors. If the sale of ELSI's assets had generated sufficient
revenue to pay off creditors at greater than so per cent, Raytheon and Machlett would
have shared that revenue prorata with the unsecured, unguaranteed creditors.
Accordingly, if Raytheon and Machlett had recovered book value or more from the sale
of ELSI's assets, they would have been willing to negotiate an arrangement under which all
creditors- including themselves- would have been paid at 100 per cent of value notwithstanding
any prior settlement commitments for lower amounts. Creditor settlements never carne to
fruition, however, because the illegal requisition of the ELSI assets intervened to make their
sale, as well as settlement from sale proceeds, impossible.
The criticai point, however, is that even assuming for the sake of argument that ELSI's
assets had recovered only 10.8 billion lire, the quick-sale value, as the Respondent suggests
(Counter-Memorial, p. 82; Rejoinder, pp. 237-238), the orderly liquidation would stili have been
successful. And even assuming that ELSI's assets had recovered only this quick-sale value Raytheon
and Machlett would have been in a much more favourable position financially than they
were following the sale in bankruptcy. If the bank creditors with large unsecured, unguaranteed
loans had settled their claims at so per cent of value or less, the liquidation would hav'e cost Raytheon
no more than 3·79 billion lire (US$6,o82,6oo) (Memoria!, Annex 13, Schedule F).
INTERROGATORIO ADAMS 257
Mr. President, it is our intention next to ask that Mr. Char'es Adams be called to testify.
I note that the hour is approaching I 1.30. May I ask the Court's preferences as to whether we
should . proceed with that testimony now ?
The PRESIDENT: We are going to have the break now and will call the witness after the break,
in ten' or fifteen minutes.
The Court adjourned from n .:ao a.m. to I 1.42 a.m.
The PRESIDENT: Please be seated. I call upon Mr. Charles Adams to make the solemn declaration,
the text of which I assume you have been provided with.
Mr. ADAMS: l solemnly declare OI). my honour and conscience that I shall speak the truth,
the whole truth an d nothing. but the truth.
The PRES~DENT: Thank you. Mr. Sofaer.
Mr. SoFAER: Thank you Mr. President, Your Honours. Mr. Adams served in I947 as Executive
Vice-President of Raytheon and in I948 became President of Raytheon. In I964 he
became Chairman of Raytheon's Board of Directors, a position he held until I975· He stili
serves as a Director of Raytheon and is Chairman of Raytheon's Finance Committee.
Mr. Adams was awarded the medal of commendation of the Order of Merit of the Italian
Republic f01: his advancement of the electronics industry in Italy.
Mr. Adams, could you tell us, Sir, the reasons for the Raytheon company's investment in
EL SI.
Mr. ADAMs: Raytheon was interested in usi11g its technology to develop, hopefully, a profitable
activity in Italy. W e ha d the experience of another company where we were joint owners,
where. we had developed on the equipment side - ELSI was the components part of the business
•. W e felt that we had the technology to succeed in this. an d that over a period of time we
were doing something, by operating in Palermo, tha~ was consistent with the objectives of the
Italian Government in helping employment and industriai activity in the Mezzogiorno area.
In our own interests w e hoped to develop a profitable business; we thought we w ere consistent
with the interests of the Government.
Mr. SoFAER: Were there any factors that made you feel that your compimy, ELSI, would
succeed or needed to succeed ?
Mr. ADAMS: W e felt, as we understood the conditions in Italy from our experience elsewhere,
that we needed to have the help of the Government and the Government's industriai activity
area. This was so important in developing, broadening our sales that we felt that we should have
the help, not only in developing markets, but that we should bave the help of the subsidies for
transportation for some of our products and the so-called 30 per cent law which would mean
that we would have a certain fraction of the sales of certain kinds of products in this situation.
Mr. SoFAER: Had Raytheon trained any people to operate the ELSI plant?
Mr. ADAMS: Yes, we used American people to enhance the technical training of the workforce
at the ELSI plant. W e also provided management people from time to time to help in the
organization and development of it as a business. So it was both technical training and management
training that we provided - management assistance.
Mr. SoFAER: Did Raytheon provide other assistance to ELSI?
Mr. ADAMS: We did. Outside of our financial contributions to ELSI, we went out of our
way to provide additional sales. I thitik perhaps a good example of that was the effort that we
made to provide for a components work for the NATO Hawk system. I just take this as an
example. In I959 I was in Paris negotiating with five nations a production programme for the
Hawk anti-aircraft missible system for NATO and the question carne up of who would make
258 RASSEGNA DELL'AVVOCATURA DELLO STATO
the tubes that were involved in this - the magnetrons, klystrons, and other technical types of
tubes. I said that we had one licensee and that was ELSI and that we wanted to see that work
clone at ELSI. Generai Reyneirse, who was the representative of the five nations, said that we
cannot put this whole programme in a position where it depends on one small company in Palermo
- that is a risk that I cannot accept. I said, General, I can assure you that ELSI can
produce these tubes, they are state-of-the-art technology, very difficult and, in order to back
that up, I will assure you that for any tubes that ELSI produces that do not meet the specification
and pass inspection we will substitute for them tubes made by the corresponding Power
Tube Division of the parent company in the United States. That was accepted and ELSI did
the work and its tubes passed every inspection; in fact if anything, exceeded the quality of the
tubes we made in the United States.
Mr. SoFAER: you mentioned that Raytheon had extended financial assistance to ELSI.
Could you tell us the extent of that assistance, if you know ?
Mr. ADAMS: W e made a capitai investment of approximately US$ 12 million and an additional
US$8 million in guaranteed loans for which we were responsible -a total of approximately
US$zo million.
Mr. SoFAER: There carne a time that Raytheon decided to end its investment and to liquidate
ELSI. Could you tell us the reasons for those decisions ?
Mr. ADAMS: We had made every effort to turn ELSI into a profitable activity. We decided,
in 1967, that we would give this one last good try and we agreed to put up another 4 billion lire,
(US$4.5 m1l:i -n), the last of the capitai investment that we put into it. And during that time
we had some added management people that we were able to bring to bear on the problems
there. We decided that we would go around to all the Government agencies, to IRI, to try to
get some help to give us added business, to give us some business that had a consistency and
stability to offset the ups and downs of some of the military work such as Hawk. We found
at the end of that period, as we carne into the spring of 1968, that it just did not work. We
could not get the help that we needed, we were not able to have enough volume of business to
support the workforce there and since we were not in the business of being what I think you could
call « permanent investors », if something could not be tumed to a profitable condition then i t
was the inclination of our Board to dispose of it. W e could not continue to carry losses for an
indefinite period. So a decision was made that we should sell ELSI, either as a whole or by
various product lines, the latter being the more probable approach to this. I think that we had
every reason to believe that this would work. Mter all, businesses are bought and sold around
the world between one country and another and within countries; some organization is offered a
fair price, they may dispose of an activity because there is another organization that is convinced
that they can do better with it. Therefore we felt that we had reached the end of the line,
our patience had run out, we were a tired investor, if you will, and the time we felt had come
to liquidate.
Mr. SOFAER: In your discussions with IRI during that period did you make any proposals
to encourage IRI to participate in ELSI ?
Mr. ADAMS: W e did, we had a meeting with the senior management of IRI and we suggested
that they join with us in the ownership of ELSI as they did with us in Selenia where we had
that kind of an arrangement and the answer was firmly no. They said that they couldn't make
any plans. That they were developing a plan for the electronics industry and that would take
a year or so to develop and they could do nothing in the meantime. Beyond that, they said
they had no money available. At this point, we said, look, perhaps we can buy some of your
share in Selenia which will give you some money which you could then put into ELSI. That
was turned down flat too. So it was perfectly clear to us that this was a total turn-down of our
suggestions neither would they join with us in this business nor would they give us any help.
Mr. SoFAER: So, do I understand you correctly to say that just before your decision to proceed
with an orderly liquidation you offered an opportunity to the Italian Government's company
IRI to participate through monetary investments in the ELSI operation ?
INTERROGATORIO ADAMS
Mr; ADAMs: That is correct.
Mr. SoFAER: And th~y tumed you down?
Mr. ADAM:s: That ìs correct.
259
Mr. SoFAER: Did th~ balance of payments programme in the United States play any role
in bringing you to the decisionto cboose an orderly liquidation?
Mr. ADAMS: No, it .did not .•
Mr. SoFAER: Could you explain why?
Mr. ADAMS: Well, an orderly liquidation would bave provided us with assets with which
we could pay off our obligations there so that there was no need for the money to move from the
United States to Italy. There were mechanìsms by which we could invest. And we did invest
the 4 billion lire (US$ 4·5 niillion) of our last investmerit in that period of time and that US
Go'Vernment balance of payments programme had no effect at ali and our decision was not
based on that.
Mr. SOFAER: Why did you believe, and your company had believed, that the orderly liquidation
prògramme would be successful ?
Mr. ADAMs: W e felt that there was great promise in each segment of the business of ELSI.
W e hadn't been able to malte i t work but we felt that there were others who would. W e felt that
there were oompanies that could ad d these product Iines to existing product lines; com pani es
that were competitots òf ours that might do that; and there was also the possibility of sales outlets
that we had that would like to add the production t0 their activities and we found these product
line$ to bave real promise and therefore real value. The military magnetron line, in the
power-tUbe line, would be brought back up to a high level shortly after this by the so-called
Hawk improvement programme which was an add-on to the originai Hawk programme that
I bave spoken on. There were other ongoing businesses there, we were making tubes for commerciai
marine radars for example; which was a growing business an d we had introduced the
technology ofmicrowave cooking down there at that time. That became in the United States
a very large activity. Our own subsidiary in the United States by 1980 had reached the volume
of soo;ooo units a year which at a value of zoo dollars per unit would be something like US$ 100
million. This was a field in which somebody who wanted to go that way in the appliance business
could bave found very attractive because Raytheon pioneered microwave cooking. We
held the originai patents and the license that would bave gone with that line offered a really quite
exciting opportunity for profit for somebody who werit vidth that. The other lines were in different
positions but we felt that there were conipariies that còuld be identified that would be in-:
terested in each of these lines and that if we could go ahead with an orderly liquidation that would
do fine by us. We would get enough return from these varios sales to meet our obligations and
we ha d people out there with e:K.perience in this kind of things, w ho w ere familiar with the marke~
of Europe and whom we felt could do thitl very effectively. They reported back to us in turo,
having looked into it; if theY could do it. ~ffectively, and.·gave us reason back at the Company
headquarters in the United States to beli~ve th11t tbis plat1 could indeed be carried out successfully.
J ust one other product line aspect of tbis : we were making cathode-ray tubes for televisions
there ; .they were black-and-white. In the United States colour had come in and we helped ELSI
to provide some engineering staff that could bave converted the black-and-white line to a colour
line, depending on which colour systems were chosen in Europe. Actually, that was delayed a
bit but we had staffed that activity so that it would be attractive to a buyer,
Mr. SOFAER: Now, do I gather correctly then that you are saying that Raytheon as a result
of its control of patents and various other types of technology was in a position to extend to purchasers,
either of individuai product lines or of the company in generai, commitments to provide
those purchasers with the opportunity to manufacture those products ?
Mr. ADAMS: Yes, the licenses and know-how agreements that went with each product line
would bave been carried on. With each product line we had an ongoing organization. We had
260 RASSEGNA DELL'AVVOCATURA DELLO STATO
suppliers, a network of suppliers that had been developed, that could provide the high quality
materials that we needed for these high technology products. We had sales organizations. We
had customers in piace. Each of these businesses was a going business. And yet altogether they
weren't profìtable in our hands but we felt that they were attractive to buyers and that with the
very productive work force that we had down there and the ability to deal with these difficult
products that these were almost unique opportunities for a variety of buyers who could have
appeared on the scene if we had been able to deal with that.
Mr. SoFAER: And do I understand you correctly to be saying that Raytheon was in a position
to offer any particular buyer substantial sales that you were expecting from the Improved
Hawk programme with NATO?
Mr. ADAMS: Yes, indeed we were. That lay just ahead and would have enhanced the sales
of the kinds of power-tubes that we had produced in considerable volume in the early sixties.
That volume had dropped off as the productions was completed and the flow of tubes was only
for spare parts and so on. But with the Improved Hawk there was a requirement for new equipment
with new tubes and whoever bought into that business would have had that assured in the
years immediately ahead.
Mr. SOFAER: Did Raytheon expect to make a large profìt as a result of the sale of ELSI or
its lines?
Mr. ADAMS: No, we didn't expect to make a large profìt but we did hope to and expect in
fact to liquidate at something like our book value. We felt that book value was quite secure if
we had been allowed to go ahead and dispose of these assets. This would have ended our losses
and let us get out of the thing with no write-off beyond what we'd already taken.
Mr. SoFAER: Did you feel that the amount you could obtain in an orderly liquidation would
be sufficient to pay off ELSI's creditors?
Mr. ADAMS: We did. We felt if we could have gone ahead with that the way we wanted
to, we could ha ve paid off ali the creditors. If it didn't go quite as well, if we took a sort of worst
case, a quick-sale kind of solution, we could have paid off the people that worked there. W e could
have paid off the small creditors and we could have made a deal with the major creditors at the
40-50 per cent minimum of what was owed to them so that we felt that in the worst case that
was where we would have come out.
. Mr. SOFAER: So it was the business judgment of your company, yourself included, that the
best interests of Raytheon and Machlett required you to end your losses in ELSI by selling in
an organized, orderly liquidation of the ELSI assets.
Mr. ADAMS: That was our conclusion.
Mr. SOFAER: Why did you then put ELSI into bankruptcy at some point?
Mr. ADAMS: We were forced to put ELSI into bankruptcy when the plant was occupied
when the requisition took piace. At that point we were no longer able to bring customers in to
show them a going business, to show them machinery and equipment, let them talk to the people
and get a detailed feel for the line. W e were blocked completely from doing that and as long as
we could no longer conduct the orderly liquidation that I just tried to describe to you, we were
forced by the requisition into bankruptcy. A course of action that we never considered until
the requisition took piace.
Mr. SoFAER: So did the stockholders of Raytheon and the Board of Directors of Raytheon
ever consider putting ELSI into bankruptcy before the requisition had been implemented ?
Mr. ADAMS: No we did not.
Mr. SoFAER: After the requisition you noted that you were unable to show people the plant
and discuss with them the assets of the company. Do you mean to say that your company lost
possession and contro! of the ELSI plant and its physical assets?
ARRINGA MATHESON 261
Mr. ADAMS: Yes, that is exactly what took piace, and when that took piace the vaiues began
to decline because we could no Ionger maintain the machinery in good operating condition,
we could no Ionger work out the conversion of work-in-process into finai product and get that
out, we could no Ionger deiiver to our customers the materia! that they had ordered, that we had
finished or had almost finished there. So that from that moment on - the requisition - we
completely lost control and were forced into an untenable position which again put us into the
bankruptcy condition.
Mr. SoFAER: Do you feei that that situation had an impact on the value of the physical assets
and the inventory and other aspects of ELSI?
Mr. ADAMS! It certainiy dici. As l've said, with the machinery not maintained, equipment
not properly taken care of, no proper house keeping, and ali the rest of it that goes with a going
concern situation, even at Iess than a full-scale operation, we couid not preserve the values which
we were anxious to preserve.
Mr. SoFAER: On that basis, wouid you conclude that any valuatìon, set on ELSI after the requisition
had occurred and this process had continued, would necessarily lack the bases upon which
you ha d ma de your judgments concerning the . orderly Iiquidation?
Mr. ADAMS: Without question. The value that we couid realize was rapidly disappearing
and the situation, months after the time when we were hit by the requisition, was a period of
declining value, unrealizable vaiue from our point of view.
Mr. SoFAER: Mr. President, that ends my questions of this witness. If the Court has any
questions at this time, the Court would be, of course, free to ask those questions. I have previousiy
discussed with my distinguished colleague, Professor Ferrari Bravo, the question of
ltaly's examining this witness ancl as you know, your Honours., we have agreed to permit Italy
to examine tomorrow, if they wish to do so. But at this point I wouid make the witness available
for either examination by the Court or by my distinguished colleagues in the Italian Deiegation.
The PRESIDENT: Well I understand that the Italian Delegation will put questions to the
witness tomorrow morning. Now it seems to me appropriate for the Judges that may want to
put questions, to put questions after the Italian Delegation have put their own questions to the
witness. So I beg Mr. Adams to remain a t the disposal of the Court.
Mr. SoFAER: Veey well. Mr. Adams you will please remain at the disposal of the Court until
tomorrow morning when the examination will continue.
The PRESIDENT: Thank you very much Mr. Adams. AsI inderstand now you are going to
cali Mr. John Clare.
Mr. SoFAER: No, Mr. President with your induigence I would like the Court to cali upon
Mr. Matheson now to continue his recitation of the essential facts that relate to this deiegation.
The PRESIDENT: Very well, I. call Mr. Matheson.
Mr. MATHESON: Thank you Mr. President and distinguished Members of the Court.
As Mr. ADAMS has now testified, the orderly liquidation pian was commercially viable:
ELSI or ELSI's product Iines would have been soid as going businesses and the sale of the assets
was reasonably calculated to pay of ali of ELSI's creditors. Mr. Adams has testifìed that the
requisition was the sole event that prevented the orderly liquidation and that the orderly liquidation
precipitated the bankruptcy of ELSI.
Tomorrow with your indulgence we will cali John Clare to give further testimony on these
matters. In addition, Professor Franco Bonelli will estab1ish the shareholders' entitlement to
an orderly liquidation under Italian law and he will demonstrate that prior to the requisition
ELSI's management was under no obligation to piace it in bankruptcy. He will also expiain how
the requisition caused the bankruptcy as a matter of Italian Iaw.
262 RASSEGNA DELL'AVVOCATURA DELLO STATO
Thus, Raytheon and Machlett had developed a liquidation plan that was financially sound
and legally feasible. However, as they took the first step to implement the pian, the Respondent
intervened. One event and one event alone prevented the orderly liquidation: the unlawful
requisition of ELSI's plant and assets on I Aprii I968.
The requisition cause ELSI's bankruptcy
This brings me to the second issue which I mentioned at the outset: that the requisition
directly and proximately caused ELSI's bankruptcy. We will show that the requisition in fact
prevented the sale of ELSI's assets, that without proceeds from the sale of ELSI's assets ELSI's
shareholders could not settle ELSI's debts with its creditors, and that bankruptcy became, as
a result, inevitable.
Again, I would like to step back for a moment and refer to the circumstances that led to and
directly followed the requisition. It was the Respondent's stated intention to requisition ELSI's
assets to prevent the orderly liquidation. On 27 March, the President of the Siciiian Region,
President Carollo, stated that the Italian Government would seize ELSI's plant and related
assets if the shareholders persisted in liquidating ELSI. He stated « the plant would almost
certainly be requisitioned if ELSI sent out letters of dismissal to its emplyoes " (US Memoria!,
Annex IS, paras. s6-57 and Exhibit F). But President Carollo still made no definite commitment
to Raytheon and Machlett for the future of ELSI.
On 29 March the Generai Manager of the Ministry of Industry, Commerce and Crafts,
spe11king for the Prime Minister of Italy, told Mr. Clare that Raytheon would incur the Prime
Minister's «severe displeasure, if the plant were closed (US Memoria!, Annex IS, paras. 58-59
and Exhibit G). Like President Carollo, however, he would make no written commitment regarding
any Government assistance if Raytheon and Machlett were to keep the plant open. Without
such a commitment Raytheon and Machlett sent out letters of dismissal to ELSI's employees.
On 3 I March the President of the Sicilian Region reported that the Prime Minister had
indicated that an ESPI company would acquire ELSI's assets and that the Government would
requisition the plant in order to prevent the liquidation (Memoria!, Annex IS, paras. 6I-62 and
Exhibit H).
Consistent with his stated intention, on I Aprii I968, the Mayor of Palermo, acting as an
official of the centrai Government, issued an order, effective immediately, requisitioning ELSI's
plant and related tangible assets for a period of six months « except as may be necessary to extend
such period "· On 2 Aprii acting upon legai advice, ELSI's management relinquished contro!
of the company's plant and assets.
Now it is not disputed that the requisition was patently illegal under Italian law. When
the Prefect ultimately ruled, he found in unambiguous terms that the requisition was illegal
because it could not possibly have achieved its stated purposes (Memoria!, Annex 76). He stated
« the order is destitute of any juridical cause which may justify it or make it enforceable "·
Just how unlawful this requisition was can be seen from the plain language of the relevant
statutes. The requisition order was based on two statutes that bestowed extraordinary power
on Italian administrative authorities to dispose of private property for reasons of grave public
necessity (Memoria!, Annex 34). The first statute, enacted in I86s, is only a few lines long:
« When, because of grave public necessity, the administrative authorities must dispose of
private property without delay or, pending a court case for the same reason, proceed to enforce
a measure whose legai consequences are the subject of the dispute, the administrative authorities
will proceed by means of a decree indicating the reasons, without prejudice to the rights of the
parties "·
The second statute established the Mayor authority to issue << emergency and urgent orders
of this character » (US Memoria!, Annex 35). The sta tute states:
« The Mayor issues emergency and urgent orders in matters of civil works, local police and
health for reasons of public health and safety »,
ARRINGA MATHESON 263
The Mayor of Palermo, invoking both of these statutes, cited several bases for requisitioning
ELSI (Memoria!, Annex 33). Among the stated reasons for the requisition were that ELSI's
action << caused a wide and generai movement of solidarity of ali public opinion which has stongly
stigmatized the action taken considering that about r,ooo families are suddenly destituted n,
that « because of the shutdown of the plant a serious damage will be cause to the district n, that
« the local press is taking a great interest in the situation and ,,, is being very criticai toward the
authorities and is accusing them of indifference to this serious civic problem » and that « there
is a grl\ve public necessity and urgency to protect the generai economie public interest (already
seriously compromised) and public order ».
The reasons offered by the Mayor for the requisition are significant because they are completely
at odds with the conduct of the Mayor and other ltalian authoritiesfollowing the requisition.
Despite his · statements concerning the serious consequences of a shutdown of the plant,
the Mayor of Palermo took no effective actions whatsoever to reopen, operate or maintain the
plant. Further, Italian authorities. did nothing to prevent ELSI's former employees from occupyingthe
plant grounds orto terminate that occupation. The Respondent's suggestion (Rejoinder,
p. ·I 84) that the aim of the requisition was not to deprive the shareholders of the ownership of the
plant but merely to regulaté ELSI's assets does not square with the events that actually occurred.
Itis also clear that the requisition preventedthe orderly liquìdàtion of ELSI. As a result
of the requisition, ELSI's owners and management were, as a matter of law, deprived of possession
and control of ELSI's assets and the right to dispose of them. They could not use the plant
in order: to minimize growing losses. They could not complete work-in-process to finished products.
They could not sell any or ali of ELSI's assets, including ELSI's inventory or its workin-
process. Barred from physical access to ELSI, it was impossible to invite potential buyers
to view ELSI's facilities. They could take no steps which would in any way generate operating
income to pay the inevitable bills that would come due. At the same time, ELSI's relationships
with its suppliers and customers were terminated abruptly. ELSI's market position was quickly
seized by its competitors. Any possibility of selling ELSI's product lines as live businesses diminished
rapidly.
It is equally clear that the requisition forced ELSI to file a petition in bankruptcy. The
Respondent made it dear to Raytheon and Machlett that the requisition would be indefinite.
Faced with no prospects of generating income to pay ELSI's creditors, bankruptcy was inevitable
Notwithstandìng the patent illegality under Italian law of the requisition, the Mayor and
other Italian govermriental authorities did not revoke the requisition. Initially, Raytheon and
Machlett hoped that the requisition would be promptly quashed and that they would be able
to resume their plans for the orderly lìquidation of ELSI. Raytheon and Machlett immediately
cabled the Mayor (Memorial, Annex 26, para. 9), tequesting him to rescind the requisition, but
the Mayor never responded. On 19 Aprii, ELSI appealed the Mayor's order to the Prefect
of Palermo (Memoria!, Annex 36) but the Prefect delayed ruling for r6 months unti! after ELSI's
assets had been sold to the Respondent.
A t the same time, it became increasingly àpparent to Raytheon and · Machlett that the requisition
would last indefinitely. On 20 Aprii 1968, President Carollo delivered a memorandum
to Mr. Oppenheim. This memorandum ìs attached as Exhibit 38 to the United States Memoria!
and it clearly showed the Respondent's intentions. The memorandum stated in part:
« On the premise that the intent of [Raytheon] is that of liquidating ELSI, I shall herein
explain the reasons why i t is absolutely impossible that this can · take piace for the time being.
r. Nobody in Italy shall purchase, that is to sày IRI shall not purchase neither for a low
nor for a high price, the Region shall not purchase, private enterprise shall not purchase.
Let me add that the Region and lRI and anybody else who has any possibility to influence
the market will refuse in the most absolute manner to favour any sale while the
plant is closed.
4· In the event thàt the plant shall be kept closed, waiting for Italian buyers w ho will never
materialize, the requisition shall be maintained at least until the courts will have resolved
the case. Months shall go by »,
264 RASSEGNA DELL'AVVOCATURA DELLO STATO
Following receipt of this memorandum, it was clear that the requlSlt!On would not be
promptly quashed and the orderly liquidation would not be resumed. In this posture, ELSI's
counsel advised ELSI to file a petition in bankruptcy. ELSI's shareholders had been relying on
the sale of ELSI's assets to generate revenue to pay ELSI's creditors in an orderly manner.
The requisition, however, essentially froze ELSI's assets and prevented their sale. It was obvious
from President Carollo's statements that this was exactly its intended purpose. After the requisition,
creditor demands intensified substantially. Unable to generate income, ELSI was
no longer able to remain sufficiently liquid to pay its creditors and was unable to make payments
when due.
Had there been no requisition, funds certainly would have been made available from the
business of the company to meet payment obligations. Alternatively, if the assets were free,
Raytheon and Machlett could have extended additional funds to the company to allow it to meet
foreseeable payment obligations with the expectation of obtaining repayment from asset sales.
However, under the circumstances, it was clear that this money would be lost forever. In consideration
of its own shareholders, Raytheon and Machlett decided that they would not advance
funds to make this payment. Thus, on 26 Aprii, ELSI's Board of Directors voted to file a voluntary
petition in bankruptcy, citing the requisition which deprived the company of liquid assets
as the principal cause (Memoria!, Annex 43). ELSI was found bankrupt on 16 May 1968 (Memoria!,
Annex 44).
I would like to return to a thought that we raised at the outset. The Respondent clearly
wanted ELSI for itself yet was unwilling to participate in ELSI on a lawful commerciai basis.
The Respondent's tactics continued following the requisition. Despite renewed statements that
the Respondent intended to acquire ELSI for itself, the Respondent did not promptly pay a market
price for ELSI's assets.
Moreover, the Respondent's repated statements that it wanted ELSI for itself effectively
deterred ali other potential purchasers from the bankruptcy sales. Although the Trustee in bankruptcy
received inquiries from parties interested in purchasing ELSI's assets, these parties had
no incentive and received no encouragement to pursue their interest. In addition, so long as the
plant was occupied by former ELSI employees, it would have been diffi.cult, if not impossible,
for the Trustee to show the plant and assets to prospective purchasers. IRI was thus effectively
insulated from having to compete for ELSI at a freely determined market price.
On 25 July 1968, the Ministry of lndustry, Commerce and Crafts announced to the Parliament
that the Italian Government intended to take over ELSI's plant through one of IRI's
subsidiaries. He further indicated that Italy was considering a generai creditors' settlement outside
the bankruptcy process (Memoria!, Annex 46). On 13 November 1968, the Government of
Italy announced that an IRI subsidiary, called IRI-STET, would take over ELSI, without a
creditor settlement (Memoria!, Annex 27). In December IRI formed a new subsidiary in Palermo
- Industria Elettronica Telecomunicazioni (known commonly as « EL TEL ») - to take
over ELSI's plant and assets.
One would have thought that the newly-formed company would have bid on ELSI at the
first bankruptcy auction. But it did not. Subsequent events suggest that this too was part of
a national government pian. In Aprii 1969 the President of the Sicilian Region - President
Carollo - explained that EL TEL's decision not to bid was part of a national government pian
dating back to October 1968. Under this pian IRI would purchase ELSI fora sum of 4 billion
lire, It was even agreed that IRI would be absent from at least the first auction, and would participate
only when the price was precisely 4 billion lire (Memoria!, Annex 59).
In fact, IRI did riot appear at either the first or the second bankruptcy auctions. On 18
March 1969, a Sicilian newspaper reported that IRI and the Trustee in bankruptcy agreed that
IRI would acquire ELSI's assets beginning with a lease of the plant for 1 so million lire followed
by a negotiated purchase of the assets (Memoria!, Annex 56). Interestingly, the Prefect, who had
pending before him Rahtheon and Machlett's appeal of the requisition took an active part in
the negotiations of this lease agreement. Conveniently for IRI, he continued to delay ruling that
the requisition was unlawful until after IRI had completed its acquisition.
daysAnnex
""""""'o'" ~.~:lminil;tt~ttiv·e appeal
proposition
,u ......... n •• ali of the ream:
ll,lt,n:u in fat less than one year. In Société
annl.llle·d the requisition order in three days. In cases not
cited by the Respondent, the period is similarly short. The 1964 requisition of Sbordoni
Ceramica requisition was annulled in one day; the 1966 requisition of SCAC was annulled
in one day; the 1961 requisition of Borsalino was annulled in six days (Memorial, Annex z6, para.
x o).
Severa! of the requisitions cited by the Respondent occurred after 1971 and therefore do not
support the statement made in Annex 30. After 1971 requisition orders could alterntely be appealed
to a Tribunale Amministrative Regionale, a judicial court. Appeals to this judicial court are
by their nature a more protracted judicial process and therefore are not relevant to the average
time period in which prefects would rule.
266 RASSEGNA DELL'AVVOCATURA DELLO STATO
Respondent also finds fault with Raytheon and Machlett for delay in filing a motion requesting
the Prefect to expedite its ruling with regard to the requisition. Raytheon and Machlett did
exercise this right under Italian law. Doing so sooner, however, would in no way have affected
its position with regard to the dispute. Raytheon and Machlett appealed the requisition to the
Prefect on 19 April 1968. The first oppurtunity Raytheon and Machlett would have had to request
the Prefect to expedite his decision would have been 120 days following the appeal, i.e.,
in mid-August 1968. At this time, the sale of ELSI's product lines as viable businesses was an
impossibility. Moreover, even if Raytheon and Machlett had requested an expedited decision
at an earlier point in time, this does not guarantee that the Prefect would in fact have heeded the
request and issued a ruling. Thus, the timing of Raytheon and Machlett's request for an expedited
decision from the Prefect is immaterial to the dispute before the Court.
Had the Prefect quashed the requisition withìn the typical time frame for actions of this
type, Raytheon and Machlett could have resumed the orderly liquidation. If the Prefect had
overturned the requisition shortly after the filing of the petition in bankruptcy, ELSI could stili
have withdrawn the petition.
The trustee in bankruptcy brought suit on behalf of ELSI's bankrupt estate based on the
Prefect's ruling. The Court of Appeals of Palermo found that the Trustee was entitled to compensation,
but only for the loss of use and possession of ELSI's plant and assets during the sixmonth
requisition period. This decision was upheld by the Supreme Court of Appeals. The
rental value awarded by Italian courts to compensate for the illegal requisition falls far short
of the actual losses sustained by the shareholders as a result of the Government's illegal requisition.
Indeed, on its face, the compensation awarded does not purport to compensate for anything
other than the six-month rental value.
Finally, I would like to respond to the Respondent's allegations that Raytheon, Machlett,
and ELSI officials acted in violation of Italian law. Respondent in this case has levelled serious
accusations and has gone so far as to accuse the management of these companies with reprehensible
criminal conduct. As Professor Bonelli will discuss, Respondent has not established a single
violation of Italian law by Raytheon, Machlett, or ELSI management. Professor Bonelli will
demonstrate that ELSI's shareholders were entitled to liquidate ELSI's assets as a matter of
Italian law, that prior to the requisition ELSI was under no obligation to file a petition in bankruptcy,
that the requisition caused ELSI's bankruptcy, and that in other respects Raytheon,
Machlett and ELSI management were in compliance with Italian law.
Mr. President, I now note that our intention in the order of the case was next to ask Mr.
Bonelli to make an extensive statement with respect to the Italian law which governs these matters.
I note that the time probably will not allow him to get very far into that statement if we
begin now. Could I suggest that perhaps we can begin with that statement tomorrow morning ?
Mr. PRESIDENT: Yes, we will begin with the statement of Professor Bonelli tomorrow morning
at 10 o'clock. Thank you very much.
The Court rose at 12.23 p.m.
C 3fC;R89f2
Tuesday 14 February 1989, at 10 a.m
Mr .. FERRARI BRAVO- Mr. HIGHBT - Mr. ADAMS- Mr. MATHESON- Mr. CLARE -
Ms. CHANDX.BR - :Mr. :Bò]loll!LLI ~ Mr. FAZZALARI - JunoB ScliWBBBL
.· The PRESIDBNT :. Please sit down. . The sitting is open. . .
I understand that there is an agreement between the parties to call Mr. Adams first .this
morning,.to be cross-examined by the Italian delegation. Thetefore T call upon Mr. Adams
to come into the Grande Salle de Justice.
GoQd mo~ing Mr. l\.d11ms. You )'Vill be cross-examined by the Italian delegation.
Mr. FERRARI BRAV'O: Mr. President, withyour permission l would like to ask Mr. Keith
Highet, Counsel for the Italian Government, to put some.questions to this witness.
The .. ~II)a:N'r: ··Mr. ··Highet; · pleil:se.
Mr. HtGHBT: Th~tl!t ;~~ Mr. P~esid~nt, Mr. President andlVlembers of th~ Court.
If I. may, 1\llr. Adams;l would like to thank you most w!!rmlY for your wilUngness to remain
at the disposition of the Court of course and of our delegation so that we could put our questiona
to you this moming. . . •
First, if I may, let me ask you one or two background questions. I noticed reading over the
matetial again last nighf that you have been a t Ràytheon for about 42 years almost, an d l would
suggest that you probably have very little question in.your own mind that Raytheon is one of the
finest companies in the United States.
:--·: :. :·· . ::: ..
Mr. AnAMs: Of course, I bave that view.
Mr. HIGHBT: And wouldn't it be tru.e, lV(r, Adllltls1 really, to say that Raytheon has accomplished
over the years certainly since VVorld War II many things that have set it at the topin
the first rank - of the high teéhnology ~ompanies in the world ?
Mr. AnAMs: I think that is a reasonable statement.
Mr. HIGHBT: Would you say also that there was a special quality about Raytheon- a
cettaìn independence, flexibility, ilitelligent . use · of htiman resourees, whatever it is - that
there was a certain quality about Raytheon in the way · it handles business affairs and • has done
so over the years both in the United States and abroad?
Mr. AnAMs: We like to think that we bave conducted ourselves correctly and properly.
Mr. HIGHBT: That's excellent. That's what I thought. Again, it is a pleasure to have you
bere.
As a generai matter in Europe, in the mid-196o's or possibly in the 1950's verging into
the 196o's, how many rea! competitors did Raytheon have in the electronics field in Europe,
just roughly ?
Mr. AnAMS: I couldn't tell you, I am not familiar enough w!th them, the princìpal field
in which we competed was doing work for the various governments and that was · our more
important areas; the number of large companies I could'nt give you the precise number.
Mr. HIGHBT: Let us say more than five or more than ten? I mean major companies.
Mr. AnAMs: Oh not more than ten.
Mr. HIGHBT: So, Raytheon was in the lead both in the United States and in Europe of
electronics and high techriology work at that time as it is today ?
268 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. ADAMS: I think that is a fair statement.
Mr. HIGHET: Now if I may turn, Mr. President, to the question of the so-called « orderly
liquidation », your testimony, Mr. Adams. yesterday included a description of the effects of
the requisition of I Aprii I968 as you saw it.
I will make, Mr. President, if I may, references to the verbatim records in context; this is
to page 260. You stated that as << long as we could no longer conduct the orderly liquidation that
I just tried to describe to you, we were forced by the requisition into bankruptcy » - that is
at page 260, Mr. Adams - and you concluded by saying, « So that from that moment on- the
requisition - we completely lost control and were forced into an untenable position which
again put us into the bankruptcy condition » (pp. 26o-26I).
Now, were you aware, Mr. Adams, that on 2 March I968 ELSI's books of accounts and
accounting documents were moved to Milan ?
Mr. ADAMs: When you ask questions about the detailed schedule of what happened in
Italy you should refer it to the next witness Mr. Clare who was on the spot.
Mr. HIGHET: Thank you. Ali right, I will make a note of that. And that will take me
right along. You will remember of course, you were present at the Board meeting of 16 March
1968 which was held in Rome, which was the Board meeting that determined, from the point
of view of ELSI's Board, the decision to handle the liquidation. Did you ever hear, or were
you aware, that his Board meeting or the decision taken at the Board meeting had any subsequent
effect on the employees of ELSI ?
Mr. ADAMS: No, I would not comment on that.
Mr. HIGHET: W ere you generally aware of the. occupations of the plant in early 1968?
Mr. ADAMS: In early 1968? At what time?
Mr. HIGHET: Say in March 1968, and possibly earlier, were there any protest meetings
by the workers ?
Mr. ADAMS: I have no clear recollection of that.
Mr. HIGHET: Thank you. Now, turning back to your testimony Mr. Adams, yesterday
you said, and the reference is to p. 260, you said yesterday that on the « worst case » or " quicksale
» analysis, you could stili have paid off the people who worked at ELSI.
And you also said, at p. 258 in part of your generai background, that « we were not able
to have enough volume of business to support the workforce there ». Do you ha ve any knowledge
as to whether ELSI ever met the March payroll ?
Mr. ADAMs: No.
Mr. HIGHET: Do you remember at any point learning that the Region of Sicily paid the
workers from the month of March through August 1968?
Mr. ADAMs: March through August, I can imagine that they might have paid them from
I Aprii.
Mr. HIGHET: And you d.on't remember?
Mr. ADAMs: Not after we were out of the picture.
Mr. HIGHET: I would like to refer again to your testimony on p. 258 and, if I may, I
would like to quote i t. Y ou sai d:
« Mter ali, businesses are bought and sold around the world between one country and
another and within countries; some organization is offered a fair price, they may dispose
of an activity because there is another organization that is convinced that they can do better
with it. Therefore we felt that we had reached the end of the line, our patience had run
out, we were a tired investor, if you will, and the time we felt had come to liquidate »,
· CONTROlNTERROGATbRIO ADAMS 269
And you remember the meeting that you did attend ·in Rotne in February, 20 February
1968, with Mr. Clare and Mr. Profumo and Mr. Hillyer with Mr. Carollo?
Mr. ADAMS: Yes, that is the one of which we have a memorandum from Mr. Hillyer.
Mr. Hm$-r: That is correct, Sir. And he kept hand-written notes of that meeting. In
those. han&•written notes, or minutes, i t sho,ws that you sai d, as a quote given to you I think
by your initials, « while we can continue [we being Raytheon] to provide ELSI with management
aJ1Q, technqlogy we cannQt provide t:noney, witho1.1t which :E;LSI will shortly disappear ». Do
)16\.t :i't~t:nember that gener11lly? I know it it:~ a long time ago.
Mr, ADAMs: l see it in Hillyer's notes.
Mr: HtGHET: · GMd, excellent. It is also in the hand-written notes, but not in the typed
versions, that « the date of 8 March was stressed repeatedly as the absolute litnit for a shutdown
d1~e to a total financial crisis », This doesn't appear in either of the typescript notes but
it' does · appear in the hand-written miriutes - this was Mr. Hillyer's characterization of what
the discussion was. He says in his notes that.this. view was expressed << tepeatedly ». Do you
have a recollection of the view being expressed repeatedly that this was a total financial crisis ?
Mr; ADAMS: W e. are attempting to make i t clear that this money, the last money that we
would put in, was going to run out somewhere along this period of time. 8 March was picked
as the ·date, but i t may have been later than that by a certain amount. W e had emphasized, by
repeating i t, that the determination of our management was that we cotild not put more money
into continuing ELSI in operation;- as the outlook was at that time; and the emphasis was to
ma:ke that point.
Mr. Hto:a:E'f: That is very understandable.
Mr. ADA~$: That was a: decision. by Mr. Phillips, the President, and myself and had been
referred to the BQilrd of Raytheon.
Mr .. · HtGHET:- I see, because yesterday you did say, in the passage I quoted a bit earlier,
about when you realized you were a tired investor and stated that « we felt we had to liquidate >>,
Obviously that comment really should be seen in the- context of possibly a less than voluntary
feeling - that possibly this feeling that you had to liquidate was caused by circumstances.
W otild you thirik that would be a fair characterization ?
Mr. ADAMs: Well if you run out of money With which to operate, the time has then come
to do something, and the something was to liquidate, to sell the business in e:ffect.
Mr. HIGHET: Do you have any knowledge, Mr. Adams, whether Raytheon or its agents
could have sought to piace the assets, the product-lines, the plant, in an executory manner even,
by discussing it with the Mayor of Palermo or his appointed manager in that period between
I Aprii md 26 Aprii, when the barikruptcy was voted ?
Mr. ADAMS: I wasnot on the scene and the decisions as to how one would proceed in a
tactical sense - if I can use. that expression as compared to a strategie sense which were the
major dedsions made baçk in the headquarters of the Company, - were m11de there on the spot
by people w ho were aware of the relationships with the · Mayor an d so on, which I was no t. So
there again, that was beyond the reach of my responsibility. W e were not attempting to micromanage
this situation, if you will, from afar in the United States. We were dependent on the
very able people we had on the spot, who were headed by Mr. Clare, from whom you will hear
later.
Mr. HIGHET: I understand that. Nonetheless, it certainly appears from the record, does
it not Mr. Adams, that there were an extraordinary volume and intensity of meetings in the
first three months of xg68? I think the figure 8o- has come into the record. And for many of
these meetings you made some trips, did you not ?
Mr. ADAMS: I believe I made only this one, which I see in the record that I wa:s present,
recorded by Hillyer.
18
270 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. HIGHET: I see. May I ask you if you ha d an impression, either from on-the-spot
observation or from Lexington, when the real decision was made to liquidate ? This relates
to your testimony yesterday and also relates generally to your affidavit, but i t is difficult to actually
find out when the decision was made. Part of Mr. Clare's affidavit seems to imply that after
the Selenia swap acquisition was turned down by IRI, which would have been roughly September
1967, it seems to imply that that was the time that top management in Raytheon made the decision
to pull out.
Mr. ADAMS: The clear decision that Raytheon management made was that we would put
no more money in, and as we began to approach the date at which the money would run out -
which wouldn't be determined with all that degree of precision - we began to consider what
to do a t that point. I can't put a precise date on it without going back to a lot of records that I
haven't got with me.
Mr. HIGHET: In generai, the decision not to put more money in, if i t were made in September
or the fall of 1967 or even December, theoretically would have left a two to three to four-month
period, would it not, in which senior management, one way or another, would have seen to the
commencement, even internally, of an orderly liquidation process ?
Mr. ADAMs: It was important for us to keep the operation running as efficiently and as
effectively as we could up to the date where it was clear that the decision to liquidate could be
implemented, and therefore the decision to do that was kept very confidential so that the workforce
would not fall apart and get concerned, and that lower management people would keep on
going. We felt it was in the interests of ourselves, and probably of everybody else- it would
do them no harm at least - that we keep the decision to liquidate confidential amongst our
own people until the moment carne when we were prepared to go ahead and do that.
Mr. HIGHET: Thank you Mr. Adams. Would you say that even if the decision to liquidate
were kept confidentially amongst the senior executives or in the senior echelons of Raytheon,
was there any deal, do you remember, in that period of late 1967 or early 1968; do you recall
at the moment whether any bids were received or whether any indications of interest were
received by competitors, by firms who were not already in the business but possibly saw an
opportunity? Also do you remember anybody going out and trying to encourage this kind
of piecemeal disposition of ELSI ?
Mr. ADAMS: As I said a moment ago, you cannot put the word out that you are going to
liquidate before you arrive at that moment. If the word isn't out that you are going to liquidate
who is to know and who is to come and ask you if you are interested in selling ?
Mr. HIGHET: But there were not any confidential discussions that you recall?
Mr. ADAMS: No there were not.
Mr. HIGHET: Earlier this morning you confirmed my understanding of what an excellent
company Raytheon is. Now you talked yesterday about how ELSI's product-lines could have
been sold off, and possibly in a very beneficiai manner- or possibly even ELSI herself- yet,
if Raytheon could not succeed in making a success out of ELSI, what might have led you to
believe that anybody else, any other company, could have made a go of it?
Mr. ADAMS: Over a period of time Raytheon itself, the parent company, disposed of operations,
some of them perhaps set up as subsidiary companies, where we could not succeed and
where there were buyers who felt there was real value in adding this to their activities, and
we negotiated sales. So this is not an unfamiliar course of action. We disposed of one very
recently. If you look at the American scene, at least, you see people disposing of activities to
others. If you are a very small player in a large scene and you haven't got a big enough piace
to really be able to make it work, someone who is a larger player on the scene, if you will, by
adding that, may be adding some real value and productivity to their own operation. It's this
sort of line of thought that led us to see what we thought was a very promising outlook for
disposing of these operations at ELSI.
CONTROINTERROGATORIO ADAMS 271
Mr. HIGHET: In your testimony yesterday (l am referring to p. 258), you referred to
your attempt to interest IRI in joining with you in ELSI as it had joined you in Selenia. I
found this difficult to understand, Mr. Adams, and I wonder if you could help me. Why would
IRI have been interested if ELSI was in a state of financial crisis ?
Mr. AnAMS: IRI was not unused to loss operations. I think if you study the activities of
IRI over a period of time you will see that they were supporting, in their various divisions or
operations or whatever, activities that were losing money, and they were carried on for the
benefit of the Republic of Italy, as I have understood it. I t didn't seem to us out of order that
they might take on another one hetè, particulàrly since it was supposed to be helpful to the
economie situation in the Mezzogiorno.
Mr. HIGHET: One of the points thàt was made here (p. 258 again) was that you referred
to the possibility of IRI buying in and using cash, but because it didn't have any cash it would
use cash from the .sale of Selenia to Raytheon, a portion of Selenia. But if Raytheon had been
offered to swap its interest in a very profitable coli:J.pany for an interest in a very unprofitable
company, that was also a competitor of the profitable company, would Raytheon have clone
the same?
Mr. AnAMS:. Let me get that straight. What is the profitable company that you are referring
to?
Mr, HIGHET: I would beli e ve. Selenia.
Mr. AnAMs: Selenia was marginai.
Mr. HIGHET: Marginai, but it was not in a state of total financial collapse as was ELSI.
Mr. AnAMS: Selenia, I think would be fair to say, was bettet off financially than ELSI.
Mr. HIGHET: Well, I seem you take my point. You said yesterday that Raytheon and ELSI
could have offered license and know-how agreements to prospective purchasers and you said
that, p. 260, « these were alli:J.ost unique opportunities for a variety . of buyers who could have
appeared on the scene if we had been able to deal with that », Now these buyers could have
been anybody, · including your competitors ?
Mr. AnAMs: Yes.
Mr. HIGHET: Subject, of course, to problems of anti-trust and other things, hut there
would be no problem with licensing, making agreements with companies in Europe ?
Mr. AnAMs: Companies that were in Europe and were competitive.with ELSI is what
I am talking about, not necessarily competitors · of Raytheon.
Mr. HIGHET: But, as I remember, there was a lot of Raytheon know-how and technology
which essentially you referred to as being capable of accompanying any transfer of technology
and licenses. Would the royalties and expenses and other costs for these elements have been
substantially on the same level as they were to ELSI from Raytheon ?
Mr. ADAMS: We would assume that we would have rèceived some continuing licensing
income from these activities in the hands of others. Mter ali, we would have had some control
over to whom we were selling, as we dealt with this situation. We did feel that to enhance the
value of the activity that we were selling, the opportunity to have some Raytheon continuing
assistance to carry on the techniCal development of that activity and give it real life, would be
a reasonable way to go. If we cut off the continuing license and so on, the operation of that
part of ELSI that we were dealing with, would have had a !esser value to a prospective buyer.
Mr. HIGHET: Mr. Adams, you indicated in your testimony, pp. 258-259. that « other
companies could have been interested in buying some or ali of ELSI's product lines and plants »,
and I also remind you or refresh your recollection about the Clare Report, the 1967 report,
the « Project for Financing and Reorganization of the Company », which as the Court will recall
is Annex 22 to the United States Memoria!. And in your affidavit, which was Annex 9 to the


272 RASSEGNA DELL'AVVOCATURA DELLO STATO
Memorial you then stated that you agreed with the conclusions of the Clare Report. You still
hold that opinion, I take i t?
Mr. ADAMS: I haven't reviewed this.
Mr. HIGHET: You have no reason to have changed it?
Mr. ADAMS: No. Not that I am aware of.
Mr. HIGHET: Thank you. In page 40 of the Clare Report, and it is probably the most
concise part I can refer to this point, it says that for a prornising expanding future for ELSI,
Raytheon's own experts had concluded in that report that it would be necessary: (1) to have
additional capitai investment of 6 billion lire from the Italian State; (2) new product line; and
(3) financial help, which would be essentially the social benefits of the transport costs and Mezzogiorno
benefits in the training allowances.
The Report also stated that it is therefore necessary to make effective the laws governing
the financial help in these areas, from both the regional government and the centrai government,
and to have them favourably interpreted. You remember this ?
Mr. ADAMS: In generai.
Mr. HJGHET: In generai. No, I am not trying to hold you to it ... in principle you have
the idea. That's at p. 41 of the Clare Report, Mr. President. Now, your affidavit also summarized
those requirements at paragraphs 21 to 28, and you said in your affidavit that ELSI had
no choice but to develop new product lines if it was to be self-sufficient. That's paragraph 26.
You also said in paragraph 24 that if ELSI was going to be successful it has no choice but to
obtain a major Italian partner. And finally you commented - you picked up the point from
the Clare Report - in your paragraph 27, and you said
« as a result of Italian laws which required that shareholders supply additional capitai or
cease operations upon the occurrence of specifìed events, it was evident that an infusion
of capitai was necessary to sustain ELSI until it received the benefìts of having an Italian
partner, Mezzogiorno benefìts, and new product lines "·
Now my question to you is this. Would the same problems not have confronted any other
purchaser of the plant or the product lines of ELSI ?
Mr. ADAMS: Not necessarily, it depends on the nature of the other business. If one found
another firm, for example, if it was interested in the X-ray tube line it would be highly likely
that they would have an associateci activity to which this was an incrementai add-on and that
that, added to their existing business, would become economical and be profitable. That would
have put them in quite a different position than we were in.
Mr. HIGHET: lt really depended, in other words, on the facts and circumstances of the
case and on the particular qualities of the prospective purchasers.
Mr. ADAMS: Yes, it would.
Mr. HIGHET: But the point I am trying to make, Mr. Adams, and I think that I feel us
converging on this, is essentially that there would have · had to have been special characteristics
for a potential purchaser of ELSI's product line and plant, would there not?
Mr. ADAMS: It was a very wide spectrum of potential possibilities, depending on the line.
AsI tried to make the point yesterday, it would be an add-on to anybody's business. But whether
it could be a supplier who then had his own source instead of buying from us, whether it could
be a customer who would like to add his own production, whether it could be a competitor, there
was a very broad spectrum of people whom we felt could be interested in these various activities.
You must remember that the opportunity to explore this in detail would have involved making
it known that these activities were for sale, being able to bring these people in to show them
the activity, to show them the product, to discuss it in detail. But all that was not possible.
It was never possible for us because the moment between. the time when it could be known
that we were going to do this, as I tried to say earlier, and the moment that we could have
started to show them, carne the requisition which made this impossible.
CONTROINTERROGATORIO ADAMS 273
Mr. HtoHE'i': Were there any discussions during the month of March when the Board
decision had been taken and when the senior management of ELSI, as I recall, had been spoken
to by Mr; Clare and the others? Do you remember if there were any discussions with potential
buyers at all ?
Mr. ADAMs: No, there were none that I was aware of .
. .• •••.• . Mr. :f:IlGHET: TurnÌll.g to a diffe~;ent point, Mr. Adams, you recall you were then, of course,
Chaitnl,!lllf you were stili Chairman of the Finance Committee and you have doubtless, as many
of .us do, a sharp and melancholy memocy of the Foreign Direct lnvestments Programme instituted
by President Johnson on 1 Januacy I968. As you recall, that programme really had a very
limiting effect for a couple of years on Americ!ln business, particularly those dealing with their
:wholly owned or niajority o\VJled !!Ubsidiaries in Western Europe. lt was particularly harsh on
ln,vestmcmta in Western; Europe and Japan and it contained all !lOrts of irritating and vecy costly
provisions for certifying guarantees, additional draw downs, additional borrowings for making
investments, even as you will recall, going so far as penalizing or at least limiting transfers on
open account which happen to go across a year end accounting period. Now you said yesterday,
and that was at p. 259; in response to a question from Judge Sofaer, tbat tbe balance of
payments programme which was brancl new at that time; - you remember it was only three
m.onj;hs, old - did. not play any role in btinging you to the decision to cboose an orderly liquidation?
Mr; ADAMS: No, it did not; .·
. Mr. HroHET: Indeed in the 1968 annua! prospectus, whicb was filed witb your 1968
xoK with tbe SEC, in a .footnote I think a comment said tbat - tbis is quoted in tbe
Rejoinder,~«the planned operations of Raytheon's foreign subsidiaries and affiliates aredependent
to an unpredictable degree on United States Government regulations on foreign investments >l,
.And then later on, two or three years later, before the programme was finally terminated, mucb to nòbody's sadness, in your roK, Raytbeon acknowledged « tbe continuation of tbis payments
ptogtatnme migbt resttict Raytheon's abilìty to develop its international operations )), My
question is tbis: even if the OFDI Programme might not bave had a negative effect on tbe
trans;:totions conceming ELSI in 1968, isn't it true that it would necessarily bave bad to bave
a negative effect on Raytbeon had ELSI continued in operation?
Mr. ADAMS: Yes, but there was a decision not to go on, so we bad no problem. Tbe decision
had been made tbat the amount of capitai that we put in was the end. Now if Raytbeon bad
been in an expansionist mood, if we were going to fund large activities at ELSI, or if we were
going to acquire other foreign companies, if we were going to do things of tbis kind, tben tbis
exchange control, migbt have been considered. However, you must remember tbat my memory
of events of 20 years ago is perhaps not quite as precise as you bave suggested that it is, and
witb respect to the amounts of money involved witb ELSI (for example if we bad bad to advance
tbe money in order to pay off some of tbe smaller creditors, ·or do sometbing of tbis kind, tbese
were small amounts) and undet tbe terms of tbat regulation, as I remember it, we would bave
bad no difficulty witb tbat, so tbat tbe decision that we bad made to no ·longer invest in
ELSI was not because we no longer could move the money to invest in ELSI, but we made it
because we didn't think that this was !l pl,'omising piace to put our sbarebolders funds.
Mr .. HIGHET: Now I come to my last line of questioning, Mr. President. Tbe impression
has been given and we will be coril.menting later .of course; that there bas been little if any
public assistance, or State benefits, to ELSI. l am not saying that you can answer tbis question,
Mr. Adams, but do you recall tbe public assistance given by the Italian State in tbe form of
low interest loans in 1956-1966? Do you remember vecy large loans?
Mr. ADAMS: You are going b~tck a long way.
Mr. HIGHET: Well, just to refresh your recollection, beeause tbere was about 7 billion lire
made in 1956 to Ig66 by the regional agency, I refer to Annex II, p. 2 and Annex 22, pp.
33 and 35· Turning from tbat kind of assistance to tbe other kind whicb is tbe Italian Govern274
RASSEGNA DELL'AVVOCATURA DELLO STATO
ment benefits that were more immediate, and were that required to help ELSI succeed, I refer
to the testimony you gave yesterday at p. 257· This included the so-called Mezzogiorno
benefits which contained a preferential 30 per cent purchase requirement for finished goods
from the South of Italy. I also referto transportation subsidies. Did anybody ever suggest to
you or any other senior executives of Raytheon that ELSI had a right, a legal right to get those
benefits?
Mr. ADAMS: Well, I would put it this way, that we understood that a legislation existed
that said that these benefits would be available to companies operating in ,the Mezzogiorno
area. W e therefore assumed that they would indeed become available to us and the facts of the
matter were that they did not. I t is my understanding, for example, in respect of the 30 per cent
law, that we were suffering from a very low volume of sales of-ray tubes that were made in
Palermo in the Mezzogiorno when a t the same time-ray tu bes of that nature were being bought
from Philips or other suppliers outside of Italy, so we thought that this was an unfortunate circumstance.
Mr. HIGHET: Do you remember checking or having counsel check or having somebody
run i t down as to whether or not those benefits were only for finished products?
Mr. ADAMS: I don't remember that. I believe that those benefits, I am now talking about
the transportation benefits, I think that it should have involved, as I remember, and my memory
is not that precise of all of these events 20 odd years ago, that the raw material coming to the
plant in Palermo, as exemplified by cathode ray tubes, would have some transportation subsidy
and then the shipment of the finished product would have some transportation subsidy. In the
case of cathode ray tubes, as I think I said yesterday, they were very heavy and very bulky and
this is what gets you into a maximum transportation cost. They take a lot of room in whatever
vehicles, and they were heavy at the same time and they had to make a round trip if your market
was Northern or Centrai Europe, as was the case.
Mr. HIGHET: I understand that, Mr. Adams. What I am really groping towards is if ELSI
thought that ELSI, or Raytheon thought that ELSI, had a right to claim these benefits, and the
benefits were not obtained, what was clone to remedy that?
Mr. ADAMs: You would have to ask other witnesses or our other witness, Mr. Clare, who
was there in Italy working on these problems.
Mr. HIGHET: I see. Mr. PresidentI have no further questions. Thank you, Mr. Adams.
The PRESIDENT: Thank you. Do any of my colleagues, the Judges want to put a question
to Mr. Adams? Judge Schwebel.
Judge SCHWEBEL: Mr. President, I should like to ask Mr. Adams the following: Would
it not have made sense for ELSI to have remained in operation and for its product lines or for
the business as a whole to be sold while it was operating? Wouldn't it have been easier to sell
the assets of a company which was functioning than to sell the assets of a company whose operations
had been suspended and placed in the hands of a caretaker force, and if so, why didn't
Raytheon pursue that option ?
Mr. ADAMS: It would have been possible only to do that at an earlier date before the money
ran out. We had this sort of terminai date of our operations dependent on when our capitai
funds ran out and after that we couldn't operate. So it was a difficult decision and we tried to
keep it going up to that point. And we felt that not in full operation but in a sort of caretaker
status where we had a small work force which was not draining us with the full payroll, who
could maintain the machinery, who could convert some of the work-in-process into finished
product, but there could have been a period of time like that where we would have been at a
very low level of operation, where it would have been possible for us to be in touch with potential
buyers, to let it be known that we were selling and to let them see something which if not in
full operation was at least alive and well in the sense that everything was being taken care of,
that finished products had been moved out and sold, that our customers could be told that we
were searching for buyers who may continue to deliver to you or can pick up deliveries at a
CON'I'R01N''I'l!RROGATORIO ADAMS 275
later date. If we had been able to do something of that kind, we could have taken advantage at
least of some of the points that you have suggested.
Judge ScHWEBEL: Thank you.
The PRESIDENT: I will put a question to you, Sir. How much was the total amount in American
dollars that Raytheon invested in ELSI ?
Mr. ADAMs: At that point, I think, yesterday, as I remember the figures that I gave, there
were 12 million dollars in capitai and 8 million dollars of guaranteed loans, which in a sense
were another form of capitai because the guaranteed loans we would have had to pay o:ff anyhow.
The reasons for the guaranteed loans as part of the capitai, if you want to look at it that way,
Sir, is that we avoided some of the foreign exchange risks by borrowing money within the country
where we were operating. Twenty million dollars was the total.
The PRESIDENT: These 12 million dollars ......
Mr. ADAMs: Twenty million dollars.
The PRESIDENT: No, I mean the first 12 that you put, this was for buying shares or what?
How does these 12 million dollars operate?
Mr. ADAMS: I havn't got the schedule with me, Mr. President.
The PRESIDENT: Roughly.
Mr. ADAMS: We had an Italian partner earlier and the time came when more financing
was required and we arrived at a certain moment where when the additional money was put
in, he did not want to put more money in, so we put it in and gradually we arrived at the stage
where we owned, Raytheon and Machlett together, 100 per cent of the shares, as compared to
smaller earlier investments.
The PRESIDENT.: I would like to put another question. You said yesterday, at p. 260,
that you expected « we could have paid off the small creditors and we could have made a deal
with the major creditors at 40-50 per cent minimum of what was owed to them )), I suppose
that the major creditors were the banks. Do you thir\k that they would accept 40-50 per cent
of your credit ?
Mr. ADAMS: Yes, we all believe that. We had considerable discussion of that, and as it
was, they got nothing. If we had been able to sell at book value they would have been paid
off completely. In the sort of worst case, which is not what we expected to happen but the worst
case as we saw it, we felt that, and there was some discussion with some of the banks that gave
us real reason to believe that-Mr. Clare, the later witness who was closer to this than I was
could confirm this point-we did have good reason to . believe that banks under that set of
circumstances, based on experience of other banks in other similar circumstances, would have
quite reasonably be expected to accept so per cent and perhaps lower.
The PRESIDENT: Thank you very much, Mr. Adams, for your assistance.
Mr. ADAMs: Thank you, Sir.
The PRESIDENT: I understand now that the American delegation is going to call Mr. Clare.
Mr. MATHESON: Yes, Mr. President, we would like to do that, and I therefore would ask
that you invite Mr. Clare into the room to testify and that Ms. Melinda Chandler be invited
to question him.
The PRESIDENT! Would you call Mr. Clare, please.
Ms. CHANDLER: Mr. President, distinguished Members of the Court. In 1966 Mr. Clare
became Vice-President of Raytheon Company and Generai Manager of its European management
subsidiary, Raytheon Europe .International Company. · The principal objective of
Raytheon Europe was to furnish European companies which were majority owned or controlled
by Raytheon for technical, managerial and other assistance necessary ~or them to become strong,
276 RASSEGNA DELL'AVVOCATURA DELLO STATO
profitable enterprises. In February of 1967, Raytheon and Machlett appointed Mr. Clare to
be Chairman of ELSI's Board of Directors with the express instruction to make ELSI viable.
In this capacity Mr. Clare personaliy participated in numerous meetings with Italian Government
officials in an attempt to persuade them to participate in and support ELSI. Mr. Clare
was also personaliy involved in the development of the orderly liquidation plan.
In addition to his extensive management experience, Mr. Clare is an electrical engineer.
H e has a Masters degree in electrical. engineering from the University of Birmingham in the
United Kingdom. He has worked for major telecommunications and electronics companies
and in the United Kingdom's Ministry of Aviation.
Mr. Clare, would you please describe for the Court your association with ELSI during
late 1967 and early 1968.
The PRESIDENT: Before you speak, Mr. Clare, could you please make the solemn declaration.
Mr. CLARE: I solemnly declare upon my honour and conscience that I will speak the truth,
the whole truth and nothing but the truth.
The PRESIDENT: Thank you very much. You may proceed now.
Mr. CLARE: In February 1967 I was appointed by Machlett and Raytheon as Chairman
of ELSI. I had with me Scopeliiti and Bianchi, who were my Controlier and Legai Adviser
in Raytheon Europe - they were made Directors of ELSI. We carried out initialiy a quite
exhaustive analysis of ELSI's problems and we produced a Report in May 1967 outlining in
great detail the problems and possible solutions to the problems.
These were four major issues: there was the question of finance; there was debt of about
13 billion lire and ELSI was paying nearly 1 billion lire a year to the banks, of which something
like a half, I think, was going to the IRI banks. Up to that point, you might say that the only
people who made profit out of ELSI were the banks. So ELSI needed further financing.
Then the whole middle management systems and manufacturing systems needed upgrading.
We put in about ten experts from Raytheon, who joined me there. They were ali Americani
Italian, who had ali been horn in Italy. W e had a Managing Director who was Co-Managing
Director with Profumo, experts in almost every function in the company and two European
sales executives, one covering microwave tubes and one covering semi-conductors.
We did upgrade the systems; we got significant improvements in manufacturing efficiency
and I wili refer to that in a little more detail, line by line, when I am talking about the various
Ii n es.
There were, at that time, about 200 people too many. There had been a reduction in sales
of the Hawk tubes and one or two other things. If it had been America, we would have gotten
rid of 200 people right away. It was impossible to get rid of anybody there. We in fact got rid
of two people off the television line; we had a strike for about three weeks on that line. So,
effectively, the workforce was static. So we needed new products which were not too highly
technical, because there were not many qualified engineers in Sicily, and we outlined in the
Report a whole list of new products that were low technology and could have been gotten in
very quickly if we could have made the 30 per cent law work, of which I am sure you have already
heard, which is that Government agencies are required to buy 30 per cent of what they buy
from the Mezzogiorno, if it is available to be bought there.
Products were looked at were typicaliy low technology. First of ali, cable forms in telephone
switching and motor cars: telephone switching is STET, which is again the Government. Alfa
Romeo is Government-owned, or was Government-owned until quite recently. In both of
these, dozens of wires that have to connect everything to everything, ali put together and bound
up into a thing you can just put into the telephone switching unit or a car - those are calied
cable forms. We could have certaintly very rapidly have had so girls working on that, but we
had no joy from trying to talk to STET and the motor car company about that. We could
have wound relays - these are the things that go click, click, click in the old telephone
exchanges - that was a very simple thing to do to begin with under specification from STET
and then worked up to making ali the other bits that go with the relays. With the 30 per cent
law operating for the X-ray tubes, we could have at least doubled or trebled the activity in that
INTERROGATORIO' CLARE 277
area. We would move on from making these bits on telecommunications to sub-assemblies -
there were all sorts of sub-assemblies that could have been made under sub-contract from
STET. W e did, in fact, talk to STET about this but they regarded us with suspicion as potential
competitors. They were after all, as was the motor industry, a growth industry. It is still a
growth industry, so there was plenty of room for sub-contract work to be given to us without
conflicting with their own companies. We made it clear that we did not intend to go into competition
with them in telephone switching. We had very little capability of doing that.
Then, on the semiconductor front, we could have sold high-voltage rectifiers to the motor
car industry for electronic ignition. In railway systems we could have sold power rectifiers.
There are a whole list of things like this, all of which related to Government-owned activities
that could have given us sub-contract work and very quickly we could have employed those
200 people. But we had no positive reply from anybody.
We felt we needed a significant Italian partner. I am sure you have already heard that
we should have had transport cost help for our television tube business. The cost of buying
tubes in Germany and shipping them to Sicily and then shipping them out again for export
was extremely high. And there was the 30 per cent law, which we were assured should work,
but it did not. So we felt we were sort of babes adrift a bit in the Italian political environment
and we needed a significant partner that could help us handle this and also bring in the additional
capitai that was necessary to make the company look more sensible and not pay a billion lire a
year interest.
Ms. CHANDLER! Mr. Clare, with regard to this latter point, what steps did you take to
offer the regional and national governments an opportunity to provide ELSI with this assistance
or participation that you were seeking ?
Mr. CLARE: You have already said that we had a large number of meetings. Over a year
we had over 70 meetings with practically the entire Italian establishment. The very first meeting
was with Minister Andreotti, who was then Minister for Defence, and meetings with Ministers
Colombo for Finance, Rumor who was then head of the Christian Democrat party, a whole
heap of Ministers. We met with the management of IRI, with all the banks, the governor of
the Bank of Italy. In Sicily we met with On. La Loggia who is the head of ESPI, which
is like IRI in Sicily, and a lot of his people. We met with President Carollo and with all the
union heads. We met with some of the commerciai people such as the head of FIAT. In fact
I cannot think of anyone who was anyone at all in the total establishment of political Italy and
Sicily that we did not talk to.
It started by everybody being extremely enthusiastic and wanting to help us. There was
an entity there which they thought was very valuable. I suppose the only people who, right
from the beginning, were very blank-faced about it all was IRI. We never got even one smile
from them. But certainly the rest of the government Ministers that we met were very helpful
and made statements about the various assistances we should be having - Minister Colombo
said we should have the transport cost and i t would be arranged; the Minister of Industry sai d
the 30 per cent law should apply and it will be applied. But nothing happened.
Towards the end of that year, in the latter quarter, the whole atmosphere began to change.
We made it clear to everybody as we talked to them- we gave everybody our Report, by the
way, it was very widely circulated so that IRI and ESPI and every Minister we could think
of had it to read - that we were putting in this 4 billion lire, which was a last effort and
that we thought it would last maybe a year or fifteen months; that if we could not get things
sorted out in that time we would then have to let it go at that. We were not prepared to put
in any more money. That was made very clear to everybody. And if in fact we ran out of
money and were legally forced to stop, then we would organize an orderly liquidation.
As time progressed people like La Loggia became less and less optimistic and started to
talk about it being necessary to have IRI in as a third party and at that point we became more
closely connected with the President of Sicily, President Carollo; he was obviously extremely
keen to keep the plant going and to develop electronics in Sicily. We had a period when to
278 RASSEGNA DELL'AVVOCATURA DELLO STATO
begin with he was effectively saying to us: I will see to i t all, an d i t finished up with his saying:
we ha ve go t to get IRI in. Then one night we met with him an d I thought he was saying:
<< I have done it! » He in fact took us to his home and there were whiskies issued all round and
we toasted each other and we thought it had been settled. The next day we found it had not.
So right at the end, which was I think 29 March or around there, the last night when I
had been told by my legai man: you ha ve now got to dedare redundancy - which we had
already done a few days before- and we had to send out notices to all the people. About 9.30
that night I was called over to the Ministry of Industry and the Generai Manager told me
he was sorry that the Minister was not there - althoè.lgh there seemed to be a lot of people on
the other end of the telephone - and he really said we cannot afford the politica! chaos for
you to dose the plant. W e do not want you to dose the plant. Y ou will upset the Prime Minister
if you do. W e sai d we had waited a year to see w ha t we could do, w ha t deal can we do ?
The answer was effectively nothing, just do not dose the plant. Do not send out those notices.
So we sent out the notices and what was very peculiar was that the ltalian staff in the office
would not touch them. They seemed to be frightened of something and so in fact Scopellìti
and Bianchi and I personally inserted about 8oo letters into envelopes and stamped them and
took them round early in the morning and posted them off. That was that. And then two days
afterwards Profumo, who was the Italian Managing Director there, met with Carollo and told
him that the Region was going to pay for the people until a new company was formed and that
the Prefect would seize the assets and that would be that. So at that point that was it.
Ms. CHANDLER: At that point, what did you decide to do?
Mr. CLARE: Y ou mean after the seizure of the assets or prior t o the seizure of the assets ?
Ms. CHANDLER: Prior to the seizure of the assets what was your plan for the treatment of
ELSI's assets?
Mr. CLARE: Well, prior to that, we had planned an orderly liquidation. W e had taken the
decision we would not go bankrupt, I had that dearly from Raytheon, and we set about organizing
this orderly liquidation. W e moved all the books of the company up to Milan so that if we did
have problems we could at least control the books and control the debts that we owed and the
debts that people owed to us. We had moved quite a lot of inventory up there so that we could
sell it from there if we had to. Our plan was to keep about 130 people working in the plant to
work off the inventory that existed there and finish manufacturing the products, to keep making
product as necessary to keep our customers happy and to sell off, in an orderly fashion, the assets
of the company and we organized small task forces to deal with each facet of the problem.
W e had a task force, which I was going to run, which would be concerned with contacting
potential purchasers. We had a task force to deal with the 130 people in the company and
another small task force to contact the banks and another task force to contact our suppliers
and we had named people for all these task forces. Later on when the plant had been seized,
I handed over to Oppenheim, who was another Raytheon Vice-President, and he was going
to run these task forces and the activity of the orderly liquidation. I was then moved to look
at the other nine or IO companies in Raytheon Europe, all of whom needed some attention.
Ms. CHANDLER: Mr. Clare, what was the role of Raytheon in this? Would Raytheon have
been willing to back this plan in any way ?
Mr. CLARE: Well, Raytheon certainly was willing to back it. They had guaranteed to me
that they would guarantee the cash flow necessary to make the liquidation work. They were
prepared to purchase the receivables at face value to provide money to do this and one of our
plans was to pay off all the small creditors first if we were allowed to do so, so that we were
left with only all the major banks to deal with as the major creditors. Raytheon provided money
and we actually started to pay off the small creditors but then the banks intervened and said
that they did not want that to happen as that was showing preference. Any one of those small
creditors could have forced the company into bankruptcy. Our idea was, and we thought the
banks would agree with us, to get rid of all of those with only the hanks left to deal with and
INTERROGATORIO CLARE 279
we could bave an orderly arrangement and an orderly liquidation and not bave one of these
small creditors coming along, put us into bankruptcy and put us into a position we did not want.
Ms. CHANDLER: Mr. Clare let us turn, if you. would, to the sale of ELSI or its product
lines themselves. If you would, please describe for the Court each of ELSI's product lines and
the features of each that you personally thought would be particularly attractive to potential
purchasers of ELSI ?
Mr. CLARE: I think before I address each line individually, it is important to address the
generai issue of the intangible values of the company that existed at that time. Certainly, one
of those very valuable intangible assets was. the relationship with Raytheon and it was quite
clear that Raytheon had to continue to give technical and patent and know-how support, as
it had been doing, to all of the product lines and it was Raytheon's intention that that particular
intangible asset would continue, And there were other very valuable intangible assets. W e
can take some of them: the customer base. I t takes years to establish a base of customers. When
you start you bave to put in a lot of marketing effort and selling effort, which leads your sales,
so that you finish up with something like IO per cent of the sales turnover being used to sell.
ELSI built up quite rapidly and in five years it went from very little to S billion lire. Now,
if you put in, say, a billion lire of selling costs starting from zero (that is a lot of money and
you would not bave put that in, but that is just an example), at the end of the year you might
be selling at half of what you would, ultimately expect for that investment, say, IO billion lire.
Half of that would be five. So you could put in the billion lire to get an average of 2.5 billion
lire sales in the first year. Now it is quite easy to plot out, year by year, how much extra sales
expenses you · are putting in to build up your sales to get to the point w bere you bave 8 billion
lire sales. However you do it, you come out with a figure of at least a billion lire for extra sales
costs. There are two or three ways you can do these calculations, but a billion lire is the sort
of minimum figure one gets to. Then, if you take the technical and know-how support, ELSI
was putting in about 8 per cent of its sales into research and development, that is about what
we were putting in in ITT. I was once Technical Director of ITT Europe in which we had
about 6so,ooo people working and the average R&D investment was 8 per cent of sales. If
one says that there is a five-year product life, after five years' investment at that leve!, you
finish up by saying at that point, I bave invested something like 2.5 billion lire in order to be
able to make all these products. If one says it only takes you three years to develop a product,
rather than five, then you might say all that work, all that technology know-how, is worth 1.5
billion lire, and that again is fairly conservative. On top of that there's the technical know-how
that was fed in from Raytheon. And then one can look at the supplier base - we were making
sophisticated products that require well quality-controlled input materials and that means establishing
a relationship with each supplier, with getting the materia! from him, checking it quality
contro! wise, keeping in touch with him, having relationships with the suppliers quite regularly,
that supplier base is probably worth at least half of the customer base when you are dealing
with these highly sophisticated advanced technology products. And there was the labour force
that had to be trained. Now in Sicily it took us probably twice as long to train anyone as it
would, say, in Milan or in Frankfurt a:nd. that amounts to another large amount of money.
And then, as well as training people, one has to build up manufacturing know-how on the lines;
if you put just trained people on the .continuous process line with high technology products,
it is not going to work. They bave to learn how to work as a team and that manufacturing
know-how, which enables you to produce products of high quality and controlled quality,
is what we call manufacturing know-how, and that also has a high value.
Within the set-up we also established various support groups. There was a maintenance
group, there was a small engineering manufacturing group to make bits and pieces we required,
these also had a value. Then the Raytheon connection on its own was certainly extremely
valuable. And if you add all these up, when we bave done sums, not having just pulled figures
out of the air, you easily reach a figure of 4 billion lire plus. And that is real and valid. So that
was a supporting situation in considering the situation of each of the product lines.
Now we take the television tube line. We believed that could be sold as an independent
busipess because it was a separate entity. It was a black and white tube line, originally set up
280 RASSEGNA DELL'AVVOCATURA DELLO STATO
under license from America. I think it was from GE but I can't be certain of that, I can't
remember. As we progressed and made bigger tubes the question of implosion, the tube going
bang, was more of a worry. We took another license from America for a banding system that
made it implosion-proof. When we got there they were making about, of large tubes, 3o,ooo
to 35,000 tubes a month if they were lucky. There was a large amount of scrap, there was a
large amount of bad inventory. We cleared out ali of the inventory, we instituted a reclaim
section so that the tubes that were not good could be reclaimed because the big glass bulb was
something like 6 5 per cent of the cost of the tube an d h ad been imported from Germany a t
great cost. So we reclaimed the bad ones and that gave us significant improvement in yield.
W e had already got 20 per cent of the Italian market and we exported to Germany, France and
Holiand, I think something like 40 per cent of the output was exported. As a result of ali the
improvements we put onto that line we increased its manufacturing capacity to 50,000 tubes
a month and actualiy, in December of 1967, we manufactured and sold some 5o,ooo tubes.
That means that if we could have kept going, the sales volume in that line could have gone
up from 4-5 billion to over 6 billion per year. Now these transport costs we talk about amounted
to something like 6-8 percentage points of margin for that line. Prices were very competitive
and we were getting a standard variable margin of about 30 per cent. That additional 6-8 per
cent on 6 billion sales would have added in 4-5 hundred million lire of additional profit.
There was the possibility of colour, TV raising its head and we tried to talk with ali the
people in Italy about what was going to happen. We established the colour laboratory there
at a cost of some quarter of a million doliars, so that we could manufacture our own colour
tubes. I had been with ITT and I had been looking at the problem of colour television and in
my view one had to take a license from RCA and build an RCA colour television tube line with
an output of 40o,ooo tubes a year. We were actualiy in negotiations with RCA about license
possibilities. In fact, I have just checked dates. I thought Italy was late and they did not agree
on their colour system until 1975, and I believe that the first colour transmission there was
at the end of 1976, so that the black-and-white line had a good 1o-year life of potential sales
and profit if handled properly.
If we could now turn to the ray tube line. These were made with technical know-how
from Machlett which was a Raytheon company. Machlett had ray tube manufacturing plants
in America and in Switzerland. In Switzerland it was a company calied Comet. The tubes
being made in Palermo were modern high technology tubes which at that time had what was
calied rotating anodes. Where the stream of electrons hit the anode, it rotated round.
There was no burnt spot produced and there was no other manufacturer of those ray tubes
in Italy and we tried desperately to get more replacement orders from the Italian medicai system,
but it didn't work; if we could have got the 30 per cent law to apply, we could have doubled
and trebled the sale of those tubes, which were high margin products. The standard variable
margin was about 70 per cent.
Also in modern telephone switching, at that time, there was being introduced, relays
calied reed relays which were glass envelopes with little metal contacts inside. This required
glass sealing, contro! of vacuum, clean metals, and ali of the technology of the ray line
would have been applicable to these reed relays which would have been another new product,
but which we had to seli to STET.
Now I am quite certain that if, in the end, we had not sold it to anyone else, Comet, the
company in Switzerland, would have taken that line and either left it there as a EEC manufacturing
source, while they were in EFT A, or they would have just moved the line. Raytheon
would have taken it because it was a very good line.
In the microwave tube line, as you heard from Mr. Adams, we were manufacturing low
noise power devices for the Hawk missile system. This was a very special tube, low noise, very
few people can make it. There are in fact two of these tubes in the missile system. One of them
was smalier, we called it a local oscillator. A few years before, I had been responsible for most
of the defence missile systems in the UK. And one or two offensive systems as weli. And we
were developing systems similar to Hawk, I tried to get one or two English valve companies to
manufacture these low-noise, low-power klystrons and it was not possible. In the end we
took a license ftom Raytheon to manufacture these tubes in the UK through the company
INTERROGATORIO CLARE 281
Ferranti. And in their contract I put a clause to the effect that if they changed the materia!
of only one washer, the contract was void. And I think that indicates what high technology
was involved in manufacturing those tubes. It required very high quality control on the line,
it required very high maintenance of the equipment and it involved high technology ali the
way down the line. And we were making product there which in many cases was tested to be
better than the American product. That same line also made power magnetrons, the power
sources for big radars. And you have heard, and I'll say a little-more about it in a minute,
about the microwave ovens which Raytheon invented. There was a magnetron in the microwave
oven; in those days it was worth about so dollars, say 3o,ooo lire. Amana had been acquired
by Raytheon and as you know the sales of Amana microwave ovens grew from 2o,ooo over
a few years to half-a-million.
If we had had that product developing in ELSI, the microwave line could have been making
those magnetrons. And if we had only made for Europe a tenth of what they made in America,
for the magnetrons alone, we would bave sales of a billion lire or more per years.
Then the microwave ovens. I am sure Mr. Adams has already told you about these.
Raytheon invented it and developed it. It grew from 2o,ooo per annum to half a million per
annum Amana sales in America. There were very few exports to Europe. Tbey could bave
been manufactured in ELSI in the EEC as a European base. That would have been a very
good growth product and the licensing patent arrangements would have obviously been made
available by Raytheon.
On the semi-conductor line, when we got there they were manufacturing old-fashioned
products. Tbey were making germanium transistors. There were about I20 or ISO people on
the line. W e stopped manufacturing germanium devices. Raytheon provided us with help from
their semi-conductor operation to get rid of tbe stock of germanium.
We had a company in Zuricb called Transistor A.G. that was in silicon rectifiers, and we
began to put those two companies togetber to transfer know-how from Transistor A.G. to
ELSI, and we began to manufacture silicon rectifiers and high voltage stacks. These latter
are rectifiers stacked up to give high voltage rectification for use in television receivers. We
bad in mind that we would regard ELSI as the EEC manufacturing source of these products,
whereas Transistor A.G. was in EFTA, and we did provide a man who was tbe European sales
co-ordinator for these products in Europe totally.
And, of course, there were the opportunities to develop further higher power silicon rectifiers
particularly if we could bave made sales to the Italian Railways. If it had not been possible
to sell the semiconductor line, having gotten Transistor A.G. and ELSI working so closely,
we would have taken that line ourselves. In fact, after the seizure, by arrangement with the
liquidator, we purcbased some of the equipment from the high voltage stack line and we took
the man who was running it and we moved him to Zurich and we ran a line of fifty girls very
profitably for many years.
W e also bad surge arrestors, which w ere little glass sealed things, which if lightening strikes
the telephone lines saves damage hitting the equipment. W e sold some of these but not many.
But if we could have gotten STET to buy, we could have sold a lot more of them and we could
have probably then exported more. So, I think, that is a review of the lines.
Ms. CHANDLER: Mr. Clare how would you have gone about finding purchasers for tbese
product lines and selling them either as a whole or as by product line ?
Mr. CLARE: W e thought of this in three possible steps. The first thing was to try and sell
it as a total entity, tbe second thing was to try and sell it as two entities because the television
tube plant was literally just balf of the total plant and quite separate. If that did not work then
we would sell tbem as separate lines.
The obvious purchaser to try again for the whole assembly was IRI and it would have been
possible for them to have taken it, for them, very cheaply. I mean if they had taken it tben certainly
the Sicilian organizations, the Region itself and ESPI and IRFIS would have ali chipped
in and they would have had six billion, seven billion, lire without any trouble. A large part
of the bank debt were IRI banks so, they could bave kept the debt with their banks. Tbey
could bave paid book value and would only have had to put in quite a small amount of new
282 RASSEGNA DELL'AVVOCATURA DELLO STATO
capitai. They were in a very strong position to be able to make certain that the transport costs
subsidies would operate and that the 30 per cent law would operate. And, even today, I find
it incredible that that was not clone instead of what happened. Although there was much talk
about the need to preserve the plant and preserve the jobs of the people, IRI was hell bent on
closing it and making it bankrupt and destroying a lot of what was there.
1t would have probably been difficult to find anyone else other than IRI who would have
bought the thing totally but if we spii t it into two, there would ha ve been a number of potential
purchasers. As soon as we announced our voluntary liquidation, we began to get some enquiries
immediately from ali over the piace. We had enquiries from Japan for the semi-conductor
Iine, and enquiries from America; we had enquiries from Greece for the television line.
We would have approached, and we planned to approach, our major competitors. We
also planned to approach our major distributors. Sometime later on I actually sold off, not in
Italy, two companies that were in trouble to major distributors of ours who were using products
of those companies. And if it carne to selling the individuai lines, then, if we could not seli
the X-ray Iine and the semi-conductor line, Raytheon would certainly have taken these.
And as far as the microwave tube line is concerned, that would not have been a question
of seliing, that would have been a question of holding an auction and taking the highest bidder
with the maximum goodwill. W e had this high technology there which existed nowhere else
in Europe, except where we Iicenced it in the United Kingdom. And there, I am sure, we would
have gota goodwill figure over and above book value. Now, we had ali those plans set up, as
I indicated earlier, to start this voluntary liquidation, but we had the assets seized and when
the assets are seized, there is nothing to sell. So, at that point, it stopped.
Ms. CHANDLER: Mr. President, our examination of Mr. Clare is nearly complete. However,
I do note the lateness of the hour, would you like us to continue ?
The PRESIDENT: Please finish now.
Ms. CHANDLER: Thank you. Mr. Clare, in your assessment, would the sale ofELSI's
assets have generated sufficient revenue to pay off ELSI's creditors?
Mr. CLARE: Yes, I have no doubt about it. Earlier in the year we had cleaned up the receivables,
we had also cleaned up the inventory. In fact, in 1966 and 1967, fora combination of
cleaning up the inventory and writing off bad debts, we wrote off two billion lire. So on the
balance sheet we were looking at, the values that were there, were after having written off two
billion lire, in fact a little more than two billion lire, in the prior two years.
We felt very strongly, and with conviction, that the receivables and the inventory were
very good. In fact, Raytheon had guaranteed the cash fl.ow necessary for the voluntary liquidation
and they were prepared to purchase the receivables at face value. This Ieft us with the
fixed assets that w e had to seli. W e have been through all the lines an d their characteristics
and, certainly, coupling this with the intangibles which I talked about, I am sure we would ha ve
had no difficulty in obtaining book value.
Ms. CHANDLER: Mr. Clare, what is the book value of the company, that is the value you
expected to actually receive upon the sale of ELSI's assets. How does this compare to the quick
sale valuation that was prepared at the time of the orderly liquidation ?
Mr. CLARE: As managers, we had responsibilities obviously to get as much money as possible,
and so we were aiming for book value. But in talking to Raytheon and arranging for whatever
money had to be provided we had to take a very conservative view of what we thought we could
do a t the bottom end of the scale. And this quick-sale book value was that figure. It also related
to what we worked out as the sort of figure that we thought we could offer the major creditors.
We desperately wanted them to agree that we could pay off ali the small creditors so that we
had no possibility of any one of those raising the issue of bankruptcy. And in talking something
like so cents on the dollar, the big banks are big boys. They know that if they do a deal with
a voluntary liquidation they get something; if they go into bankruptcy, they are likely to
get a lot less. In fact, I believe, they finished up with less than I cent on the dollar.
INTERROGATORIO CLARE 283
But I also felt very strongly that Raytheon would support and guarantee the so per cent
payment to the banks. So this was our approach. We could talk so per cent, wc could get a
guarantee from Raythem;t to pay off ali the small creditors and we set ourselves a target which
wc felt was not easy, but not difficult, to meet. Wc would have tried all the time to have gotten
book value and whatever wc got above, the quick-sale value, then all the creditors would have
shared in it pro rata, that is, ali the creditors who had not been paid off.
Ms. CHANDLER: At this point the requisition of ELSI's assets intervened and you were
not able to proceed with your planned orderly liquidation. What effect did the requisition
have on the value and status of ELSI's assets at that time ?
Mr. CLARE: Well, there is a bit of simple logic there. If you are trying to sell something
and someone takes it away from you, you've got nothing left to sell. That means there was no
money to go into the orderly liquidation, no sales proceeds, and it was necessary to have continuai
access to those assets in order to preserve the value of the intangibles. We were keeping 130
people in the plant. Take for instance the customer base. If we had done it in an orderly way,
wc would go to the customers, we would keep them supplied to some extent, at the same time
the competitors would go to the customers and we would have to lower our prices to maintain
sales contact, but we would do that. But when we lose contro! of those assets, then the competitors
are there with the customers and we are out - nothing we can do about it. If you take
the question of manufacturing efficiency and quality and the training of the people - they
disappear. Its costs a fortune to train them, and they probably would get jobs digging ditches.
We had a very careful and methodical maintenance schedule for the equipment because it was
very necessary to do that, we had continuous processes. In the continuous process if you stop
it, it takes quite a long time to start it again. If you stop it and let it sit for three months,
it is like leaving a house empty for three months, when you go back the gutter has fallen off,
the toilet does not work and some bricks have fallen down - that happens on a line like that.
So that the result of the seizure of the assets and the stopping of their use very rapidly
reduced their valuation. It reduced the intangibles because you lose your customer base very
quickly, you lose your supplier base not as quickly, but in a pretty short time, the trained
people disappear, the manufacturing efficiency disappears and the quality of the machinery, the
maintenance of the machinery disintegrates very rapidly. So the effect of seizing it was that the
value obviously deteriorates very rapidly.
Ms. CHANDLER: Mr. President, this concludes our examination of Mr. Clare. He is now
available for cross-examination or for questions from the Court.
The PRESIDENT: Thank you very much. Do the Italian delegation want to cross examine
now, Professar Ferrari Bravo?
Professor FERRARI BRA v o: Y our Honour, if i t is possible, immediately after the coffee
break.
The PRESIDENT: We are going to have a break, and then we shall have the cross-examination
of Mr. Clare.
But, before leaving, I would like to put a question myself. How much do you estimate
what you call the quick-sale book value of ELSI ?
Mr. CLARE: I think we have the figure of 10.8 million.
The PRESIDENT: How much ?
Mr. CLARE: 10.8 billion.
The PRESIDENT: I mean lire. An d in dollars, how much is i t ?
Mr. CLARE: I don't do it exactly, I divide approximately by 6oo to get a figure, butI mean
that was not the exact figure at that time. So divide by about 6oo. Do you want me to do that ?
The PRESlDENT: No, I can divide also!
Thank you very much, we shall continue in IS minutes.
The Court adjourned from I I ·45 a.m. to I I ·59 a.m.
284 RASSEGNA DELL'AVVOCATURA DELLO STATO
The PRESIDENT: Please sit down. I call on Mr. Ferrari Bravo, who is going to crossexarnine
the witness on behalf of the Italian Delegation.
Mr. FERRARI BRAvo: Mr. President, I would like that, as in the case of the previous
witness, the cross-exarnination of Mr. Clare be conducted by Mr. Highet.
The PRESIDENT: Would you please call Mr. Clare to come in.
Mr. HJGHET: Thank you, Mr. President. Mr. Clare, I am going to try to keep my questions
as crisp and to the point as possible, and of course I know you are seeking to assist the Court
and counsel and I would prefer it if you would also make your answers as crisp as possible.
I arn referring to the Clare Report, your 1967 report, and you remember that in that, arnongst
many other things, there were at least three elements that you then specified as being necessary
to make a success out of ELSI or an ELSI -like creature. One was an additional capi tal investment,
presumably from the Italian State, of 6 billion lire. The second was new product lines,
which you have explained this morning, and the third was financial help, including Mezzogiorno
benefits, transportation subsidies and the like.
My question is: wouldn't any purchaser of ELSI, in whole or in part, have had equally
difficult problems confronting it or them?
Mr. CLARE: W e were hoping that the purchaser would be Italian, to begin with. An Italian
purchaser would certainly know a lot more as to how to handle the Italian environment than
we knew. If I can go back, I said we had hoped to sell it totally and we would try IRI again,
etc. If there was someone who was not Italian we would make it clear to them that these problems
existed and they would be forewarned and be in a very strong position to negotiate much
more strongly than we did. I have actually, in other circumstances, been in a similar situation
where I have negotiated changes before I took over whatever it was I was looking at.
Mr. HIGHET: But that would have required in any event a special application, a special
kind of ...
Mr. CLARE: I do not know how special it was. There were laws that existed that had not
been applied.
Mr. HIGHET: That leads me to my question about the Mezzogiorno benefits. You said
they were not being applied. Were you and the senior Raytheon, ELSI/Raytheon Europe,
management aware that you had a right, that ELSI had a right, to the benefits of these laws ?
If so, why didn't you do something about it?
Mr. CLARE: I personally had discussions with Minister Colombo, I personally had discussions
with Minister Bo. I personally had discussions with the Minister for the Mezzogiorno. All
assured me that the laws existed, we should have the benefit of them, and that it would be applied.
I do not know what else I could do.
Mr. HIGHET: What did you do? You had Dr. Bisconti as your counsel. What did you
or your counsel do when the laws were not applied ?
Mr. CLARE: We used our own counsel, Bianchi. He went round various offices in Rome
asking questions.
Mr. HIGHET: Was there any form of administrative relief under Italian procedure which
you could have sought a remedy ? If there was a right, there has to be a remedy to cure the
denial of the right. Was this pursued?
Mr. CLARE: Yes. Bianchi went around and carne back having talked to all the offices in
Rome, and said, « It is my view, and I will give it to you in writing, that as of now you should
be able to claim 300 million lire ». And we put on our balance sheet 300 million lire.
Mr. HIGHET: But Mr. Bianchi was not prepared to actually pay the 300 million lire.
Mr. CLARE: Why should he pay it? He worked for me.
Mr. HIGHET: Or undertake the performance of the Mezzogiorno benefit ? ·
CONTROINTERROGATORIO CLARE 285
Mr. CLARE: There are lots of funny things happening in the Mezzogiorno. You can walk
around and see a lot of projects that have been started and not fìnished.
Mr, HIGHET: I am really hearing that you bave your counsel walking around and asking
why something isn't happening and then saying, well in my opinion it wil1 happen and Minister
so-and-so has given us his assurance, and. so-and-so and so-and-so. It still does not happen.
Why don't you then do somethin~ about it?
Mr. CLARE: I do not know w ha t else I could have clone, unless I went to the Pope - and
l'm not being funny there. The Church are very influentiaL
Mr. HIGHET: But the Lateran Treaty might have ... However.
Mr. CLARE: Having been to the Ministers, I really thought that was about as far as I personally
could go.
Mr. HIGHET: Good. Let me ask you a subsidiary question along this line. What makes
you think, or made your think, or might make you think, that the Mezzogiorno benefits were
applicable to non finished goods ?
Mr. CLARE: I was told so by two Ministers concerned.
Mr. HIGHET: You were told so. Did you check to see whether they were right or wrong?
Mr. CLARE: No. If I ask a Minister something and he tells me something, I do not say
I do not believe you.
Mr. HIGHET: You mentioned- and this is a point of information- you mentioned at
the end of your testimony taking someone off the line after the famous requisition and the
bankruptcy. No?
Mr. CLARE: No.
Mr. HIGHET: Between the requisition and the bankruptcy?
Mr. CLARE: No. When we fi.rst went there, I said in the middle of the year, we took two
people off the television line when we were trying to improve it.
Mr. HIGHET: But you said you talked to a liquidator about this. I just must have misheard
you.
Mr. CLARE: You have certainly misheard me.
Mr. HIGHET: OK, I certainly did. Forgive me. Something I did not mishear was that you
did say very clearly, " as soon as we announced our liquidation » you got indications of interest -
you mentioned Japan, United States companies. Am I right?
Mr. CLARE: Yes.
Mr. HIGHET: When was this, roughly?
Mr. CLARE: From about the first week in April, roughly.
Mr. HIGHET: So, right around the time of the requisition?
Mr. CLARE: Yes.
Mr. HIGHET: When was the liquidation announced?
Mr. CLARE: The last week in March.
Mr. HIGHET: The last week in March. When was it decided? September 1967?
Mr. CLARE: No. We put in this money. We made clear we were not going to put in any
more money. We therefore had to watch very carefully that we stayed legal, as far as the
balanct; sheet was concerned, and I had both Scopelliti and Bianchi watching like hawks, so
that as the money was disappearing we were not getting into an illegal position in the Italian
situation and, in September 1-967, we were certainly a long way from being insolvent. It was
19
286 RASSEGNA DELL'AVVOCATURA DELLO STATO
only in 1968 that we had a few unfortunate incidents which made things disappear much more
rapidly than might otherwise have happened. In early 1968, Palermo was decimateci with an
earthquake and we had our girls afterwards sitting there with a string and a little weight working
away, and every time the string quivered they went outside. But Palermo was decimateci totally.
Mr. HIGHET:' I t was not an ideai time to announce an orderly liquidation.
Mr. CLARE: It was after that we announced it and we did not pick the time. The disappearance
of the funds, and in the situation to which we were, legally required to react, we had
to legally either go for orderly liquidation or bankruptcy.
Mr. HIGHET: Could you have made the payroll, the first payroll in Aprii? I do not think
you could have. Do you think you could have ?
Mr. CLARE: No, I do not think so.
Mr. HIGHET: You had 22 million lire in the kitty, roughly, and the payroll would have
been at least 25 million lire for the first week, which is the week before Easter week. So you
were essentially, as we say in the United States, belly up, from the point of the requisition.
Mr. CLARE: W e were belly up just before the requisition. That is why we went into voluntary
liquidation.
Mr. HIGHET: That's right. I am not debating with you as with counsel, but you also pointed
out that one of the contingency plans for taking care of the smaller creditors was so that any
one smaller creditor could not have clone - which had I been such a small creditor and had I
not been paid in full, I would have been sorely tempted to do-which is to throw ELSI into
bankruptcy so I could at least get a better bite of it and not be swamped by the major creditors.
If this was true, was ELSI a going concern ?
Mr. CLARE: I do not see the connection.
Mr. HIGHET: Would you say that a going concern, it is nota legai question, it is a practical
question. Would you define a company as a going concern capable of an orderly liquidation
when a t any moment a small creditor could throw it into bankruptcy ?
Mr. CLARE: Recognizing that as a problem, Raytheon made cash available and put it
in a bank in Milan and I started to pay off the small creditors and I paid off IJO-I40 small creditors
and the bank stopped me doing it.
Mr. HIGHET: That's right. You also said this morning that Raytheon had guaranteed cash
to make the payroll for the reduced number of employees for the period of voluntary or orderly
liquidation that you contemplateci.
Mr. CLARE: I did say something a little more than that.
l\1r. HJGHET: Yes, you did say something a bit more than that, but I just want to focus
on this cash.
Mr. CLARE: Not on that particular point, I said they guaranteed me the cash necessary to
control and execute an orderly liquidation.
Mr. HIGHET: That's right. Then you met, as I recollect, you met, and it's attached to
your affidavit, one of those marvelous exhibits and it's one of the meetings, it's the sort of the
antipenultimate meeting with Mr. Carollo. I believe it was Friday, 9.30 at night, and there
was a lot of back and forth and there had been meetings all that week. I t was obviously a very
difficult time, it was in Rome, and you were being besieged, essentially: " for goodness sake,
wait till Monday, we'll have everybody in on top of this - the highest authorities are very
concerned - they whizzed back and forth and then you went back to your hotel sometime after
12.30 a.m. and called Lexington (time difference would have been 6.30 or 6 in the afternoon)
and you talked to Mr. Phillips, and he said go ahead and mail them- and that's when none
of the girls would touch the letters and you stuffed the envelopes yourself.
CONTROINTERROGATORIO CLARE 287
Wasn't this trying to tell you something? Didn't you know, and you had been warned,
« warned » is a poor word, it had been stated to you in a heated discussion I presume, with
a politica! figure, a man of considerable enthusiasm and also considerable responsibility and
prominence in Sicily, who had stated to you, « Look, if you do this it's going to be a requi·
sition ». That had happened and that is in one of the meetings.
What di d you think a t the time, Mr. Clare ? W ere you of the opinion that you were
assuming a risk ? That you were in fact operating in a country which had been subject to
earthquakes, where the second biggest employer in the region was being put out of business ?
There were 8oo employees about to be given the pink slips and the girls wouldn't even fill the
envelopes themselves ? Didn't you think this was a management blunder?
Mr. CLARE: Certainly not. I had spent, goodness knows, how many months being made
promise, after promise, after promise.
Mr. HIGHET: Of thé same nature of the promises made that were recorded in that last
week in March?
Mr. CLARE: If you look back at some other records, there's lots of promises made. ESPI
even to be instructed to put in 6 billion lire. Promise, promise, promise. ELSI was to us an
entity they could have picked up very simply and run and made it go and applied these laws.
And we'd spent a year working with half of it having nothing but promises. My feeling as I
walked out of that room was that it was yet another ploy. I felt it was a ploy that would hold
us off until they had their elections and then would be back to where we were. I didn't
think there was any solidity in the proposal at ali.
Mr. HIGHET. Did it occur to you that if Raytheon had indicated that they wou\d have
been prepared to guarantee cash for meeting payroll and other limited purposes for the
orderly liquidation in the initial period, that, under the circumstances which appear to us
and to the Court, only in black and white on paper-these are minutes of meetings that
are held 20 years ago-wouldn't you have thought, as a businessman, that it would have
been a very prudent risk to take to extend the norma! situation for just one more week?
Mr. CLARE: I had spent many months going through ali sorts of proposals. They put
70% we put 30 %, we put so%, they put so%, we do that, we do the other. If it was
going to be something solid on their part, I would have expected some little gesture, some
tiny positive gesture that said here's IO lire towards it, cash.
Mr. HIGHET: And you didn't feel you got this?
Mr. CLARE: I didn't feel I got that.
Mr. HIGHET: Thank you very much Mr. Clare. Mr. President, I have no further questions.
Mr. PRESIDENT: Thank you very much. Do any of the Judges want to put questions to
Mr. Clare? Sir Robert Jennings.
Sir Robert }ENNINGS: Mr. Clare, I want to ask, I think a quite simple question, about
the liquidation. We heard from Mr. Adams this morning that the decision to liquidate had
been taken sometime before the decision was announced confidentially and we heard from you
that the plans for an orderly liquidation were really quite elaborate, quite, quite elaborate.
Mr. CLARE: Yes.
Sir Robert }ENNINGS: You had spenta good dea! of time in thinking out the best possible
ways of disposing of the assets. Y ou had your teams arranged and so on that you told us about
this morning. So there was, so to speak, a programme for an orderly liquidation. Now, what
I would like you to tell me is simply this. Was the giving of notices to the workforce immediately
the liquidation plan was ratified by the meeting of shareholders, was that giving of notice a part
of the originai orderly plan of liquidation or was it a later reaction to the failure of negotiations
with the Italian authorities.
288 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. CLARE: We had two things happening in parallel. One was that we were watching
very carefully what was happening to the money, the cash flow in the company, and I had my
lawyer and my controller telling me: watch it, you know, it's approaching the criticai point.
We could see trends so that unless something happened we could see twp months ahead. We
had a Board meeting to formally note that we were running out of money and there had to be
an orderly liquidation and that we would not go into bankruptcy. When on the famous << last
night », when they said « keep going », my advisers were telling me « unless you put money in,
you can't legally keep going » and we had run out of money. In parallel with that, we had to
think also what would happen when we did run out of money. We decided to go through
an orderly liquidation while we were still working away and hoping and praying that President
Carollo could bring off a successful arrangement with the centrai government. We had to set
about planning our orderly liquidation so that, come the day the piant shut, we knew what we
were going to do. W e didone or two other things. Wehn the personal were on strike, we kept
management in the piant 24 hours a day so we couid cali on the carabinieri to protect the plant.
We had a ring of carabinieri around the piant 24 hours a day and for some time I and the other
management, had to walk through that ring. It was very unpieasant. We had to plan for the
liquidation in advance and in parallel with all the other activity.
Sir Robert }ENNINGS: Yes, I understand that very well, but I am stili unclear when the
decision was taken to give notice to the major part of the workforce, was this a late development ?
Mr. CLARE: The decision was taken at the Board meeting which said we've gotto go into
voluntary liquidation and we will have to give notice to the peopie.
Sir Robert }ENNINGS: That was in the first week of March, 7th March was it? It was
at the Board meeting where a decision was taken by the management to go into liquidation ?
Mr. CLARE: That's right, the 17th of March I believe.
Sir Robert ]ENNINGS: But were your plans for an orderiy liquidation aiready in piace?
Mr. CLARE: They weren't in piace. No. We took certain actions I think, and I would
have to Iook back at my notes to confirm these dates, but things like moving the books and the
inventory, I think, took piace after the Board meeting. l'm not sure of that but it was around
that time, and then we were thinking, when we had time to think, about the orderly liquidation
and pian for that. W e were still putting a lot of effort and energy into trying to avert it by still
having meeting after meeting, after meeting with Carollo et al.
Sir. Robert }ENNINGS: Thank you. If I could ask just one more question to confirm an
impression I had from what you were telling us this morning, and you may say that I am wrong,
but wouid I be right in thinking that the viability of ELSI as a company really depended aimost
entirely on getting Government contracts? Wouid that be right, or did you hope to be abie
to compete in other markets ? Because you toid us this morning a lot about the products that
you couid make, but the problem seemed to be that nobody was buying them. W ere you entireiy
dependent on the Government giving contracts, or did you think that ELSI was able to compete
in the generai market ?
Mr. CLARE: ELSI did compete for years in the generai market, and we did not reiy on
Government contracts in the history of ELSI up to its closure. And, in fact about two years
back, we made break-even having paid Soo million, I think it was - I shall have to check, but
it is around that - lire interest.
Now, there was a change in product mix. We lost some demand for the microwave
Iow-noise tube for NATO, but which did built up later, and in America we wouid have solved
the problem by firing 200 peopie, and stayed commerciai, stayed profitabie - at Ieast, not in
Ioss. Now it was a question of timing. Because we could not fire those 200 peopie, an alternative
was new product immediately, new product immediateiy of low technology. About the oniy
piace we couid get that in quantity to support those extra people was from the Government
areas which were covered by, we thought, the 30 per cent law. If we could have fired 200
production people, and restructured the company, we could have put in a lot of these products
CONSULENZA BONELLI 289
ourselves, we could have put in reed relays ourselves. W e could have put in microwave ovens;
we could have put in the microwave magnetron, but it was a question of timing. And ali the
time we would be trying to do that, we could be losing money paying 200 mouths that were
doing nothing. Not only doing nothing, but doing something negative, because they were around
the piace being in the way. So, it was a question of timing and, to get those products quickly,
it was lRI and its satellites that could have done it; and they could have done that if they had
taken the company. Now if we could hàve --,..- I repeat myself - fired 200 production people,
or if need be 250 people, and just had the people we wanted, with a restructured company
for the products we had, we could have built it up ourselves.
Sir. Robert ]ENNINGS: Thank you very much, Mr. Clare.
The PRESIDENT: I have another question. I would like to ask the following: you ha ve
just ~;aid that you. would have had to fire 200 people. I imagine that under Italian law you can
fire them by paying compensation. I t was not just that you could not fire them?
Mr. CLARE: Well, in Italy, there are laws and there is life, and the practical matter is that
effectively you could not fire people no matter What you paid them. We fired two and we had
a strike. You had to deal not just with the laws but with what the local unions would say and
do. In fact, there is no way you could get rid of 200 people, no matter what the law said.
The PRESIDENT: Thank you. Any other questions? W eli, I thank you very much, Mr.
Clare, for your assistance to the Court.
Mr. Matheson, I think that you want to take the floor?
Mr. MATHEsON: Thank you, Sir. In the remainder of the time we have today we would
like to present to the Court the views of two eminent Italian legai experts on the issues of Italian
law which are presented by this case.
The first of these two experts is Professor Franco Bonelli, who will address questions of
Italian law which have arisen with respect to orderly liquidation and bankruptcy. Professor
Bonelli is one of the leading comtnentators and practitioners in this field of Italian law. He
hàs; since I976, held the Chair of Commerciai Law at the University of Genoa; he is also the
author of numerous books and articles in this area and has served on many international and
Italian arbitrai panels. Therefore I would ask the Court to invite Professor Bonelli to speak.
The PRESIDENT: I invite Professor Bonelli to come to the floor.
Professor BONELLI: Thank you. Mr. President, distinguished Members of the Court.
I will address my remarks to severai issues of internai Itaiian law that have been raised by the
Respondent in these proceedings. I will demonstrate that ELSI's shareholders had the right
under Italian law to liquidate ELSI's assets. I will further demonstrate that at no time prior
to the requisition was ELSI obligated to file a petition in bankruptcy. Finally, I wili establish
that, notwi.thstanding the Respondent's assertion to the contrary, the Respondent has not documented
a single violation of Italian law by ELSI's management or shareholders and, indeed,
has never charged them . with any such violation.
The first section of my statement is the right to liquidate ELSI's assets. As I stated in my
affidavit (Reply, Annex I, para. I), Artide 2448, N. s, of the Italian Civil Code confers the
right on shareholders of ali Italian companies to liquidate the assets of the company upon a
resolution of the shareholders. This right is extended to shareholders of ali companies even
in cases in which the business and/or activities of the company are perfectly sound and profitable.
For example; shareholders of a small private company may elect to seli the assets of a company
rather than the shares of the company if they feel that the assets would be more readily saleable
than the shares. Normally, however, shareholders liquidate a company when the company's
business produces losses and the shareholders have decided to stop investing additional capitai
into the company, in order to curb the losses. This is how Raytheon and Machlett exercised
this right with respect to ELSI.
The Respondent in this case an d the affidavit submitted by Professor J aeger (Rejoinder,
Annex 32) do not dispute this statement of the law: that is that in Italy shareholders have the
290 RASSEGNA DELL'AVVOCATURA DELLO STATO
statutory right to liquidate the assets of a company for whatever reasons they see fìt - I think
this is a true statement in all countries, not only in Italy.
Instead the Respondent argues (Rejoinder, p. 197) that because of ELSI's fìnancial situation,
Raytheon and Machlett were not entitled to engage in an orderly liquidation. The Respondent
identifìes various laws which should have prevented the orderly liquidation of ELSI. The
Respondent asserts(Rejoinder, p. 197) that ELSI should have engaged in a compulsory liquidation
under Artide 2447 of the Italian Civil Code; that ELSI should have been declared bankrupt
under Artide 217 of ltalian Bankruptcy Law and that ELSI's management engaged in criminal
conduct under various provisions of Italian law.
I wili discuss each of these in turn. But fìrst, let me give you an overview of the alternative
available to shareholders seeking to liquidate the assets of a company under Italian law.
With regard to a company being liquidated, it can appear at the outset, or at any point
in the liquidation, that from a reasonable perspective, the total amount of assets is not sufficient
to satisfy 100 per cent of the liabilities. At p. 197 of its Rejoinder, the Respondent states that
"an orderly liquidation ... requires the 100 per cent satisfaction of creditors » and not the so
per cent settlement envisaged by Raytheon and Machlett.
The Respondent's statement as it relates to Italian law is incomplete and as such is wrong.
Apparent inability to pay all creditors at 100 per cent is not fatai to a voluntary and orderly
liquidation. Severa! alternatives are available to the shareholders.
First, a liquidator may settle some major unsecured debts, especially with large creditor
banks, or others, at a reasonable percentage. These settlements are both legai and practicable.
Large creditor banks in Italy have every incentive to settle these debts. Any rational creditor
would prefer to obtain a reasonable percentage of its credits promptly in a liquidation, rather
than talcing the risk of receiving little or nothing after a long delay in bankruptcy. Of course,
if the settlement is guaranteed by a parent company, the incentive to settle is even stronger.
Professor J aeger in his opinion agrees that settlement is common practice.
Professor Jaeger also correctly notes a second incentive that large creditors have to settle
their credits (Rejoinder, Annex 32, para. 3). According to Italian bankruptcy law, as Professar
Jaeger underlines and is correct, the trustee in bankruptcy is obligated to file suit to recover
all payments made to creditors in the year preceding the declaration of bankruptcy. Therefore,
banks an d other large creditors in I taly ha ve a considerable interest in settling a t reasonable
percentages (like 40 or so per cent) to maximize the recovery on their credits and to avoid
having payments they obtained in the year preceding the bankruptcy taken away by a trustee
in bankruptcy. This is the fìrst alternative: settlement with large unsecured creditors.
Second, if the settlements obtained are either not sufficient or if settlements are not obtained
for any reason, the shareholders have other alternatives. They can advance funds to the company
in the form of a capitai contribution or they can reduce or waive their own credits towards the
company, and/or they can postpone such credits until after all other creditors have been paid.
In Italy, shareholders frequently do one or any combination of these alternatives, and also they
intervene with temporary loans to the company in order to facilitate its orderly liquidation.
What if all these efforts fail ? There is stili an alternative. If, notwithstanding the settlements
with creditors and intervention by shareholders, the liabilities of the company stili exceed
its assets, the liquidator can propose to all creditors to proceed with their orderly liquidation
by obtaining their consent to be paid only a reasonable percentage of their credits. This special
procedure is called "private settlement » (in Italian we say concordato stragiudiziale) - out of
the court, it means. It is very similar to straight creditor settlement. The principal difference
is that a «private settlement » (concordato stragiudiziale) involves settlement with all creditors,
while a straight creditor settlement involves settlement with a limited number of creditors,
usually the large creditors. The « private settlement » approach has been widely studied and
approved by Italian commentators. I refer the Court to Frascaroli Santi, Il concordato stragiudiziale,
Padova, 1984; F. Ziccardi," Concordato stragiudiziale »,in Dizionario del diritto privato,
Milano, 1981, p. 34S· I do not mix citations here but it is a undisputed point.
Why would creditors agree to a private settlement? Again, the incentives are the same.
The result of an orderly liquidation with settlement of creditors is better than a liquidation
CONSULENZA BONELLl 291
through a trustee appointed by the court. Also1 creditors avoid the risk that a trustee in
bankruptcy would try to recoup any payments to creditors made within a year preceding the
bankruptcy as mentioned above.
If these alternatives fail, or if a company elects not to attempt a liquidation, the company
may resort to the courts. A company may either make a petition to the court for a judiciary
settlement or file. a petition for declaration of banki'uptcy. In a judicial settlement (in Italian
.concordato giudiziale) • the court must assure itself that the . company meets certain requirements
for the procedure and issues a judgment to this effect. At the same time the court appoints
a trustee, who•ultimately is responsible for·the sale of the company's assets~ The time ·period
between the petition to the court and the judgment is rathedong: anywhere from 3-4 months
up to 2-3 years. lt is a long period of time. During this time period, ali sales which are made
are performed by a liquidator appointed by shareholders and with the support of the shareholders.
In conclusion, in the present case it appears that the sale of ELSI's assets would have been
sufficient to pay ali creditors in full, including the debts towards the shareholders (on this point
I refer to the statement of Coopers & Lybrand) I did not see tbe accountings, tbis is oniy wbat
l read. However, thisdoes n<>t matter. Even ifit appeared that tbe sale ofELSI's assets would
have been insufficient to pa:y allliabilities, ELSI could bave taken any otbet: alternatives availabie
to i t under I talian la w: fust, settlements witb large unsecured creditors; second, if su cb settlentents
sbould have proved insufficient, shareholders couid have made a capitai contribution,
and/or they could have reduced or waived their own credits tQwards ELSI; tbird, ELSI could
bave proposed to all creditors a private settlement. This is a. generai overview of wbat Italian
law . provic:les for in these cases.
Ali these alternatives were both for creditors and for sharebolders a better course of action
than a bankruptcy proceeding. The sale of assets in bankruptcy occurs over a Iengtby period
of time. The trustee in bankruptcy is generally not expert in the business or commerce of tbe
company, does not have the support of tbe sharebolders (wbo can guarantee the buyers, technology
· and know-bow), !lnd · the trustee does not have the same monetary incentive to maximize
the sale price as would the shareholders in an orderly liquidation. Tbe trustee in bankruptcy
in .• Italy. is appointed by tbe court and normally is not a inanager; be· is eitber a lawyer or an
accountant. · ·
A confirmati.on ofwhat I have said comes from tbe undisputed facts of this case: ELSI's
management and sbareholders resoived to put ELSI in voluntary liquidation, and tbey began
negotiatons witb the 1arge bank creditors with a view to settling tbeir credits at 40-50 per cent.
There is every reason to believe that these negotiations wouid bave be.en successful. But even
if tbey had not, Raytheon and Machlett could have explored any of the otber aiternatives I
have described. This reasonable course of action, which as a matter of fact was chosen by ELSI,
was frustrateci because tbe Respondent's unlawful requisition intervened. The second section
of my statement is:
No oblig(ltion to file petition in Bankruptcy.
The Respondent argues that o.ther provisions of Italian law wouid bave prevented tbe orderly
liquidation and wouid bave obligated tbe filing of a petition in bankruptcy. I disagree.
First, I will address tbe Respondent's argument (Counter-Memoriai, p. 77) that ELSI
violated Artide 2447 of the ltalian Civil Code. Articles 2447 and 2448, N. 4,. of the ltalian Civil
Code obiigate a liquidation whenever a company's capitai is depieted below a statutory minimum
- a case of compuisory liquidation. During the relevant time-period, this statutory
minimum was 1 million lire, a very small amo un t. If tbe sbareholders do not restore tbis minimum
amount of capitai, tbe sbarebolders must put the company into liquidation. To determine
whether a company must be placed in compulsory liquidation, one compares tbe company's
capitai to the minimum amount establisbed by statute. In ELSI's case, Attacbment Bx to
Annex 13 of tbe United States Memoria} demonstrates tbat ELSI's capitai, even after taking
into account losses, was always well above the statutory minimum.
292 RASSEGNA DELL'AVVOCATURA DELLO STATO
However, if for the sake of argument we were to accept the Respondent's argument that
ELSI should have engaged in a compulsory liquidation, the result would have been exactly
the same as if ELSI had proceeded with the voluntary liquididation. The criticai distinction
between a sale of assets under a voluntary or compulsory liquidation, as opposed to a sale in
bankruptcy is, who is in charge of the sale of assets ? In either a voluntary or compulsory liquidation
the liquidator of assets is appointed by the shareholders, and he acts and sells with the
support of the shareholders. The liquidator of assets in bankruptcy is a court-appointed trustee.
The trustee does not necessarily have any commerciai or business expertise in the company
in bankruptcy. The trustee must act following bureaucratic and lengthy procedures and is not
motivated to sell at the greatest return to the shareholders. Both in voluntary and in compulsory
liquidation the liquidator acts with the same trend, with the same attitude.
Second, the Respondent argues that ELSI's management and shareholders should have
put ELSI into bankruptcy at some unspecified point prior to the requisition. The Respondent's
argument seems to be premised on the proposition that ELSI's assets were insufficient to pay
ali of its liabilities in full.
The Respondent and Professar Jaeger maintain that it was compulsory for the Board of
Directors of a company to file a petition in bankruptcy when the non-request of the bankruptcy
<< has caused his insolvency to be ' more relevant ' » and the crisis of the company << is so heavy
that i t is impossible to reascnably foresee any recovery» (Rejoinder, Annex 32, pp. 5-6). Professor
Jaeger makes reference in his opinion to Artide 217, N. 4, of the Italian bankruptcy law which
makes criminal any case where the debtor company << has made worse his insolvency by refraining
from making a petition in bankruptcy »,
As a matter of interpretation, I do not think that Artide 217 obligates a Board of Directors
to file a petition in bankruptcy. There is no ruling or judgment of Italian courts of which I am
aware that would support such an obligation. Moreover, some Italian commentators have
exduded the existence of an obligation even in the cases considered by Professor Jaeger (Antonini,
La bancarotta semplice, Milano, 1962, pp. 170 et seq.). However, this question is largely academic
as applied to ELSI.
Let us assume fora moment that Artide 217 does create an obligation to file a petition in
bankruptcy. In this case, ELSI was simply not in the situation contemplated by Artide 217
and therefore was under no obligation to file a petition in bankruptcy, no matter how the artide
is interpreted. Artide 217, N. 4, refers to the case in which a company, being insolvent, keeps
running new business, and by so doing makes worse his insolvency. This is the fact which is
contemplated by Artide 217, N. 4· In our case, on the contrary, ELSI was put into voluntary
liquidation, which reflects a decision by the Board of Directors and shareholders to stop running
the business of the company. In fact, after the decision to liquidate, ELSI's management would
have been prevented by Italian law from soliciting new business for ELSI. Artide 2449 of the
Italian Civil Code provides that:
<< The Directors cannot undertake new business after the occurrence of an event that
determines the liquidation of the company. If they violate this prohibition, they assume
unlimited personal and joint liability for the new business so undertaken ».
Moreover Artide 217, N. 4, refers to an insolvent company, !that is one without any
possibility of being liquidated through an orderly liquidation. ELSI, by contrast, was capable
of being liquidated through an orderly liquidation by any one ,of the alternatives I mentioned
earlier. Thus, Artide 217, no matter how interpreted, does not apply to ELSI at ali.
I would like to make one final comment with respect to Artide 217, If Artide 217, N. 4,
had been applicable to ELSI (of which I am of the firm belief that it did not) the Public Prosecutor
should have begun criminal proceedings against the Board of Directors. The Respondent
had sufficient information to make such a determination at the time, if it had been so indined.
Officials of Raytheon, Machlett and ELSI had told the R,espondent repeatedly that if they
could not make ELSI financially self--sufficient they would liquidate the company. The Respondent
had the authority to bring criminal charges. But, not only did the Respondent not criminally
CONSULENZA BONELLI 293
prosecute the Board of Directors, on the contrary, it urged ELSI to remain in operation. I
suggest that the Respondent itself did not and does not seriously believe that operation and/or
liquidation of the company was a criminal act under Italian law.
The third section of my statement is:
Respondent has demonstrated no violations of Italian law.
The Respondent also asserts that ELSI management was criminally liable under Artide
217, N. 3 (l was speaking before on Artide 217, N. 4), which prevents the Board of Directors
from running an « insolvent >> company with « reckless business in order to delay the bankruptcy >>,
The same reasoning applies. First, ELSI was not an insolvent company and therefore was not
subject to Artide 217, N. 3. Moreover, ELSI's management and shareholders did not continue
to rw:1 the business, since they voted to liquidate the company's assets and thus refrained from
executing new business. It is the same artide I read a few moments ago. Again, it is relevant
to note that at no time did the Public Prosecutor initiate proceedings or even an investigation
into ELSI; indeed the Respondent continued to encourage ELSI's management and shareholders
to keep ELSI in operation. ELSI's management did not violate Artide 217, N. 3·
The Respondent seems to suggest that ELSI's management violated Artide 218 of the
ltalian bankruptcy law. This Artide makes it a çrime fòr the Board of Directors of an insolvent
company to borrow money from a third party in concealment of the insolvency. Again, the
Respondent's reasoning is misplaced. First, ELSI was not insolvent. Even if it was, however,
the Directors did not conceal any aspect of ELSI's financial condition on its balance sheets.
Again, it is noteworthy that the Public Prosecutor never initiated criminal proceedings against
the Board of Directors, even though the Respondent was apprised in detail of ELSI's financial
condition in 1967 and 1968.
For the first time in its Rejoinder, the Respondent accuses ELSI's management of having
violated an additional artide of the law, Artide 2621 of the Italian Civil Code. In my view
Artide 2621 is simply irrelevant to the case at hand. Artide 2621 makes it a criminal offense
for promotors, founders, managers and directors, generai managers, auditors and liquidators
who, in reports, balance sheets or othèr information concernihg the affairs of a company, fraudulently
represent facts which do not correspond to the truth about the formation of the financial
condition of the company or who conceal, wholly or in part, facts concerning such condition.
The same artide also punishes managers and directors and generai managers who, in the absence
of or contrary to an approved balance sheet, or on the basis of a false balance sheet, in any way
collect or pay profits which are fictitious or which cannot be distributed. Having levied this
allegation, the Respondent has brought not a single piece of evidence that suggests that anyone
associateci with ELSI presented false information concerning its financial condition or in any
way collected or paid fictitious profits. On the contrary, I would suggest that Raytheon, Machlett
and ELSI management were particularly candid concerning ELSI's financial position and the
steps necessary to liquidate the company.
There are two short final points I shall mention briefly. In its Counter-Memorial the
Respondent alleged that the delays in ELSI's bookkeeping violated Artides 216 and 217 of
the Italian Bankruptcy Law (Counter-Memorial, p. 81) and that ELSI's management violated
Artide 2446 of the Italian Civil Code by failing to take appropriate action with regard to ELSI's
share capitai (Counter-Memorial, p. 8o). The Respondent has not pursued these arguments
in its Rejoinder and fora good reason. AsI stated in my affidavit (para. 7), any delays in ELSI's
bookkeeping in early 1968 that were due to earthquakes in Sicily or strikes at the plant were
merely brief and unavoidable interruptions in ELSI's recordkeeping and do not violate ltalian
law. It was a force majeure- earthquakes and strikes at the plant. I further affirm my statement
(para. 6) that ELSI's management took ali appropriate steps to maintain the appropriate ratio
between capitai and losses within the time period established by ltalian law.
A final remark. Suppose that ELSI management had violated one of the many artides I
read, there are five or six artides, of the ltalian Civil Code and the ltalian Bankruptcy Law,
294 RASSEGNA DELL'AVVOCATURA DELLO STATO
wbat sbould bave been tbe consequences ? Tbese violations, or some of them, sbould bave
exposed tbe members of the Board of ELSI to be criminally prosecuted (whicb did not occur,
and tbis is a confirmation tbat no violations were made), but none of tbese violations sbould
bave prevented ELSI from making or continuing tbe orderly liquidation of tbe company. lt
was a crime but not an impediment to tbe orderly liquidation.
The requisition caused the Bankruptcy.
Tbe requisition made tbe orderly liquidation of ELSI's assets impossible. ELSI's sbarebolders
were deprived of tbe ability to sell ELSI's assets. Moreover, tbey were prevented from
operating tbe plant to finisb works in process. Tbus, ELSI could neitber proceed with tbe
orderly liquidàtion nor generate funds witb wbicb to meet future payments.
In sum, I bave demonstrated tbat Raytbeon and Macblett were entitled under Italian law
to liquidate ELSI's assets and tbat orderly liquidation could occur under severa! alternative
plans, legai possibilities, even if ELSI's liabilities appeared to exceed its assets (a point I do
not concede). I t was only by reason of tbe Respondent's intervention witb tbe requisition order
tbat ELSI's sbarebolders were deprived of an opportunity to complete any one of tbese alternative
plans. I bave also establisbed tbat the Respondent bas not documented a single violation
of Italian law by eitber Raytbeon, Machlett or ELSI, or tbeir officials and bave refuted tbe
Respondent's contention tbat ELSI sbould bave filed a petition in bankruptcy prior to tbe requisition.
Tbe inevitable conclusion, tberefore, is tbat tbe unlawful requisition of ELSI's assets
by tbe Respondent prevented ELSI from continuing tbe orderly liquidation and caused tbe
damages tbat are now claimed before tbis Court.
Tbe PRESIDENT: Tbank you Professor Bonelli. I tbink its near 1 o'clock, Mr. Matbeson.
Mr. MATHESON: Mr. President, I need to beg tbe Court's indulgence at tbis point.
Tbe next individuai we bad contemplateci asking to address you, Professor Fazzalari, evidently
has a requirement to be in Rome tomorrow. Would it be possible for bim to present bis statement
at tbis time ?
Mr. PRESIDENT: Yes. In this condition, of course yes.
Mr. MATHESON: I thank you very mucb. Professor Elio Fazzalari will address tbe question
of wbether otber remedies were in fact available under Italian law to Raytbeon, whicb is something
tbe Respondent bas asserted in its pleadings. Professor Fazzalari is professor of Civil
Procedure at tbe University of Rome. He bas cbaired a number of international arbitrations.
He is the author of a number of publications witb respect to Italian civil procedure. I ask tbe
Court to call upon Professor Fazzalari.
Professor FAZZALARI: Mr. President and Members of the Court. I am bere today to describe
to tbe Court wby Raytbeon and Macblett, tbe sbarebolders of ELSI, could not bring successful
suit against tbe Government of Italy in Italian courts for tbe injury at issue in tbis case.
I wisb to make tbree points but I must apologize in advance for my Englisb. I will speak
as clearly as possible.
First, the Respondent in tbis case bas previously argued tbat a United States national cannot
successfully sue in Italian courts against tbe Government of Italy on tbe basis of the 1948
Treaty of Friendsbip, Commerce and Navigation. Tbe reasoning of tbe Respondent in that
case requires a true explanation of certain principles of Italian law.
Second, Raytbeon and Macblett could not bave successfully sued in Italian courts against
tbe Government of Italy based on tbe otber remedies stated by tbe Respondent in its pleadings
because under Italian law sbarebolders do not bave tbe legal autbority to sue for actions taken
against the company in wbicb tbey bave an interest.
Tbird, even if Raytbeon and Machlett could bave successfully sued as sbarebolders in
Italian courts against tbe Government of Italy, ELSI's successful suit based on tbe specific
remedy of an appeal to tbe Prefect eliminates any otber remedies.
I will address eacb of tbese points separately.
CONSULENZA FAZZALARI 295
I. - The treaty is not a basis for suit in Italian courts.
First, the treaty is nota basis for suit in Italian courts. In both the Counter-Memorial (p. 99)
not and the Rejoinder (p. 215), the Respondent states that Raytheon and Machlett could have
sued in Italian courts under Artide 2043 of the Italian Civil Code based on the 1948 Treaty
of Friendship, Commerce and Navigation between the United States and Italy. This is incorrect.
When a treaty is signed by the Government of Italy, it must then be ratified by the Italian
Parliament through a simple order before it can enter into force. The fact that a simple ratifying
order or, as it is sometimes called, a simple « implementing" order, is passed by the Italian legislature
is not sufficient by itself to allow suit in Italian courts based on the treaty provisions.
To allow suit against the Government of Italy for compensation, the treaty provisions must
either contain specific language allowing such suit or there must be additional Italian legislation
incorporating the treaty into Italian law with greater specificity.
Both Parties agree that there is no additional Italian legislation other than the ratifying
or implementing order. Although the United States pointed out in the Reply that Italian practice
has not found provisions such as that of the FCN Treaty enforceable in Italian courts, the
Respondent simply cites four cases in the Rejoinder which support this point. Two of these
cases involve the United States-Italian FCN Treaty and two involve other treaties. I will
discuss each of these decisions in turn.
Decision N. 1455 of 21 May 1973.
On p. 217 of its Rejoinder the Respondent cites Ministero delle Finanze v. S.p.A. Manifattura
Lane Marzotto, Decision N. 1455 of 21 May 1973 (Rejoinder, Annex 5). In this case
an Italian company sued the Government of Italy for imposing customs duties on goods higher
than permitted by the Schedule relevant to Artide 2 (b) of the Generai Agreement on Trade
and Tariffs (GATT). The Supreme Corte di Cassazione, that is, the Italian Supreme Court,
therefore had to determine whether Artide 2 (b) was a part of Italian law.
In the Respondent's pleadings, the Italian Ministry of Finance argued that the artides
of the GATT at issue in the case did not contain standards that were immediately enforceable
by the citizens of the various States that had acceded to the GATT. Instead, the Respondent
itself argued that the GATT articles were limited to assigning to national legislators the task
of adjusting their own legai systems, by means of appropriate domestic standards, to the principles
established in the Treaty. The Respondent stated that the generic character of the dauses
and the complexity of their application in Italy meant that a simple implementing order was
insufficient. Rather, the Respondent argued that the legislator would have to issue a specific
standard or no subjective rights would come into being for private individuals under the GATT
provisions.
The Supreme Court of Italy agreed that the existence of a legislative order ratifying the
GATT did not automatically make the GATT a part of Italian law which could be relied on
by an individuai. Rather the Court sai d:
« It is quite true that the implementing order, though necessary, it not always a sufficient
means for the reception of international treaty provisions in their form and substance
into the internai system without any further specific legislation. For this purpose, it is
necessary that the same agreement contain specific elements from which complete rules
may be elicited. It is not conceivable that provisions, the precise content of which is no
determined, be inserted into the legai system. It is equally dear that when it is not possible
to determine that content solely through the interpretative instruments, without legislation,
such determination cannot be left to the interpreter. In such cases, the international undertaking
to comply, which is implicitly inherent in those provisions, cannot be put into e:ffect
except through the ordinary procedure (that is, the State, which has an international obligation
to govern certain situations in a given way makes specific provision for this purpose
which are the orily legai source in the matter under consideration" (Rejoinder, Annex V,
pp. 9-10).
296 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Court went on to ask whether the treaty provision, though formally integrated into
the internai system, is simply a dedaration of principle. If so, it only binds the two governments
to harmonize their laws, without · any immediate relevance to individuals, meaning that
individuals could not daim rights based on the treaty actionable in courts.
The Court found Artide II (b) to contain sufficient specificity. This is not surprising since
Artide II (b) incorporates a specific schedule of products setting forth specific limits on the
customs duties or charges that may be imposed on those products. The Court found that
since the content of the provision was defined, it was therefore immediately applicable.
In our case, however, the FCN Treaty provisions do not have comparable specificity.
Rather, they state generai principles which may be enforceable immediately as a matter of international
law - that is, they are binding on the- two States -- but which are not capable of
enforcement ii). I talian courts without additional legislation.
Case N. 107 of 14 ]anuary 1976.
The other case is Case N. 107 of 14 January 1976. On p. 217 of the Rejoinder,
the Respondent cites Ministero del Tesoro v. Mander Brothers Ltd., Decision N. 107 of 14
January 1976 (Rejoinder, Annex 4). In that case a citizen of the United Nations sued the Government
of Italy for losses incurred in ltaly as a result of the Second World War.
The Supreme Court of Italy found that Artide 78, paragraph 4, of the 1947 Peace Treaty
between Italy and the allies (49 UNTS 126) provided that the Government of Italy was obliged
to indemnify « United Nations nationals » for losses undergone as a result of wartime events
in Italy. This specific obligation was found to be immediately operative in Italian domestic
law without the need for a further standard-setting act of integration or adaptation.
The Court's decision is quite understandable. Under Artide 78, paragraph 9, « United
Nations nationals » are defined as nationals of any of the United Nations or individuals which
were treated as the enemy under the laws in force in ltaly during the war. Thus the Treaty
was dearly meant to have internai effect since some Italian nationals qualified as United Nations
nationals. Further Artide 78, paragraph 4, expresses a specific obligation of Italy to restore
ali the legai rights and interests in ltaly as of IO June 1940 of these United Nations nationals,
with other speCific provisions regarding compensation in lire for lost property at two-thirds
its value. Obviously none of the United States-Italy FCN provisions at issue in this case contain
similar specificity.
Decision N. 2228 of 30 ]uly 1960.
Now I come to the two cases involving the US-Italy FCN Treaty. The enforcement of
the FCN Treaty in these cases was limited to provisions containing a << most-favoured-nation »
dause. The US citizen drew special protection not from the FCN Treaty itself, but from some
parts of it in conjunction with other treaties entered into by Italy with third countries.
On p. 100 of the Counter-Memorial and p. 216 of the Rejoinder, the Respondent
cites The Durst Manufacturing Co. v. Banca Commerciale Italiana, Decision N. 2228 of 30 July
1960 (Rejoinder, Annex II). In this case, the US-Italy FCN Treaty was used in conjunction
with Artide 23 of the Italian-French Convention of 12 January 1955. Artide 23 specifically
provided for an exemption from authentication for the notarial instruments executed in the
territories of the two States. This provision was then held applicable to a US national through
application of the most-favoured nation dause of Artide V, paragraph 4, of the FCN Treaty.
The first important point about this case is that Artide V, paragraph 4, of the FCN Treaty
was not itself specific enough to provide a standard of enforcement. The court noted in its
opinion that no specific waiver or exemption existed in the FCN Treaty itself, and that « to
render operative the most-favoured-nation dause » reference must be made to the other treaty.
The second important point is that with the exception of Artide V, paragraph 3, none of the
US-Italy FCN provisions argued in this case cali for a « most-favoured-nation » standard or
treatment. There is nowhere else to look to find the specificity necessary for these provisions
CONSULENZA FAZZALARl 297
to ·be enforceable in Italian courts. The third important point is that the Durst case did not
involve a suit against the Government of Italy or a suit involving the payment of compensation,
and therefore cannot be considered as a precedent that such suits are possible under the Treaty
in Italian law. And the last decision is:
Decision N. 2579 of 6 December 1983/17 February 1984.
On p. 216 of the Rejoinder the Respondent cites In re Walsh, Decision N. 2579 of
6 December 1è)83/17 February 1984 (Rejoinder, Annex 12). That case involved the application
of Italian customs and tax laws to a sporting vessel brought into Italian waters. The Supreme
Court of Italy did not rely on Artide 14 of the FCN Treaty alone for enforcement. Rather
the detailed body of regulations derived from the Geneva Customs Convention on the Temporaty
lmportation for Private Use of Aircraft ahd Pleasure Boats of 18 May 1956 (319 UNTS 21)
was used to provide a specific standard for the ltalian court to follow. Aside from the fact that
almost ali the provisions at issue in this case do not contain a most-favoured-nation dause,
the Respondent has not pointed · to any other treaties or conventions that could ha ve been used
in conjunctìon with the FCN Treaty to obtain compensation in Italian courts against the
Respondent.
· ln neither of the two cases cited by the Respondent concerning the FCN case was there
an action against the Government of Italy or even an action seeking compensation. The Respondent
daims this is not significant (Rejoinder, p. 216) but these are essential elements that an
Italian court would find significant in deciding whether the Treaty provisions alone create
subjective rights for individuals.
These cases are less significant, however, than a case stili before the Italian courts where
the Respondent itself in effect has argued that the FCN Treaty provisions cannot be an independent
basis for suit under Artide 2043 of the Italian Civil Code. In opposing an attempt
by a United States citizen before the Court of Rome to recover compensation for an expropriation
of property in violation of Artide V of the FCN Treaty, the Attorney Generai of Rome
expressly stated in the Government's final brief that the Treaty's provisions «are at best an
indirect and additional guarantee of international relationships between nations », which « cannot
be used to confer the quality of personal rights on situations that are not such » in the Italian
legai system. I referto the case of Talenti v. Presidenza del Consiglio dei Ministri, N. 32266/83,
brief filed 30 October 1987, page 18 (if for the Court's convenience it wishes to have a copy
of this brief in Italian and with a certified translation into English of the relevent paragraphs,
we will provide it tò the Court and to the Respondent).
To understand why the Respondent argued in the Talenti case that the language of this
Treaty provision is not sufficiently specific to permit suit by an individuai, it is necessary to
analyze certain principles of the ltalian legai system. I begin with Artide 2043 of the Italian
Civil Code, which the Respondent states can be used to bring suit based on the Treaty.
Artide 2043 is attached to the Rejoinder at Annex 16. That Artide states:
« Qualunque fatto doloso o colposo, che cagiona ad altri un danno ingiusto, obbliga colui
che ha commesso il fatto a risarcire il danno )).
Translated into English, Artide 2043 reads:
« Any act committed either wilfully or through fault, which causes wrongful damages
to another person, implies that the wrongdoer is under an obligation to pay compensation
for those damages ».
This artide is the basic Italian statutory provision allowing suit for wrongful conduct.
The Respondent contends that the Treaty provisions could have provided a basis for determining
that the Respondent's conduct was wrongful (Rejoinder, p. 215). An indisputable principle
in Italian law - one accepted by ali Italian courts and scholars - is that suit based on
Artide 2043 can only be brought for damage to an individual's « subjective » right, known in
298 RASSEGNA DELL'AVVOCATURA DELLO STATO
Italian as <<diritto soggettivo», but not for damage to an individual's « legitimate » interest, known
in Itaiian as «interesse legittimo», Therefore, I will attempt to explain to you the distinction
between « diritto soggettivo » and « interesse legittimo ».
In Italy, the differences between an individual's « subjective rights » and an individual's
« legitimate interests » was historically introduced at the end of the last century when the individuai
was first permitted to challenge certain administrative acts of the public authorities
even when these acts did not infringe upon the persisting individual's rights. To avoid exposing
the administrative authorities to daims for damages, as well as to avoid subjecting the authorities
to the jurisdiction of ordinary courts (which is the case for violations of « subjective rights »)
the individuai was instead granted a sort of « weaker » right, one based on the individual's
interests in the compliance of public authorities with the law. This interest is called an« interesse
legittimo » or « legitimate interest »,
T o day the following important consequence exists in I talian la w also for suits against the
government: a subjective right is enforceable in the ordinary civil courts, while a legitimate
interest is protected by administrative judges. Further compensation is due only for damages
resulting from injury to a « subjective right » under Artide 2043 of the Italian Civil Code,
whereas damages resulting from injury to a legitimate interest are not indemnifiable.
How then, when one wishes to sue the government, does he determine whether something
is a subjective right or a legitimate interest ? In Italy, a « subjective right » arises when a rule
requires a subject to do a certain performance and specifies the subject who is entitled to receive
this performance: the latter is qualified as the holder of a « subjective right "· As an example,
if the government rents a building for offices, Artide 1587, para. 2, of the ltalian Civil
Code requires that the government, as a lessee, pay rent to the lessor who is, for this purpose,
the holder of a « subjective right >> to the punctual payment of the rent.
If instead, the law calls upon a subject (usually an organ of the public administration)
a duty to do some act, without fixing the addressee of the performance, the obligation is provided
for benefit of the whole community. The individuai, who receives the benefit of that performance,
is the holder of a « legitimate interest" (that the law be respected by the public authorities).
As an example, when the law fixes in detail the rules that must be followed by government
authorities in conducting competitive examinations for public employment, these rules are
made in the generai interest of the public. An examination candidate is interested in the correct
administration of the examination by the public authorities and has, therefore, a « legitimate
interest " in it. Therefore a candidate may challenge the improper administration of an examination
in an administrative proceeding, but cannot bring suit successfully in the ordinary
courts. If successful in a proceeding before an administrative judge, the candidate cannot
receive compensation for any alleged injury.
The inability to bring suit under Artide 2043 based on a legitimate interest has been
repeatedly confirmed in innumerable decisions of the Italian Supreme Court. For instance,
less than a year ago in Decision N. 2579 of 25 March 1988, the Supreme Court of Italy stated
that there is a basis under Artide 2043 for a right to damages only when there has been prejudice
to subjective rights (la configurabilità di un diritto al ristoro del danno solo in presenza di una
lesione di diritti soggettivi). The Supreme Court of ltaly, in Decision N. 435 of 21 January
1988, found that an ordinary judge did not have jurisdiction to decide a sui t seeking compensation
under Artide 2043 for damage resulting from prejudice to legitimate interests. The same condusion
was reached in other recent decisions of the Supreme Court of Italy, such as Decision
N. 436 of 21 January 1988 and Decision N. 1202 of 5 February 1988.
In my opinion, the provisions of the 1948 FCN Treaty between the United States and
Italy at issue in this case do not provide for the individuai a « subjective right" enforceabie
in an Itaiian court. These Treaty provisions state only generai standards of protection without
indicating that individuais are granted rights to sue the Government of Itaiy in Itaiian courts
based on violations of the Treaty. Therefore i t is impossibie for an individuai to receive damages
from an Itaiian Court based on the Treaty. Even if the Treaty created a legitimate interest
for the individuai, there wouid be no abiiity to daim damages based on that interest. This is
the first point, I shall finish in a few minutes with the second and third points.
CONSULENZA FAZZALARI 299
II. - As shareholders, Raytheon and Machlett could not have. sued under Italian law for actions
taken against « ELSI "·
My second point is that as shareholders, Raytheon and Machlett, could not have sued in
Italian courts under Italian law for actions taken against ELSI.
As is true of other legal systems1 under Italian law a shareholder in a company is not
entitled to act in piace of the · company for protection of the rights ·an d interests of that company.
In support · of · this poìnt, ··I refet the · Court to a .treatise edited by Professar Giuseppe Auletta
entitled Diritto Commerciale (or« Comniereial Law >>), at pp. I04'""I05. This treatise explainsas
does many others ...;:;_ that the company serves as an independént juridical personality, autonomous
and distinct from the shareholders; · From this indisputable principle, Professor Auletta -
as well as all other · scholars - derive several consequences under Italian law. Shareholders
cannot individually decide mat.ters concerning the company. Together, in the organ of the
company called Assemblea, shareholders can undertake inportant decisions regarding the life
of the company, but they do not undertake managerial action. Law sùits against third parties
for acts tha:t harm the company, even though the shareholders' interests are indirectly harmed,
cannot under ltalian law be undertaken by the shareholders themselves.
The autonomy. of. the company . from · its. shareholders . is even more .apparent when the
conipany goes into bankruptcy. At that point, allthe rights of the company are transferred to
the bankruptcy trustee, who is the public officer designateci . by the court, with powers even
more autonomous than those · of the company's. organs.
Therefore; in this case, had Raytheon and Mat:hlett tried to sue in Italian courts claiming
injury to themselves from the requisition and from other actions taken · by the Government
of Italy, there is no question that they would have failed. · Under Italian law it was solely for
ELSI to act against the measures taken by the Italian authorities. When the bankruptcy occurred,
the protection of ELSI's rights transferred to the bankruptcy trustee, but not to the shareholders.
That is why only ELSI could appeal the Mayor's requisition order.
Both the opinion of Mr. Giuseppe Bisconti and Professor Antonio La Pergola- the former
President of the Italian Constìtutional Court - are quite accurate on this point. They both
find that Raytheon and Machlett as shareholders had no remedies to exhaust in local courts.
Further, contrary to the Respondent's statement on p; 216 of the Rejoinder, Professor La
Pergola did not discuss only the diplomatic protection of foreign shareholders in Italian corporatio.
ns. Onpages 7 and 12 of the English translation of bis Opinion, Professor La Pergola
considered the FCN Treaty and determimid that it did not permit Raytheon any recourse to
domestic remedies. ·
The Respondent asserts that Raytheon and Machlett should ha ve sued the Mayor of Palermo
to obtain a criminal conviction, for abuse of power, and then sued for damages based on the
criminal conviction (Rejoinder, p. 2 r 4). The incapability of the shareholders to sue under Italian
law for acts that directly harm ELSI and indirectly ha:rm the sha:reholders, explains why this
assertion is incorrect. Moreover, I must point out that a criminal action against the Mayor
of Palermo is a very serious.step. To succeed, ELSI or the bankruptcy Trustee (or the shareholders
un der the · Repondent's theory) · would heed to prove· that the Mayor of Palermo had a
specific personal intention to inflict daniàges on ELSL 'In • niy opinio:ri it wmìld be impossible
to do this, sin ce on the evidence of · this case an Italian court would find · that the Mayor was
not acting on his own initiative. I must also point out that an unsuccessful attempt to obtain
a criminal conviction would have exposed ELSI managers or the bankruptcy Raytheon and
Machlett to imprisonment under Italian law for « calunnia » or the wrongful assertion of criminal
conduct.
III. - The specific remedy of the appeal to the Prefect precludes other remedies in Italian courts.
I would now like to move on to my third and final point. Even if Raytheon and Machlett
could have successfully .sued as shareholders in Italian courts against the Government of Italy,
300 RASSEGNA DELL'AVVOCATURA DELLO STATO
ELSI's successful suit based on the specific remedy of an appeal to the Prefect eliminates any
other remedies.
There is a fundamental principle of the Italian legai system known as « tipicità della tutela
giudiziaria », which translates into English as « typicality of judicial protection ». Under this
principle where specific remedies are provided for a particular violation, there is no ability to
pursue other more generai remedies. For instance, on the subject of emergency protection for
individuals, Artide 700 of the Italian Code of Civil Procedure provides generic protection in
a situation of emergency, but it does not apply if the individuai already has recourse to a more
specific remedy. I refer the Court to a 1983 Italian book titled Provvedimenti d'urgenza (or
« Emergency Measures ») by Professor Tommaseo which makes this point on pages x8o-x8x.
In our case, Italian law provided a very specific remedy for the unlawful requisition of
ELSI's plant and assets. Under Artide 7 of Law 2248 of 20 March x865 - there are in Italy
very old Italian laws - the Prefect has the power of ordering the requisition. In cases of a
particular and exceptional emergency, the same power is given to the Mayor. But, under
Artide I of Law 996 of 30 November 1950, only the order from the Prefect is definitive, not
the order from the Mayor. Therefore you can appeal the order of the Mayor to the Prefect.
The appeal to the Prefect is the specific and therefore exdusive remedy against the requisition
of ELSI. Since this remedy was successfully pursued, there is no possibility for any other
remedies by anyone else. Further, a successful appeal to the Prefect can only result in the duty
of the requistioning authority to pay the rent for the period of the requisition. This rent could ·
only be paid to ELSI, not to Raytheon and Machlett as shareholders of ELSI.
In condusion, it is dear that the additional remedies in Italian courts proposed by the
Respondent in this case are not in fact possible. Suit could not have been brought on the basis
of the Treaty provisions themselves, because those provisions do not provide with sufficient
specificity subjective rights to be applied in favour of an individuai. Further, the specific
remedy of appealing the requisition order to the Prefect predudes other more generai remedies
for injury caused by the requisition order. Finally the status of shareholders under ltalian law
is such that the rights and the interests at issue in this case could not serve as the basis of a suit
in Italian courts for the acts committed by the Government of Italy.
This condudes my statement on the availability of remedies in Italian courts for Raytheon
and Machlett. Thank you for your so kind attention.
The PRESIDENT: Thank you very much, Professar Fazzalari. If the Italian Delegation
do not object, I will ask the American Delegation to provide the opinion of the Attorney Generai
of Rome mentioned by Professor Fazzalari. If I understood him correctly, I assume that this
is a new document that is not in a publication readily available in the official languages of the
Court. Professor Ferrari Bravo.
Professor FERRARI BRAvo: Mr. President, I did not catch exactly the number and object
of this decision but it seems to me that the decision itself should be considered as important
and its text provided by the American delegation with an appropriate translation. What has
been mentioned is an opinion expressed in the course of the pleadings of the case which, in
itself, is not authoritative in Italian law, the authority coming from the judgment itself. If the
American delegation wants to file the opinion with the Court, it is fine, but as the precedent is
given bythe judgment, as such, also the judgment - which is much more important - should
also be filed.
The PRESIDENT: I understand your position but the problem is not exactly this, the problem
is that the Chamber faces reference to a new document which has not been submitted before.
What I understood from Professor Fazzalari, was that the case had not been decided yet.
In this particular case the problem is that this is a new document; documents have to be submitted
before the oral hearings to the Court and therefore, in the case of a new document,
whatever its nature, I need the agreement of both Parties, otherwise we will have to have a
special hearing on this new document. Therefore, if the Italian delegation objects to the submission
of this opinion of the Attorney Generai of Rome, we will have to hear both Parties
CONSULENZA FAZZALARI 301
on this case. So, the problem is not whether what Professor Ferrari Bravo said is final or not,
the problem is that we are facing here a new document not having been mentioned to the
Court before the hearings. Mr. Matheson.
Mr. MATHESON: Mr. President, w e would be happy to accept the proposal of the Respondent.
W e will provide you with both a copy of the decision and a copy of the brief. Thank you, Sir.
The PRESIDENT: Thank you. There is agreement of all Parties that we will receive this
document in o ne of the official languages of the Court. Thank you very much. W e will meet
tomorrow at IO o'clock.
The Court rose at 13.40 p.m.
20
C 3fCR 89f3
Wednesday 15 February 1989, at 10 a. m.
Mr. MATHESON, Mr. MURPHY, Mr. GARDNER.
The PRESIDENT: Please be seated. Mr. Matheson.
Mr. MATHESON: Thank you, Mr. President. It is our proposal to begin this morning's
session with a presentation on the question of the admissibility of the United States daim.
This will be given by Mr. Sean Murphy, who is an Attorney/Adviser in the Office of International
Claims in the State Department. Foliowing that, we would propose to offer a presentation
on the question of the violations of the FCN Treaty. This will be given by Professor Richard
Gardner, who is Professor of Law and International Organizations at Columbia University,
and who was formerly the United States Ambassador to Italy. Finaliy, if there is time, we
would offer a presentation by Mr. Timothy Ramish on the question of the relief requested by
the United States. Mr. Ramish, of course, is the Deputy Agent for the United States in this
case, and is also the United States Agent to the Iran/United States Claims Tribunal. And so
I would request that you ask Mr. Murphy to begin this morning's session.
The PRESIDENT: I cali upon Mr. Murphy.
Mr. MuRPHY: Mr. President, distinguished Members of the Court. It is with great
honour that I appear before this Court on behalf of the United States.
] urisdiction.
Mr. President, the jurisdiction of this Court is based on Artide 36, para. I, of this
Court's Statute, which provides the Court jurisdiction over ali matters specialiy provided for
in treaties and conventions in force. Artide I of the 1948 FCN Treaty between the United
States and Italy states that disputes as to the interpretation or the application of the Treaty
which are not satisfactorily adjusted by diplomacy shall be submitted to the Court. Unfortunately,
over a period of years our two governments were unable to resolve this dispute through
diplomatic means. Therefore, by application of 6 February 1987 the United States submitted
this dispute to the Court. In its Counter-Memorial, on p. 98, the Respondent accepted the
Court's jurisdiction.
Admissibility.
In the Counter-Memorial p. 99, the Respondent contends that the daim in this
case is inadmissible before the Court because local Italian remedies aliegedly were not exhausted
by Raytheon and Machlett. This objection is entirely unsubstantiated and should be dismissed
by the Court. Yesterday Professor Fazzalari indicated why, under Italian law, no further legai
remedies exist. Today I will discuss this issue in relation to the interpretation or application
of the FCN Treaty and international law generaliy.
As a matter of background to this issue, I would like to draw attention to the fact that the
Respondent's objection was joined to the proceedings on the merits of the Applicant's daim in
accordance with Artide 79, para. 8, of the Rules of Court. In letters sent to the Court
dated 16 November 1987, the Parties agreed that the Respondent's objection - which was
raised in the Counter-Memorial - should be heard and determined within the framework
of the merits. In its Order of 17 November 1988 the Court noted the Parties' agreement.
Although the United States was able to respond to the objection in its Reply, the Respondent
continued in its written comments on the objection - and indeed further developed the objection
- in its Rejoinder, thus preventing the Applicant from fuliy responding to the objection
in the written pleadings. Therefore the United States is compelied to address the preliminary
ARRINGA MURPHY 303
objection at this stage in the proceedings, including the additional contentions advanced by the
Respondent in the Rejoinder.
The Respondent states in the Rejoinder that the United States has accepted ltaly's position
that the local remedies rule applies to a daim made under a treaty (Rejoinder, p. 213). In fact,
the United States has not accepted thls. position. In this case the United States seeks two types
of relief: ·f irst, ·•. a dedaration by ·t hls Court that the Respondent · has viòlated the Treaty ·o f
Friendship; Conunerce and Navigation bet'ween the United States and ltaly and, second, reparation
fòr the damages arising out of those violations.
Wìth respect to the fust type of relief there is dearly no réquirement in internationai law
that a State niust exhaust local retnedies before it can seek to vindicate its own rights through
declaratory · reiief; As Professor Meron states in his seminai artide:
« (l)f the dipiomatic negotiations between the two States prove unsuccessful, and
State B applies to the lnternational Court of Justice compiaining of a breach of certain
treaty obiigations by State A (as shown by its conduct towards the injuried alien) and
asking principally for a dedaratory judgment based on the interpretation of the treaty,
this wouid appear to be a. case• of direct injury to • which the ruie of local remedies wouid
not •. be applicab1e » (Mlla.ON., « The lncidence of the Ruie of the Exhaustion of Locai
Remedies », 35 BYIL, lh, 85 [l959]).
At a minimum, therefore, the United States daim for a dedaration by this Court that the
Respondent has violated the FCN Treaty shouid not .be dismissed on the basis of the Iocal
remedies rule.
With respect to the second type .of relief sought by the United States, historically there
has been some controversy over whether ·the locai remedies rule applies to a daim for compensation
by a State on behalf of a national when the daim is based on a treaty vioiation. In the
case of this particuiar treaty, there is no reason to believe thatthe parties intended such a ruie
to appiy. The 1948 Economie Cooperation Treaty between the United States and ltaiy -
which was negotiated at the same time as the FCN Treaty at issue in this case - expressiy
includes the Iocal remedies rule in Artide X (20 UNTS 43; 9 Bevans 306, TIAS 1789). In the
FCN Treaty there is no express inclusion of the local remedies rule. Instead, under Artide
XXVI of the Treaty, both parties agreed that disputes between the parties as to the interpretation
or the appiication of the treaty not satisfactorily adjusted by dipiomacy shall be submitted to
the Court,
l t is well known that there are some situations where the local remedies rule does not apply.
For instance, the Respondent itseif argued in the Phosphates in Morocco ca$e that the rule does
not apply where. the Respondent government .has committed an illegal act at the beginning
of the underlying dispute, or where there is a collaboration of different government branches in
perpetration .of a wrong, such that the governmental character of the act would lead one to
believe that the internai judicial process would not provide the desired redress (PCI], Series C,
N •. 84, pp. 443, .447-48). In this .case,.the initial.requisition of the Respondent was determined
by its own courts to be illegal and the subsequent acts of various government entities resulted
in the appropriation of ELSI's plant and aslilets by the Respondent,
In any event, the United States has not argued .extensively the theoretical underpinnings
of the local remedies rule in this regard, because we believe, whether or not the local remedies
rule is applicable in this case, that .the rule is dearly and demonstrably satililfied, and there is
no need to debate the exact scope of its application.
The Respondent devotes considerable space in its written pleadinglil to proving the exililtence
of the Iocal remedies rule. The United States, however, has never contested the existence of the
rule. Commentators and courts have propounded various procedura! and substantive reasons
for the local remedies rule. Thls Court has stated that the rule ensures that a respondent State
will have the opportunity to redress the alleged injury within the framework of its legai system.
lnterhandel case (IC] Reports 1959, p. 27). Further, the rule helps to clarify the facts and
applicable domestic law prior to the consideration of a daim by an international tribunal. The
304 RASSEGNA DELL'AVVOCATURA DELLO STATO
rule helps to avoid excessive recourse to international adjudication. The rule helps determine
the existence of an internationally wrongful act.
Now there are three reasons why the local remedies rule is satisfied in this case. First,
Raytheon and Machlett exhausted all available and known remedies in Italian courts, on the
basis of the best legai advice available to Raytheon and Machlett from Italian counsel. Second,
the Respondent's failure to indicate to the United States throughout a period of almost I4 years
of diplomatic correspondence that the Respondent believed further local remedies existed and
should be pursued, estops or precludes the Respondent from raising such an objection at this
time. Third, it is the Respondent who must establish that further local remedies exist, but
it cannot do so since the further remedies identified by the Respondent are not in fact available
to Raytheon and Machlett. I will discuss the first two of these points. Yesterday you heard
Professor Fazzalari address the third point in depth and therefore I will only cover it briefly.
Local remedies were exhausted.
All effective local remedies in Italy capable of rectifying the injury caused by the Respondent
were pursued and therefore the local remedies rule, if applicable, is satisfied. As I go through
the steps that were taken in Italy, I remind the Court - as the Respondent does on p. 99
of its Counter-Memorial- that for purposes of considering this issue the Court should consider
as correct the facts as stated by the Applicant.
The requisition of ELSI by the Mayor of Palermo occurred o n I Aprii I 968. A t the direction
of Raytheon, ELSI immediately sent cables to the Mayor and other Italian legai authorities
seeking a revocation of the order (Memorial, Annex 26, para. 9). No response was received.
On 9 Aprii ELSI formally petitioned the Mayor to lift the order, arguing that the requisition
was illegal and would only delay the solution of the problem (Memorial, Annex 26, para. 9).
Again there was no response. Consequently, on I9 Aprii I968, ELSI appealed the requisition
to the Prefect of Palermo, an official of the Italian Government empowered to hear appeals
of decisions by local governmental officials (Memoria!, p. 13, and Annex 36).
As we have already indicated, when the Prefect failed to act, there was little choice but
to place ELSI in bankruptcy. Raytheon and Machlett then pursued administrative and judicial
remedies through their representative on the creditors' committee and through the bankruptcy
trustee. Raytheon and Machlett directed their representative on the creditors' committee
to appeal decisions of the bankruptcy judge, such as the decisions to lease the plant to EL TEL
and to sell the plant, equipment, and supplies to ELTEL (Memorial, p. 16). These appeals were
undertaken but were uniformly unsuccessful.
Only after EL TEL completed its acquisition of ELSI's assets did the Prefect of Palermo
reach his decision on the appeal of the requisition order (Memoria!, p. 2 I). The decision was
rendered I6 months after the appeal was filed and yet 40 days after EL TEL had completed
its acquisition of ELSI's assets. The Prefect found that the requisition was illegal, ruling that
it could not possibly have achieved its stated purposes. Specifically the Prefect ruled that :
« the order is destitute of any juridical cause which may justify it or make i t enforceable " (Memoria!,
Annex 76, p. I I).
The Mayor appealed the Prefect's Order to the Italian Council of State and the President
of Italy. His appeal was dismissed on the ground that he lacked standing to appeal a decision
of the Prefect, his administrative superior (Memorial, Annexes 77 and 78). The Prefect's ruling
therefore stands as the final decision of Italian authorities that the requisition was unlawful.
The Prefect's delay in ruling on ELSI's appeal of the requisition was apparently unprecedented.
As was mentioned in our discussion of the facts, in other cases in which the I86s law
had been invoked as a basis for requisition of industriai plants, the Prefect of the relevant
jurisdiction quickly quashed the requisitions (Memorial, Annex 26, para. Io).
Based on the Prefect's decision, the trustee brought suit on behalf of ELSI's bankrupt
estate on I6 June I970 in the Court of Palermo against the Minister of the Interior of Italy
and the Mayor of Palermo for damages to ELSI resulting from the illegal requisition (Memorial,
Annex 78). The Trustee sought damages of 2.395 billion lire plus interest for the decrease in value
ARRINGA MURPHY 305
of ELSI's plant and electronic equipment during the requisition, and for ELSI's inability to
dispose of the plant and equipment during the requisition period (Memoria!, Annex 79).
On 2 February 1973, the Court of Palermo ruled that the Trustee was not entitled to compensation
for the requisition (Memorial, Annex So). On appeal, the Court of Appeals of Palermo
found on 24 January 1974 that the Trustee was entitled to at least compensation from the
Minister of the Interior for loss of use and possession of ELSI's plant and assets during the
six-month requisition period. l t therefote awarded, in effect, a « rental >> payment of some I 14
million lire (US$t7t,ooo), computed as half the annual rate of five per cent of the total value
of the assets (Memoria!, Annex So). This decision was upheld on appeal by the Italian Supreme
Court on 26 Aprii 1975 (Memoria!, Annex S2). The amount of the judgment was received by
the trustee and, less costs and expenses, distributed to ELSI's creditors (Memorial, Annex z6).
This decision, by the highest court in Italy, stands as the ultimate Italian judicial determination
regarding the compensation due by the Respondent for its acts against ELSI.
When the bankruptcy trustee initially lost his suit in 1969 for compenntion on the b1sis
of the unlawful requisition before the Court of Palermo, Raytheon and Machlett considered
whether they themselves, as shareholders of ELSI, could successfully sue the Respondent in
Italian courts. Consequently, while the trustee was pursuing appeals of the lower court's
decision, Raytheon sought the opinion of its Italian counsel, Giuseppe Bisconti, an eminent
lawyer experienced in ltiilian litigation.
Mr. Bisconti's opinion, rendered in a letter dated 6 November 1971, states that the sole
remedy under Italian law fot appealing the requisition order was an appeal to the Prefect,
which could be taken only by ELSI, and once ELSI was bankrupt, by the trustee. The
shareholders could not take advantage of this remedy. Further, once the Prefect declared the
requisition illegal, only the trustee- not ELSI or its shareholders- was capable of bringing
suit against the Respondent for compensation.
Mr. Bisconti specifically considered suit based on Artide 2043 of the Italian Civil Code
and concluded that since under ltalian law the requisition was directed against ELSI and not
the shareholders, no remedy existed other than suit by the trustee. Mr. Bisconti concluded
that Raytheon and Machlett had exhausted ali available local remedies.
Y et Raytheon an d Machlett wanted to be absolutely sure that no further remedies were
available. Therefore Raytheon also sought the opinion of an esteemed Italian professor of law,
Professor Antonio La Pergola, then professor of Law at the University of Bologna and subsequently
President of the Italian Constitutional Court. He engaged in an extensive review
of both Italian law and international law. In a lengthy written Opinion, Professor La Pergola
agreed that the bankruptcy status of ELSI prevented any further actions by either ELSI or
the shareholders. He asserted that the actions of the Respondent constituted a violation of the
FCN Treaty and that an international claim could be brought without further pursuit of local
remedies. The Respondent inaccurately asserts that professor La Pergola's Opinion only discusses
the diplomatic protection of foreign shareholders in Italian corporations. In fact, professor
La Pergola accepts the admissibility of an international claim after having established and
explained that the FCN Treaty did not provide Raytheon recourse to any domestic Italian
remedy.
The Respondent itself first entered into evidence the Bisconti and La Pergola opinions
without any objection as to their contents. The two opinions appear attached to the CounterMemorial
at page 159 of Volume I of the Unnumbered Documents. They are also Annexes
3 and 4 to the Reply. Only in the Rejoinder does the Respondent object to the conclusions
found in these two opinions.
These two opinions persuaded Raytheon and Machlett that their only further recourse
was to ask for the assistance of the United States government in an effort to settle this matter.
I would like to emphasize that in this case the United States waited ·a considerable amount of
time for internai remedies to be pursued before taking up this claim and making appropriate
representations to the Italian Ministry of Foreign Affairs. This is not a case where once the
injury occurred the interested government immediately sought a government-to-government
solution without any regard to the existence of local remedies.
306 RASSEGNA DELL'AVVOCATURA DELLO STATO
Through all of these actions, the local remedies rule is satisfied. The Respondent, through
resort to its highest courts, was provided the opportunity to redress its unlawful acts within
the framework of its own legal system. Rather than provide such redress, the Respondent
definitively indicated that it did not intend to provide further compensation to Raytheon and
Machlett. Raytheon and Machlett made every reasonable effort to stop or to overturn the actions
of the Respondent through the legal mechanisms made available in Italian courts to shareholders.
To be. sure that further remedies were not available, the opinion of Raytheon's regular ltalian
counsel and, in addition, the opinion of another I talian legai expert, were obtained. A complete
record is now before this Court, since the Italian courts have passed upon the facts underlying
this case. The internationally wrongful acts of the Respondent arising from the breach of its
international treaty obligations are complete. Therefore the objection should be dismissed.
The Respondent is estopped from making this objection.
The second point on this issue is that the Respondent is estopped or precluded from raising
the exhaustion of local remedies at this time. Throughout the diplomatic negotiations about
this claim, the Respondent never stated that Raytheon and Machlett, as shareholders of the
bankrupt ELSI, should pursue further remedies in Italian courts. Even after the United States
had explicitly asserted that all remedies had been exhausted, the Respondent manifested no
disagreement.
On 7 February I974 the United States sent Diplomatic Note N. SI to the Respondent.
This Diplomatic Note appears as the first few pages of Volume 3 of the Counter-Memorial,
which is also Volume I of the Respondent's Unnumbered Documents. In this Diplomatic Note,
the United States advanced a claim which it said was:
« based upon illegal actions and interferences by Italian authorities contrary to treaty
provisions, Italian law, and internationallaw which precluded an orderly liquidation under
the laws of ltaly of ELSI S.p.A., a wholly-owned Italian subsidiary of Raytheon Company
and Machlett Laboratories, located in Palermo, Sicily » (Unnumbered Documents, p. 3).
The seventh paragraph of this Note states that:
« It is clear from the legal opinions submitted with the claim that the appeal taken
to the Prefect of Palermo was the only legal remedy available to Raytheon Company and
Machlett Laboratories Incorporated to obtain redress "·
The legal opinions referred to in the Diplomatic Note were the legal opinions of Mr. Giuseppe
Bisconti and Mr. Antonio La Pergola, to which I referred earlier. Their opinions were a part
of the several volumes of materials sent to the Respondent to support the claim, which the
Respondent has introduced as Volumes 3 through 5 of its Counter-Memorial. As you know,
both these opinions extensively considered the ability of Raytheon and Machlett to pursue
further remedies in Italian courts, and concluded that they had exhausted every remedy that
was available to them.
What was the Respondent's reply to this extensively documented claim? For four years -
four years- the Respondent failed to provide any written response to the claim. The United
States made numerous demarches during this period and raised the matter in discussions both
at the ambassadorial and staff levels, but the Respondent failed to provide any substantive
response. Finally, at a meeting on I3 June I978 an offi.cial of the Italian Ministry of Foreign
Affairs orally rejected the United States claim and stated that a written response would be
provided. An undated Aide-Mémoire was delivered to the United States Embassy on 3 August
I978, and has since been treated as the Italian Aide-Mémoire of I3 June I978.
This was the first written communication from the Foreign Ministry to the United States
in this case. In it the Respondent rejected the claim by stating that there was no damage to the
shareholders. The Respondent, however, never- and I repeat never- questioned the United
States unequivocal statement that the appeal to the Prefect was the only legal remedy available
to Raytheon and Machlett. The Respondent simply stated in paragraph I that « The facts may
be assumed as they have been expounded by the claimant >> and in paragraph 3 that the claim
ARRINGA MURPHY 307
was groundless because << the records show that the order of seizure, even though unlawful,
did not cause damage to the shareholders >>. I must stress that absolutely no mention was made
by the Respondent that additiomù local remedies were available to Raytheon and Machlett
that they should pursue, despite the United States clear presentation of a claim based on the
unavaìlability of further local remedies.
In none of the further letters and diplomatic notes between the Parties, right up until 1986
when the Parties reached agre~ment that the United States would institute these proceedings
and submit this dispute to the Court, did the Respondent ever state that it believed that Raytheon
and Machlett had failed to exhaust local remedies. In reply to the Respondent's AideMémoire,
the United States sent another Diplomatic Note, N. 194 of 18 Aprii 1979. In this
Note it is obvious that the United States sought to address ali of the points made by the Italian
Aide-Mémoire, which had restricted itself to the validity of the claim under Italian law.
When no response was received, the United States · sent a letter dated 6 December 1979
from our Ambassador to the Respondent's Ministry of Foreign Affairs. At this point efforts
were made by the United States to piace the dispute before three international experts who
would make a recommendation.
The Respondent, by letter of 18 Aprii 1980, rejected this proposal on the basis that payment
of compensation to ELSI was not justified under the law. Again, I must stress that the Respondent
did not reject this effort at conciliation on the basis that Raytheon and Machlett had failed
to exhaust local remedies. Mr. President, the 1978 Italian Aide-Mémoire, the 1979 US
Diplomatic Note and letter, and the 1980 Italian letter were ali filed with the Court under cover
of our letter of 20 January 1989.
Further communications between the two governments related to finding an acceptable
dispute settlement mechanism, which was achieved in 1986 when the Parties agreed that the
United States should bring this case before the Court. I refer the Court to the statement issued
by the United States on 7 October 1985 which reads as foliows:
« The two governments have come to the conclusion that they are unable to resolve
the diplomatic claim of the United States on behalf of Raytheon Company and Machlett
Laboratories, Inc., through diplomatic negotiation or binding arbitration. Therefore, the
United States, in conformity with the US-Italian Treaty of Friendship, Commerce and
Navigation of 1948 has determined to approach the International Court of Justice (ICJ)
with a view to submitting that dispute to a special chamber as provided by the Court's
Statute and Rules of Procedure, subject to mutualiy satisfactory resolution of implementing
arrangements. Italy concurs in the opinion that this is an appropriate course of action »
(Department of State Bulletin, January 1986, at p. 69).
The Respondent also asks in footnote s of p. 213 of the Rejoinder whether a State is
under an obligation to recommend legai action against itself. The answer to that question, in
the context of the facts of this case, is surely yes. When one government says to another government
that local remedies have been exhausted, the second government should state that further
local remedies do exist if that is what it realiy thinks.
The Respondent's failure to indicate to the United States that it believed such local remedies
existed, precludes or estops the Respondent from raising such an objection now. Estoppela
concept which goes by many names - is a generai principle of internationallaw often referred
to by the maxim nemo potest contrafacta sua venire (no one can contradict his own acts). Judge
Lauterpacht defined estoppel in his treatise on The Development oj International Law by the
lnternational Court (1962), at page 72, « as a generai principle of law which, once more, is merely
an affirmation of the moral duty to act in good faith ».
The principle of preclusion or estoppel is that a State party to an international litigation
is bound by its previous acts or attitude when they are in contradiction to its claims in the litigation.
The primary foundation of this principle is the good faith that must prevail in international
relations, since inconsistency of conduct or opinion on the part of a State to the prejudice
of another is incompatible with good faith, I refer the Court to the case concerning the Temple
of Preah Vihear, IC] Reports 196z, pp. 39 and 42, and judge Alfaro's concurring opinion.
308 RASSEGNA DELL'AVVOCATURA DELLO STATO
I would also bring to the Court's attention the Commentary in the 1966 International Law
Commission Yearbook, Volume II, page 239 applying this principle to treaty relations.
The Respondent has not demonstrated good faith in its diplomatic negotiations with the
United States regarding this claim. When the United States asserted that local remedies had
been exhausted, the Respondent simply replied, after a four-year delay, that it considered the
claim to be juridically groundless from the internai point of view. When the United States
challenged this view, once again the Respondent simply stated that there was no legai basis for
paying compensation. Our two governments then spent years discussing the possibility of
settling this dispute through the instrumentality of a third party. Finally, once the Parties
agreed that the United States should bring this claim to the Court for adjudication, then, and
only then, did the Respondent raise in its written pleading the argument that the United States
application is inadmissible in that Raytheon and. Machlett had not exhausted local remedies.
Good faith would seem to require that the Respondent should have objected where, in all
likelihood, its silence gave the appearance of consent (MacGibbon, « Estoppel in International
Law "• 7 ICLQ, 468 [1958]).
In a series of cases, this Court has consistently recognized the principle of estoppel or
preclusion as a principle which prevents one State from acting inconsistently to the detriment
of another. Indeed, in the Award Made by the King of Spain on 23 December 1906 case, this
Court held that Nicaragua, in part due to its informed and deliberate conduct in rdation to the
arbitration proceedings, was precluded from contesting the validity of the Award, which was
therefore valid and binding upon Nicaragua. The Court stated:
« In the judgment of the Court, Nicaragua, by express declaration and by conduct,
recognized the A ward as vali d and i t is no longer open to Nicaragua to go back upon that
recognition and to challenge the validity of the Award. Nicaragua's failure to raise any
question with regard to the validity of the Award for several years after the full terms of
the Award had become known to it further confirms the conclusion at which the Court
has arrived » (Case concerning the Arbitra[ Award Made by the King of Spain on 23 December
I9o6, IC] Reports I96o, pp. 192 and 213).
This Court also applied the doctrine in the Fisheries case when the United Kingdom
objected to Norway's delimitation of its North Sea coastline. The Court fìrst established the
existence and elements of the Norwegian delimitation system and found « that this system was
consistently applied by Norwegian authorities and that it encountered no opposition on the
part of other States » (Fisheries case, IC] Reports I95I, pp. n6 and 136-137). Further, while
Great Britain was cognizant of the system, it made no objections. The Court noted that « in
respect of a situation which could only be strengthened with the passage of time, the United
Kingdom Government refrained from formulating reservations » (ibid. p. 139). Therefore,
the Court stated:
« The notoriety of the facts, the generai toleration of the international community,
Great Britain's position in the North Sea, her own interest in the question, and her prolonged
abstention would in any case warrant Norway's enforcement of her system against
the United Kingdom » (Ibid.).
More recently, in the case concerning the Temple of Preah Vihear (IC] Reports I96z,
p. 39), this Court found that Thailand's inconsistent actions over a period of fifty years precluded
its claim that it had not accepted a map placing the tempie in question in Cambodian territory.
In his concurring opinion, judge Alfaro described at length the basis for the Court's decision.
He wrote:
« The acts or attitude of a State previous to and in relation with rights in dispute with
another State may take the form of an express written agreement, declaration, representation
or recognition, or else that of a conduct which implies consent to or agreement with
a determined factual or juridical situation.
A State may also be bound by a passive or negative attitude in respect of rights asserted
by another State, which the former State, later on, claims to have. Passiveness in front of
ARRINGA: MURPHY. 309
given facts is the rnost generai form of acquiescence or tacit consent. Failure of a State
to assert its right when that right is openly challenged by another State can only mean
abandonment to that right. Silence by a State ip. the presence of facts contrary or prejudicial
to righ,ts later on claimed by it before aninterp.atio:rtal tribunal can only be irtterpreted as
.·taci t recognition give» prior to, the.Jitigation,. ·• This .• irtterpretation obtaip.s e!)pecially in the
... ça~;e .of a contractl.lal relatiC>:rt~;hip <lir:~ctly and excl\isively ~ifecting t:wo States. :Failure to
prote11.t. in cirçuinstances . when prqtest is. necessacy accordip.g to. tbe •· generai practice of
•• States m or<:ler to .a!lsert, to P!CeServe .or to safeguard a. dght doeslikew~se sigl:lify acquiescence
or taci t recognition: the State concemed must be held. barred frotn claiming before an
international tribuna! the rights itfailed to assert 0r to preserve wht)lJ, they were openly
challenged by word or deed i> (Case concerri.ing the Temj}le of Preiih 1/ihear, !C] Reports
zg62, pp. 39.;..40 fjudge Alfaro concurri»g]).
Judge Alfaro also noted that inconsistency in conduct is especially inadmissible when the
dispute arises. from bilatera! treaty relations (ibid. p~ 42).
'\VÌlile these case$ cover wiclely diff'erirtg facts, there are certain common threads running
throu~h them. First, the act or conduct giving rise to the J?reclusion or estoppel can tàke tnany
f~rrns; i t lllay •.• c('lnsist o( a represeritation,. ·a. declara1:ion, . or •. evert · silence. · Second, the. a~t must
be de!lf art d uij.am.bigiious. .• Tliird; • the . act niust be . voh.lntary, uncondition!!l. an d at.tthorized.
Let · n:ie. now i:un through these threads. as they apply t•o. this case. First, what was the act ?
In respop.se to the United States presentai:ion of ìts claim, the Respondent remained silent for
four ye.ars and then declared that the claim>failedessentially because of the shareholdei status
of Raytheon and Machlett. Even though thti l.J nited. States speéifically stated that local remedies
were COJ:llpleted, the Respondentmade ij.o e:ffott to challenge or to contradict this statement.
Indeed, it even accepted it wherithe Responde:ilt .sta:ted thatkthe facts may be assumed as they
have been.propounded by the daimant », When the l.Jnited States followed this up and pressed
its claim futther. the Respondent agal.n simply de:rtiecl that there was a legai basis for the. claim.
Second, this .~et was. clear an cl unan:ibigùdus. The diploma tic record in this case shows exactly
whanhe Resp~nd~ht said and did not say. Third, the Respondent acted without any external
c'oerci<1n to behav~ as it did~ .. ·.·.. . .. .. ·.. . ...... ·.. • . .· ..
. . · · There • àre other grounds ori. whiCh the Resporident can be held accountable for its conduct,
which i:eiate to the principle ofgood faith in intemational relations, especially in the interaction
and iri theperfhrm.ance of treaty obligations. In the Nuclear Tests cases the Court found that
France1s unilatetai statements had a binding character and stated that binding unilateral decisions
made <i the State .. . thenceforth legally required to follow a course of coriduct consistent with
t;he decltitation » (Nuclear Tests cas~s (Australia 1.J. France), IC] Reports I974, pp. 253, 267). The
Court also stated « a State may choose to take up a certairi position in relation to a particular
matter withthe iri.tentiori. of being boiirtd ....;.;..the irttentìonis to·be ascertained by interpretation
of the act » (ibid.). The Respondent's statements · and · actions over the past 14 years certainly
Wll.rtant a teasonable interpretation that it iritended tO be bound by the results of the diplomatic
riegotiations that brought our · govemmertts before this Court.
The Respondent's assertion thlit the United States claim is j\lridically groundless may also
be consttu:ed as an adfuissiori that loéal remedies have beeri exhausted. Professor Cheri.g writes:
« [A]n ad~nission dops not peremptorily. pr.eclt.tde a party from averring the truth.
It has rather the e:ffect of an argumentum ad hominem, which is directed at a person's sense
of consistency, or what irt logic is paradoxically called the ' principle of contradiction' »
(CHENG, General Principles of Law as Applied by International Courts and Tribunals, pp. 142,
144-149 (1953); see also LAUTERPACHT, Private Law Sources and Analogies of lnternational
Law, pp. 267:-269, 277-279 [1927]).
Additional remedies identified by the Respondent are unavailable.
Having discussed first that lociù remedies were exhausted and, second, that the Respondent
is precluded from asserting otherwise, I now reach my .third point: whether further remedies
310 RASSEGNA DELL'AVVOCATURA DELLO STATO
identified by the Respondent as available in Italian courts to Raytheon and Machlett in fact
existed.
It is the Respondent that has asserted procedurally that the claim is not admissible because
local remedies were not exhausted. It is for the Respondent therefore to show that additional
effective remedies were available to Raytheon and Machlett, especially given the many steps
taken by Raytheon and Machlett and the judicial decisions within the Italian legal system (FAwCETT,
« The Exhaustion of Local Remedies: Substance or Procedure? », 3 I B YIL, p. 452 (1954).
As was stated in the Ambatielos Arbitration - a decision which the Respondent has repeatedly
cited in its written pleadings -
« In order to contend successfully that the international proceedings are inadmissible,
the defendant State must prove the existence, in its system of internai law, of remedies
which have not been used » (Ambatielos Arbitration Award, 12 RIAA, p. II9 (Award of
6 March 1956), p. 27.
Although the Respondent attempts to conjure up additional hypothetical remedies, there
can be little doubt that such remedies either were not available to Raytheon and Machlett or
that they would not have provided the remedies sought in this case. For instance, the remedies
identified by the Respondent in footnote 15 of the Rejoinder are not remedies that would vindicate
the shareholder rights or interests at issue in this case. As was stressed in the Finnish Ships
Arbitration (2 RIAA, p. 1479 [1934]), the local remedies rule applies only to available effective
remedies.
The Respondent's objection as to admissibility is based in part on its position that US
nationals can sue in ltalian courts based on the provisions of the FCN Treaty. This position
is inconsistent with the Respondent's position when US nationals in fact do sue in Italian courts
based on the FCN Treaty. Professar Fazzalari discussed how the Respondent argued in the
Talenti case before the Court of Rome that the Treaty's provisions do not confer rights on US
nationals any greater than those already existing under Italian law. Yet before this Court, the
Respondent states that such remedies, or such rights, do exist (As requested, Mr. President,
copies of the Respondent's final brief in the Court of Rome case, as was the ultimate decision
of the court, have no w been provided both to the Registry an d to the Respondent. W e h ave
also provided a certified English translation of the quoted part of the final brief, and provided
an English translation of the Court's decision which we will have certified as soon as possible).
The ultimate decisi o n of the Court in the Talenti case was that the plaintiff had no t specified
suffi.ciently in his pleadings the unlawful acts of the Government of Italy. The important point,
however, is that the Respondent took the position before its own local court that the Treaty
provides no greater rights or remedies in Italian law than already existed. The United States
would like US nationals to be able to sue in Italian courts to vindicate rights under the FCN
Treaty, but in this case Raytheon and Machlett reasonably relied on the advice of distinguished
Italian counsel, based on the consistent practice of Italian courts, that suits in Italian courts
were not possible. This advice is apparently consistent with the Respondent's own pleadings
in ltalian courts.
Professar Fazzalari also discussed in some detail how Italian courts have treated suits based
on treaties in generai and on this FCN Treaty. Further Professar Fazzalari showed why other
remedies alleged by the Respondent were not available to Raytheon and Machlett. Both the
status of Raytheon and Machlett as shareholders and the successful pursuit by the bankruptcy
trustee of the specific remedy available for the unlawful requisition precludes any further
remedies.
For all these reasons, the United States requests the Court to dismiss the Respondent's
objection as to the admissibility of the claim. This concludes my remarks. Thank you very
much for your attention.
Mr. PRESIDENT: Thank you Mr. Murphy. I call upon Professar Gardner.
Professar GARDNER: Mr. President, distinguished Members of the Court, my presentation
will demonstrate how the Respondent's actions in this case constitute violations of several
ARRINGA GARDNER 311
provisions of the 1948 Treaty of Friendship, Commerce and Navigation between the United
States and Itaiy (the « Treaty ll), and aiso its Protocoi and Suppiement. lwill begin with a
very brief description of the general purpose of the post World War II commerciai treaties
negotiated by the United States - commoniy known as « FCN treaties )) - which encourage
and protect foreign investment on a mutuai basis. I will then turn to a detailed discussion of the
specific provisions of.the ·1948 Treaty,· Protocoi, .and Supplement vioiated by the Respondent.
Post World War ll FCN ireaties.
'I'hroughoÙt the history of the United States, commerciai treaties have piayed a significant
role. in the conduct of our foreign reiations. . The commerciai treaties . that characterized the
first xoo year~ of the Ametican Republic dealt primarily with navigation and customs, with
tbe tights · of • ilidividuais traveliing ·• abroad,. arid with · diplomatic and consular telations.
ln the period following the Second World War; the United States negotiated FCN treaties
with x6 countries, includilig the Repu:blic of China, Denmark, the Federai Republìc of Germany,
Iran, Ireland, Japan, the Netherlands, and - of course - Italy. This post-war period was
notable as a ti.me for the encouragement and protection of US investment interests abroad.
The reason is obvious: the United States emerged after the war as the pririlary source of
investment •. capital at a time.when economie development around the world .was badly needed.
Conditions over the 4o-rear Period since the end of World War II have changed significantly
and the treaties anticipated that change. Accordingly, reciproca! protections were granted for
foreign investme11t.in the United States.. So when I speak ofpl,'otection for US natio11als and
corporatlons in Italy, by and Iarge, the same protections are granted to Italian nationals and
corporations in the Up,ited States~
Therefore the priniary · object · of these new FCN treaties was to improve and strengthen
the protection of foreign investment. Previous provisions relating to commerce and navigation
were retained, but a new. emphasis was placed on the establishrilent and protection of business es.
Since international investment in . modern times is predominantly by corporate rather than
individuai enterprise, the new FCN treaties devised ways of providing adequately for the
protection <>f compllllies, not oniyofìndividuais. In fact,.as judge Sofaer mentìoned on Monday,
for the first time many of these protectiotis were extended not · just to the operatìons of the
conipanies themseives in the foreign country, but aiso to the operations of their subsidiaries
chartered under the laws of the foreign country.
Severai new eiements in these treatìes show that they sought to protect the investment of
capitai. A provision was deveioped xequìring that expropriations, shouid they occur, be impiemented
in a non-discriminatory man:ner. The usuai provisions regarding protection and security
ofproperty were giveti more definite content by ampiifying the concept of << just compensation )),
To protect against itijuriot1s governmentai harassment short of expropriation, a generai injunction
against « unreasonabie or discriminatory >> impairment of interests was developed. The generai
protection with respect to engaging in business activities was expanded to cover the right to
organize, control, and manage 9orporations created or acquired. The provisions of these FCNs
differ, but they ali essentially provide protections for acquiring or establishing business enterprises,
for operating those enterprises, and for receiving appropriate compensation when those
enterprises are interfered with òr taken without due process of Iaw.
These treaties contain other provisions not directly reiated to investment, but ali the provisions
in these treaties are concerned with hospitality to and equality for the foreigner under
the law. As was stated by Herman Walker Jr., the United States representative [from the
Office of the Assistant Secretary of State for Economie Affairs] who negotiated severai of those
treaties:
« In a reai sense, therefore, the FCN treaty as a whole is an investment treaty; not a
mosaic which mereiy contains discrete investment segments. It regards and treats investment
as a process inextricabiy woven into the fabric of human affairs generally; and its
premise is that investment is inadequateiy dealt with uniess set in the totai ' climate ' in
which it is to exist ... >>.
312 RASSEGNA DELL'AVVOCATURA DELLO STATO
Now one significant element of these FCN treaties is the attention given to the standard
of treatment foreign nationals and corporations should receive. The standard of treatment is
not uniform for the Treaty as a whole. Rather, the standard of treatment varies for each artide
of the Treaty, and may even vary within the provisions of a particular artide.
Many provisions contain a « national treatment » standard which calls for equality of treatment
as between the alien and the citizen of the country. The national treatment standard
allows an investor to carry on its chosen business under conditions of non-discrimination,
and to enjoy the same legai opportunity to succeed and prosper as is allowed investors of the
country.
Other provisions establish a « most-favoured-nation » standard of treatment which aims
to achieve for the investor equa! treatment with aliens of a different nationality. Stili other
provisions simply express a « non-contingent >> standard, or « absolute » rules, which are selfcontained
standards that do not vary based on the treatment of others. Some make reference
to international law as the point of reference. Finally, some provisions provide for reciprocity
oftreatment; the investor is entitled to the same treatment in the foreign country as that country's
nationals receive in the investor's country.
The United States-Italy FCN Treaty generally.
Let me now turn to the background of the particular FCN Treaty at issue in this dispute.
The United States and Italy first entered into a Treaty of Commerce and Navigation in
1871, which was amended in 1913. This Treaty focused primarily on navigation and on the
rights of nationals, and was terminated in 1937 pursuant to a protocol of denunciation signed
at Rome on 15 December 1936. Commerciai relations between Italy and the United States
during the war era were governed by an exchange of notes of 16 December 1937. These notes
were not renewed after the end of World War II.
Hence, the United States and Italy found themselves in the aftermath of World War II
without any agreed instrument generally governing their commerciai relations.
This prompted the United States and Italy to set about negotiating a comprehensive legai
framework for the development of business and trade relations between the two countries.
After severa! negotiating sessions in 1947, the United States and Italy agreed to the text of a
treaty, and then, by the time the treaty was signed, to two protocols. The first protocol modifies
certain treaty provisions and the second expands some of the provisions of the treaty with respect
to foreign exchange.
The Treaty and Protocols, along with an exchange of notes, were signed by the Parties
on 2 February 1948. After ratifìcation by both Parties, the Treaty and Protocols entered into
force on 26 July 1949. The Preamble of the Treaty states that the United States and the Italian
Republic are « desirous of strengthenirig the bond of peace and the traditional ties of friendship
between the two countries and of promoting closer intercourse between their respective territories
... ». To this end, the Treaty contains numerous specific and interrelated provisions for
the protection of foreign investors, refl.ecting a fundamental intention of the parties to provide
a framework which would foster a favourable climate for investment.
Although the Treaty already provided extensive protection to foreign investors, the two
countries negotiated and then signed, in 1951, a Supplement to the Treaty to give added protection
to investors. There was some delay in the ratification of the Supplement by the Respondent,
but the Supplement entered into force on 2 March 1961. Both the Protocols and the
Supplement constitute integrai parts of the Treaty and should be taken into account when
interpreting the Treaty itself. For the purposes of this presentation, generai references to the
Treaty are meant to ·include its Protocols and Supplement.
The United States-Italy FCN Treaty consists of a preamble and 27 articles. The most
important new matter in this Treaty- as I have indicated was true of all the post World War
II FCN treaties - is the treatment of companies. Their status and activities are given new
protections. Artide I of the Treaty states that .nationals of either Contracting Party shall be
permitted to enter the territory of the other Party, and to exercise certain rights and privileges,
such as engaging in commerciai activities and owning buildings. Artide II then moves beyond
ARRINGA GARDNER 313
the concept of the individuai to that of « corporations » or companies, which then appears throughout
the remainder of the Treaty. Paragraph 3 of Artide II grants to companies the same rights
as are granted to individuals in Artide I.. Consequently companies of one Party are encouraged
to enter into the territories of the other Party for purposes of carrying on their businesses.
Navigation matters in this Treaty appear only toward the end of·the Treaty. Diplomatic
an d consu:lar rights .are · dropped · completely and · placed in separate conventions. Instead, the
first ten articles are largely concerned with the establishment of nationals, corporations, and
associations of each Party in the territory of the other Party, and their protection once they
ha ve · been established.
Perhaps it was best stated in the Report of the Majority in the Italian Senate of 28 May
1949=
<< The first few articles, which are also the most important, guarantee for citizens of
the other party, and for the juridical persons, commerciai companies, organizations and
associations established by them, the exercise of commerciai and non-commerciai activities
in the broadest sense. Full rights are thus granted to catry on any activity; to acquire,
own an d manage movable an d rea} property; to organize, · direct and contro l companies;
to hold office; to make and receive legacies; to protect patents. and trademarks, etc., with
complete freedom to take legai acti6n:, and to · enjoy protection from undue interference,
etc. )) (Counter-Memotial, Annex 7, p. 7; see also us Memoria!, Annex s6, p. 6, for an
alternate translation). · ·
This, then, was a primary focus of the US-Italy FCN Treaty, the second of its kind in the
post-war era. The Treaty provided broad-based protections for the activities of foreign companies
to encourage . private investment and development.
The specific violations of the US-Italy FCN Treaty.
I come now to the specific violations of the Treaty by the Respondent. There are four
specific acts of the Respondent and its agents and officials, which violated the Respondent's
legai obligations under the Treaty, the Protocol, and the Supplement.
First, the Respondent violated. its legai obligations when it unlawfully requisitioned the
ELSI plant on I Aprii I968 which denied the ELSI stockholders their direct right to liquidate
the ELSI assets in an orderly fashion. Second, the Respondent violated its obligations when
it allowed ELSI workers to occupy the plant. Third, the Respondent violated its obligations
when it unreasonably delayed ruling on the lawfulness of the requisition for x6 months untill
immediately after the ELSI plant, equipment and work-in-process had ali been · acquired by
ELTEL. Fourth and fipally, the Respondent violated its obligations when it interfered with
the ELSI bankruptcy proceedings, which allowed the Respondent to realize its previously
expressed intention of acquiring ELSl for a price far less than its fair market value.
I will now explain how those four actions violated four primary obligations which the
Respondent undertook in the Treaty, Protocol and Supplement. These obligations are:
(1) the obligation to protect US corporations from interference with management and
control of their enterprises in Italy (Arts. III and VII of the Treaty and Art. I of the Supplement
are the relevant provisions here);
(2) the obligation to protect US corporations from the impairment of their investment
rights and interests (Art. I of the Supplement is the relevant provision here);
(3) the obligation to protect US corporations from the wrongful taking of their property
and interests in property (Art. V, para. 2, of the Tteaty and para. I of the Protocol are the relevant
provisions here);
(4) the obligation to provide US corporations with the most constant protection and
security for their investments (Art. V, para. I, of the Treaty is the relevant provision here).
l will discuss the violation of each obligation in turn by reference to the ordinary meaning
of the relevant Treaty provisions within the context of the Treaty as a whole, and in light of
314 RASSEGNA DELL'AVVOCATURA DELLO STATO
its object and purpose. As I have noted, a primary object and purpose of this Treaty is the
promotion and protection of foreign investment. Where helpful, I will refer to supplementary
means of interpretation - especially the ratification history of this Treaty in both countries -
for purposes of confirming the interpretation advanced by the United States. As the Chamber
is well aware, this approach conforms to Articles 3 I and 32 of the Vienna Convention on the
Law of Treaties, which in this respect codifies established customary international law.
The Members of the Chamber may wish to refer to the text of the Treaty as I discuss these
various provisions. The Treaty is appended as Attachment I to the Application to the Court,
as Annex I to the Memoria!, and as Annex I to the Counter-Memorial. It is important to note
that the Treaty's provisions are interrelated and, in some instances, overlapping. Consequently
certain acts of the Respondent violated severa! provisions of the Treaty simultaneously.
Interference zvith management and contro!.
- Let us begin with the first Treaty violation: interference with management and contro l.
I shall be devoting a substantial part of my presentation to this centrai issue. The Resporident's
actions clearly interfered with Raytheon and Machlett's management and contro! of their
wholly-owned subsidiary, ELSI. The specific actions that caused this interference were, first
and foremost, the illegal requisition of ELSI on I Aprii I968, followed by the inordinate
delay in overturning the requisition in time to prevent ELSI's bankruptcy. These actions
violated, singly and collectively, Articles III and VII of the Treaty, and Artide I of the
Supplement.
As has been established, by early I968, ELSI's financial condition was such that ELSI's
shareholders, Raytheon and Machlett, began seriously considering dosing and liquidating ELSI
to minimize their losses. Although ELSI had never been a profitable enterprise, it has developed
a very good reputation and its assets could be excepted to realize much greater amounts in an
orderly liquidation than in a bankruptcy process.
Under Italian law, as you have heard, shareholders are entitled to liquidate a company's
assets voluntarily, by their own resolution. Indeed, many shareholders decide to do this -
and are allowed to do this - every year in Italy. Under Artide I7 of the By-Laws of ELSI,
the right « of changing the legai nature of the company, of winding up voluntarily the company »
was reserved exdusively to shareholders owning shares having an aggregate value of 90 per
cent of the capitai of ELSI.
Raytheon and Machlett owned IOO per cent of ELSI. Raytheon and Machlett had the
right and the responsibility to exercise one of their most fundamental rights in managing and
controlling ELSI - the right to liquidate ELSI. The Respondent, on p. 223 of the Rejoinder,
accepts that Raytheon and Machlett had this right. On 28 March I968, having decided that
the orderly liquidation of ELSI's assets was prudent, Raytheon and Machlett decided to exercise
this right, and voted in accordance with Italian law to proceed with the plan for an orderly
liquidation.
As we have demonstrated, that orderly liquidation never occurred. Instead, the Respondent
requisitioned ELSI's plant and equipment to prevent the orderly liquidation. This was not
a mere « parenthesis » in the life of ELSI as the Respondent states on p. I I4 of the CounterMemorial.
It was a mortai blow that resulted in ELSI's bankruptcy. It was this illegal interferenceand
not the subsequent bankruptcy - that prevented Raytheon and Machlett from proceeding
with their orderly liquidation of ELSI. By the terms of the requisition order, ELSI's plant
could not be sold during the requisition period. None of ELSI's equipment could be sold
during the requisition period. In-process inventories could not be converted to finished products.
Neither ELSI's goods nor its other assets could be sold. ELSI's relationships with its suppliers
and customers were cut off abruptly. The loss of ELSI's markets immediately decreased the
ability to sell ELSI's product lines together or separately. ELSI was thus prevented from carrying
out a management decision reached by its controlling shareholders to dose down an unprofitable
plant and to liquidate its assets to satisfy outstanding debts. This requisition, later to be dedared
unlawful by the Prefect of Palermo and recognized by the Respondent's own courts, was an
ARRINGA GARDNER 315
outright interference with Raytheon and Machlett management and control of ELSI in violation
of the Treaty and its Supplement.
But this interference did not stop with the requisition order itself. The President of the
Sicilian Region informed ELSI's Managing Director of a plan by the Respondent to use the
requisition, not only to prevent the orderly liquidation, but to give the Respondent's Stateowned
conglomerate - Istituto per la Ricostruzione Industriale (IRI) - the opportunity to
acquire ELSl's assets.
Raytheon and Machlett made every possible effort to get the requisition overturned. As
was discussed earlier in our presentation, cables were sent to the Mayor and other ltalian authorities.
There was no response; On 9 Aprii a formai petition was presented to the Mayor.
Again there was no response. On 19 Aprii the Mayor's order was appealed to the Prefect of
Palermo. The Prefeètthen failed to issue his decision until r6 months later- I6 months laterafter
the damage of the requisition had run its course. This too plainly and obviously was a
direct interference with Raytheon and Machlett's right to manage and control ELSI.
Now the Respondent states that the requisition was only « temporary » (Rejoinder, p. 223),
as though this makes it any less of an interference with the management and control of ELSI.
The fact. is that the requisition lasted .six. full months, a substantial time period when you are
in the process of winding down a business. · There was every reason to expect that a t the end of
the six-month period the. requisition order would be extended, since on its face i t provi d ed for
an extension and the .Respondent was not doing anything with ELSI to improve the allegedly
criticai situation in· Palermo. When President Carollo of Sicily informed Raytheon orally and
in writing that the requisition would be prolonged indefinitely unless Raytheon abandoned its
plan to wind up ELSI, it was dear that Raytheon and Machlett had completely lost their ability
to manage and control ELSI, leaving them only the option of placing ELSI in bankruptcy.
Deprived of the income which the sale of ELSI's assets would have produced, ELSI was
no longer ab le to meet its financial obligations · when they came due. Through the ensuing
bankruptcy process the Respondent's plan to take over ELSI through its own State-owned
conglomerate was brought to. fruition.
This interference with management and control violated Articles III and VII of the Treaty,
as well as Artide I of the Supplement. I will discuss now how the specific provisions of each
of these Artides was violated in turn.
Mr. President, I note that the hour has been reached for the coffee break and perhaps it
might be appropriate to take the break now so that we could discuss these three Artides without
interruption.
The PRESIDENT: Very well. We are going to take the break now. Thank you very much.
The Court adjourned from II.JO a.m. to II,45 a.m.
The PRESIDENT: Please be seated. Mr. Gardner you can continue.
Mr. GARDNER: Thank you Mr. President. Before the coffee break I had indicated that
I wished to discuss how the actions of the Respondent had violated four primary obligations
of the FCN Treaty. The obligation to protect US corporations from interference with management
and control is the first point I am discussing and wish to continue that before I go on to
the remaining three points which have to do with, second, the obligation to protect US corporations
from the irnpairment of their investment rights and interests, third, the obligation to
protect US corporations from the wrongful taking of their property and interest in property,
and finally, the obligation to protect US corporations with the most constant protectioii and
security of their investrnents. And, Mr. President, I was on the point of explaining how the
actions of the Respondent violated three specific provisions of the FCN Treaty, Artides III,
VII and Artide I of the Supplement. Let us begin with Artide III of the Treaty if I may invite
your attention to that Artide.
316 RASSEGNA DELL'AVVOCATURA DELLO STATO
Artide III of the Treaty.
Artide III of this Treaty, along with its counterparts in other FCN Treaties, is really the
heart of the Treaty. This Artide is centrai to the basic Treaty objective of providing rules of
fair and equitable treatment in matters of the establishment of and operation of business enterprises
in the territory of the other Party.
Artide III, paragraph I, provides corporations the right, on a most-favoured-nation basis,
to organize and participate in corporations in the territory of the other Party through purchase,
ownership, and sale of shares. Then the first sentence of Artide III, paragraph 2, states:
« The nationals, corporations and associations of either High Contracting Party shall
be permitted, in conformity with the applicable laws and regulations within the territories
of the other High Contracting Party, to organize, control and manage corporations and
associations of such other High Contracting Party for engaging in commerciai, manufacturing,
processing, mining, educational, philanthropic, religious and scientific activities >> (Emphasis
added).
Thus this sentence confers upon corporations of both parties the right to organize, contro!,
and manage such corporations in the territory of the other party for engaging in commerciai
and other activities in conformity with applicable laws and regulations.
The second sentence of paragraph 2 of Artide III extends the protections of the first sentence.
l t provides that those corporations that have been so organized under the laws of the other party
are themselves entitled to engage in the activities for which they were createci or organized on
terms no less favourable than those accorded by that party to corporations controlled by its
own nationals.
Now two points are to be noted regarding Artide III. First, contrary to assertions repeatedly
made by the Respondent about the Treaty, it can be seen in this Artide that the Treaty, by its
terms, specifically protects the rights of corporations incorporated under the laws of Italy against
actions by the Italian Government. The fact that ELSI - a wholly-owned subsidiary of US
companies - was incorporated in I taly di d no t remo ve it from the protection of this Treaty.
The Treaty is crystal dear on this. Where the meaning of a treaty provision is dear, such as
here in Artide III, there is no basis for postulating an interpretation that flatly contradicts the
provision's dear and ordinary meaning.
The second point is that the first sentence of Artide III, paragraph 2, expresses a treaty
right that is not qualified by a national treatment or most-favoured-nation standard. Where
this Treaty provides for most-favoured-nation or national treatment, it says so explicitly.
Where, as here, those provisions are not induded, nor any other standard such as reciprocity,
then the provision is non-contingent - it is absolute.
The dause « in conformity with the applicable laws and regulations n simply requires that
organization, management and contro! of the corporation be conducted in accordance with
local regulations. The Respondent apparently would like to read into this sentence a national
treatment standard, thereby allowing it to interfere in Raytheon and Machlett's management
and contro! so long as it also interferes in the management and contro! of its own corporations.
But the typical national treatment dause as it appears throughout this treaty is quite different;
it uses the wording « upon treatment no less favourable than n, as can be seen in the second
sentence of Artide III, paragraph 2.
Rather than impose a national treatment standard, the « in conformity n dause requires
Raytheon and Machlett to comply with local regulations regarding organization, management
and contro! of corporate entities. Therefore, the first sentence of Artide III, paragraph 2,
provided Raytheon and Machlett the right to contro! and manage ELSI, so long as ELSI was
organized, managed, and controlled in accordance with local regulations. As was noted by
Herman Walker - the man who played an important role in negotiating these FCN treaties
for the United States - the "in conformity >> dause
« is framed in such a manner as to imply that it does not constitute a reservation detracting
from the treaty right; and such phraseology has been omitted from subsequent treaties n
(WALKER, 50 A/IL, pp. 373, 384, n. 53 [1956]).
21
318 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Supplement to the Treaty, which appears at Attachment I to the Application and as
Annex 2 to both the Memoria! and the Counter-Memorial, consists of nine artides that darify
or expand various provisions of the main Treaty. As stated in its Preamble, the purpose of the
Supplement is to give « added encouragement to investments of one country in useful undertakings
in the other country ... by amplifìcation of the principles of equitable treatment » set
forth in the Treaty itself. The Report to the President by the Itaiian Chamber of Deputies
of 8 November I958 Ieading to ratifìcation of the Suppiement states:
« since 'foreign investment' today means, above ali, investment from the United States,
we deemed it advisabie to remove any obstade to the inflow of private American capitai
by conduding a special agreement with the United States Government ... '' (CounterMemorial,
Annex 9, p. 3).
Among the needs of American investors identifìed by the Chamber of Deputies was, signifìcantly,
the need for << protection of the rights of the American companies and individuais in
the companies in which they invest" (Counter-Memoriai, Annex 9, p. 4). The Rapporteur of the
ltalian Senate on I9 Juiy I96o also spoke of « improving more and more the system of United
States capitai in Itaiy and of ltalian capitai in the United States » (Memoriai, Annex 4, pp. I-2;
Counter-Memoriai, Annex I4, p. I).
The most important Artide in the Supplement for this case is obviousiy Artide l, which
contains additionai protections for corporations. I would emphasize that these are additional
protections, because this Artide is intended to suppiement, not repiace, investment-oriented
provisions in the text of Treaty, which themselves are aiready framed in very specifìc terms.
Artide I states that corporations of one party « shall not be subjected to arbitrary or discriminatory
measures . . . (A) preventing their effective contro I and management of enterprises
which they have been permitted to establish or acquire '' in the territory of the other party.
This provision compiements and strengthens the guarantees of non-discriminatory treatment
and freedom from interference and controi which are contained in Artide III of the Treaty.
The terms of this provision - « shall not be subjected '' - are imperative and unqualifìed.
There is no reference to any nationai or most-favoured-nation standard of treatment, nor to
domestic Iaw.
As we have discussed, Raytheon and Machlett were permitted to acquire ELSI. Raytheon
and Machlett then were subjected to measures by the Respondent that resulted in preventing
effective controi and managment of ELSI. Since these measures were both arbitrary and discriminatory,
the Respondents's actions aiso vioiated Artide I (a).
An arbitrary act is one that is characterized by the illegitimate exercise of power or an abuse
of discretion. Thus, arbitrary actions include those which are not based on fair and adequate
reasons - induding sufficient Iegai justifìcation - but rather arise from the unreasonabie or
capricious exercise of authority. In the light of the object and purpose of this Treaty, the
prohibition on arbitrary measures constitutes a commitment of the respective governments
not to injure the investments and reiated interests of foreign investors by the unreasonable
or unfair exercise of government authority, authority exercised with no legitimate basis.
Did the requisition have a legitimate basis ? The Respondent claims that there was a public
emergency and that the Mayor had the power to do what he did. Yet Raytheon and Machlett
had given the Italian authorities every opportunity to take Iegitimate steps to prevent ELSI
from dosing, both by becoming a partner in ELSI and by extending the Mezzogiorno benefìts
to which ELSI was entitled. The Respondent dedined to do so. Instead, the Respondent sought
to force Raytheon an d· Machiett themselves to keep ELSI open by the sheer exercise of power.
And when Raytheon and Machiett refused to do so, the Respondent dedared a so-called « pubiic
emergency » and took over ELSI by sheer power. But after the requisition the Respondent
did not keep the plant in operation. The requisition did not keep empioyees on saiary. The
requisition did not do anything to alleviate this so-called « emergency ». The Italian courts
said it best when they found that the requisition was « destitute of any juridical cause which
may justify it or make it enforceabie ».
So, the requisition was preciseiy the sort of arbitrary action which the Suppiement prohibits.
ARRINGA GARDNER :319
Its objects and effect were to prevent Raytheon and Machlett from protecting their investment.
Tbe requisition had no sufficient or legitimate basis. It was arbitrary.
Not only were the Respondent's actions arbitrary, tbey were discriminatory as well. Tbe
purpose of the requisition, as seen in the statements of the Respondents's own officials, was to
buy time for IRI to take over tbe plant. This was discrimination in favour of a governmentcontrolled
ertterprìse; tbe kind of discrimination the Treaty protects against bere, in Arti cl e I
of tbe Supplement, and elsewhere, sucb as paragraph 2 of the Protocol.
Now the Respondent denies that discrirnination has occurred because there is no evidence
that the requisition was directed against Raytheon and Machlett because they were US companies.
Yet the meaning of « discrimination » in international law goes much beyond simple discrimination
againt aliens. On p. 226 of the Rejoinder the Respondent cites an artide tbat describes
how much more expansive the concept of « discrimination >> truly is. The artide is by McKean,
entitled, << The Meaning of Discrimination in lnternational and Municipal Law » (44 British
Year Book of International Law, 177 [1970]). According to Professor McKean, discrimination
includes arbitrary, invidious, unjustified or unfair distinctions. There is ample evidence in
the words and deeds of the Respondent's officials tbat this requisition, right from tbe start,
involved an unfair and unjustified effort to obtain ELSI, not to avert a social crisis but simply
for use by IRI. IRI's interests were directly contrary to Raytheon and Machlett's and the
Respondent intervened to advance its own commerciai interests at tbe latter's expense. Tbis
was an unfair and unjustified way of treating ELSI. This was discriminatory as well as arbitrary.
Tbis violated Artide I of the Supplement.
The correctness of the United States position is confirmed in the expansive interpretation
placed on tbe Supplement by our governments when ratifying the Supplement. The Report
by the Italian Chamber of Deputies to the President of 8 November 1958 stated:
« The Agreement sets out, first of all, to han any discriminatory measures that eitber
country rnight adopt against the interests of citizens or legal persons of the other contracting
State, designed to restrain their management or real control of the companies for which
they bave obtained tbe necessary permission for their purchase or establishment ... »
(Counter-Memorial, Annex 9, p. 6).
The 1960 Report of the Italian Senate speaks expansively of « measures aimed at impeding
management or control » (Counter-Memorial, Annex 13, p. x). Now to argue, as the Respondent
does, tbat the ability to appeal the requisition and to declare ELSI bankrupt satisfies the expansive
protection obviously envisioned under the Supplement is manifestly unreasonable.
Article VII.
Tbe last provision I will mention in regard to the management and control of ELSI is
Artide VII of tbe Treaty and I invite the Court's attention to that Artide. Paragrapb x of
Artide VII confers rights upon a company of either Contracting Party with respect to tbe
acquiring, owning and disposing of immovable property or interests therein within the territory
of the other Contracting Party. These rights include of course essential rights in the management
and control of a company.
The protection in Artide VII, paragraph x, to acquire, own and dispose of immovable
property or interests is governed by a complex standard of treatment, which is fully explained
in our written pleadings. Prior to the Treaty there were many legal restrictions in the United
States under the laws of the various states regarding tbe holding by aliens of botb real and personal
property. Consequently Artide VII, paragraph x, establishes a different standard of
treatment for Italian companies operating in the United States than for US companies operating
in Italy.
Paragraph x, subsection (a) allows Italian companies to acquire, own and dispose of
immovable property or interests in the United States only as permitted by the laws and regulations
of the various States. Paragraph x, subsection (b), in contrast, grants to a US company
the right to acquire, own and dispose of immovable property or interests in Italy on the same
320 RASSEGNA DELL'AVVOCATURA DELLO STATO
terms as are accorded Italian companies investing in the US company's State of incorporation.
The Italian Republic is not obligated to accord to US companies a standard of treatment
higher than the treatment accorded to Italian corporations in the home States of the US
com pani es.
Most of the assets seized by the Mayor of Palermo and subsequently acquired by the
Respondent consisted of ELSI's manufacturing plant and other immovable property. The
refusal to allow Raytheon and Machlett to liquidate ELSI in Aprii of 1968, along with the
extensive delay in overturning the requisition, prevented the disposal of their interests in
ELSI's immovable property. The United States Memoria! (pp. 37-38) describes how similar
treatment simply would not occur in the relevant jurisdictions of the United States without
payment of compensation.
Now the Respondent attempts to narrow the scope of Artide VII by asserting that it only
protects the right to dispose of immovable property and absolute « rights » therein, which is
more limited than « interests » therein. The Respondent's interpretation of the Artide VII,
which is based on the ltalian text, simply doesn't make sense in either English or Italian. The
Respondent would have us believe that the drafters essentially protected the right to dispose
of such property and then protected as well « rights therein ».
But such an interpretation is internally inconsistent. Obviously the second phrase -
<< or interests therein » - is meant to do something more than the first phrase - « immovable
property ». Indeed, the phrases << immovable property or interests therein » and beni immobili
o altri diritti reali must provide expansive protection, otherwise the dause would simply say
« immovable property » or beni immobili. It is also relevant that Artide VII, paragraph 1 (b),
was drafted and negotiated in English. The final version of Artide VII, paragraph 1 (b), was
presented to the Respondent in English by the United States during the Eleventh Negotiating
Meeting on 17 October 1947. The draft was accepted by the Respondent at the Twelfth Negotiating
Meeting on 22 October 1947, and only subsequently translated into Italian.
The Respondent asserts on p. 224 of the Rejoinder that Artide VII only protects « absolute
rights of a more lirnited nature >>. The Respondent argues that the protection of Artide VII
should be lirnited to Raytheon and Machlett's ability to hold shares in ELSI, rather than to
Raytheon and Machlett's interests in ELSI's plant and assets. This daim is made in the
Rejoinder, p. 224. Yet the requisition obliterated an essential right attached to the shares,
the right to decide to liquidate the immovable property of ELSI in such a way as to maximize
the payment of ELSI's debts.
Now a major object of this Treaty was to encourage investments, induding those through
the acquisition of Italian companies. Artide VII dearly protects the interests or rights that a
shareholder has in the immovable property of the company. A narrow reading of Artide VII,
as suggested by the Respondent, defeats this important objective.
Members of the Court, that completes my discussion of the first main point about Interference
with Management and Contro[ and I turn now, with your permission, to the second
treaty violation, lmpairment of lnvestment Rights and lnterests.
The second obligation violated by the Respondent was the obligation to protect Raytheon
and Machlett's legally acquired investment rights and interests. By requisitioning ELSI's plant
an d assets and thereby preventing the orderly liquidation, the Respondent impaired Raytheon and
Machlett's investment rights and interests, and therefore violated Artide I (b) of the Supplement.
The subsequent conduct of the Respondent in failing to overturn the requisition, until the
Respondent could purchase ELSI at bargain prices, also impaired Raytheon and Machlett's
investment rights.
Artide I (b) of the Supplement provides broad protection against excessive government
interference in business activities, or other activities not specifically covered by the Treaty.
If I may invite your attention to Artide I (b) of the Supplement, it states that corporations of
one Party:
<< shall not be subjected to arbitrary or discrirninatory measures within the territories of
the other [Party] ... impairing their other legally acquired rights and interests in such
ARRINGA GARDNER 321
enterprises or in the investments which they have made, whether in the form of funds
(loans, shares or otherwise), materials, equipment, services, processes, patents, techniques
or otherwise ».
The language of this provision could not be written more broadly. It encompasses protection
of ali financial commitments made for the benefit of ELSI, whether in the form of direct
capitai contributions, loans, loan guarantees, or open accounts. It protects against any retroactive
impairment of vested rights so long as the acquisition of such rights was lawful, whether such
rights were protected by statute or by Treaty. Artide I states a self-contained, absolute rule
that incorporates neither a national treatment standard, nor a most-favoured-nation standard.
As I note earlier, in my discussion of the management and contro! of ELSI, the requisition
of ELSI's assets was an arbitrary and discriminatory measure. In addition, the failure of the
Prefect to rule for 16 months on the appeal of the Mayor's order was an arbitrary and discriminatory
act, for it was well outside the bounds of the typical time it takes to make such a decision.
In fact, the Prefect issued bis decision 48 days after ELTEL purchased ELSI's assets at bargain
prices, well beyond the time when the decision could do any good. In the interim the Respondent
made statements during the bankruptcy that discouraged private bidders. The Respondent
boycotted some of the bankruptcy auctions, instead working out special arrangements for a
piecemeal takeover directly with the bankruptcy authorities.
These acts severely impaired Raytheon and Machlett's legally acquired rights and interests
in ELSI by making the closing of ELSI much more costly to Raytheon and Machlett than it
would have been had the Respondent not intervened.
First, Raytheon and Machlett lost their entire capitai contribution. Second, Raytheon
was required to pay some s.8 billion lire - approximately 9·3 million dollars at that time -
to bank creditors of ELSI whose loans to ELSI had been guaranteed by Raytheon. Had Raytheon
and Machlett been permitted to proceed to an orderly liquidation, they would bave realized
sums out of which they could have paid these guaranteed bank creditors. Third, Raytheon
recovered nothing on its own unsecured lines of credit to ELSI (known as its "open accounts >>),
which totalled more than 1.3 billion lire, or about x.83 million dollars. The liquidation plan
would have permitted settlement of ELSI's unguaranteed, unsecured loans for the full amount
if full value of the assets had been obtained, but under the bankruptcy unsecured creditors
received less than one per cent of the amounts claimed.
Raytheon and Machlett's direct capitai contribution to ELSI, Raytheon's guarantees of
loans made to ELSI by Italian banks, and Raytheon's open accounts with ELSI, are all invest-,
ment rights and interests protected by Artide I (b). Artide I (b) protects anything provided
by a US investor to an Italian corporation in which it invests cc whether in the form of funds
(loans, shares or otherwise), materials, equipment, services, processes, patents, techniques or
otherwise ». Both open accounts and guarantee payments are investments within this broad
definition. This interpretation is confirmed by the Report of the Italian Chamber of Deputies
presented to the President on 8 November 1958. In that report the Supplement is read to han
measures designed to restrain rights or to prejudice the interests of these companies or investments
in whatever form they may be made (Colinter-Memorial, Annex 9, pp. s-6).
Wrongful taking of interests in property.
The third obligation violated by the Respondent concerns the wrongful taking of interests
in property without compensation. The requisition and the delay in overturning the requisition
not only interfered with Raytheon and Machlett's management and contro! of ELSI, not only
impaired Raytheon and Machlett's legally acquired interests in ELSI, but also resulted in what
can only be described as the taking of the property. The failure to pay promptly just and
effective compensation for this taking is a violation of Artide V of the Treaty, and I invite
the Court's attention to that Artide.
Now Artide V as a whole is designed to provide essential guarantees for the security of
property interests ancl investments. Paragraph 2 provides that property of United States corporations
within ltaly " shall not be taken ... without due process of law and without the prompt
322 RASSEGNA DELL!AVVOCATURA DELLO STATO
payment of just and effective compensation "· Corporations must be abie to withdraw this
compensation from the territory of the party without interference and without any transfer
or remittance tax. This guarantee is, of course, a vitai eiement in promoting investment since
this century has seen an unfortunate number of expropriations with little or no compensation.
The obiigation expressed in paragraph 2 is absoiute. When read in conjunction with paragraph
I of the Protocoi, it unambiguousiy protects the investment interests of US sharehoiders
in I taiian com pani es whose property is taken by the Respondent. There is no dause linking
the treatment of US sharehoiders to the treatment by the Respondent of its own nationais or
the nationais of third countries.
The concept of a« taking" in internationaiiaw encompasses, in addition to physicai seizure,
a wide variety of whoie or partiai sequestrations and other impairments of interests in or uses
of property. Indeed the Respondent itseif, on p. 228 of the Rejoinder, admits that a temporary
requisition can constitute an indirect taking according to the « vast amount of literature on the
subject in Engiish "· The Respondent even cites with approvai The Hague Academy iecture
of Professor Rosaiyn Higgins in which she states that « interference which significantly deprives
the owner of the use of his property amounts to a taking of that property" (Rosaiyn HIGGINS,
« The Taking of Property by the State ,, Recueil des Cours of The Hague Academy of International
Law (I982-III), p. 324.
It is extremeiy significant that paragraph I of the Protocoi to the Treaty extends Artide V,
paragraph 2, of the Treaty to « interests heid directly or indirectly >> by corporations of either
High Contracting Party « in property which is taken within the territories of the other High
Contracting Party "· So, I invite the Court's particuiar attention to paragraph I of the Protocol.
W e submit that the purpose of the term « indirectly " is to ensure that the ultimate beneficiai
owner receives compensation pursuant to Artide V, paragraph 2.
Thus Artide V and the Protocoi protect all rights in property upon which it is possibie
to piace a monetary vaiue, induding not oniy rights of ownership but rights of possession, use
and enjoyment. Thus the protection extends to ieasehoids, easements, contracts, franchises
and other tangibie and intangibie property rights. That the rights of stockhoiders are induded
is confirmed by the discussion before the Foreign Reiations Committee of the US Senate of 30
Aprii I948 (Counter-Memorial, Annex IS, p. 25).
The term « prompt " in Artide V does not necessariiy mean instantaneous, but the
Contracting Party must diiigently carry out orderly and non-diiatory procedures to ensure
correct compensation as soon as possibie. The phrase << just and effective " calls for a rendering
of full compensation (Counter-Memoriai, Annex I6, p. 8), and its meaning has been built up
through judiciai decisions, arbitrai awards, treaty practice, and the writings of pubiicists. As
will be discussed iater with regard to the compensation due from the Respondent, compensation
shouid represent the true and proper worth of the property - generally to piace the company
in the same financiai position as it was before the taking.
In addition, paragraph 3 of Artide V provides protection directly to an enterprise iocated
in one Contracting Party in which a corporation of the other Contracting Party has a « substantiai
interest "· The term « substantiai interest " depends in iarge part upon the circumstances
of a given case, but indudes at a minimum whoie or majority interests. This protection is
governed by either a nationai treatment standard or a most-favoured-nation standard,
whichever is more favourabie. Again I note that here, contrary to assertions made by the
Respondent, is another exampie of where the Treaty protects the rights of corporations
incorporated under the Iaws of one Party against actions by that same Party.
In this case, Raytheon and Machlett were the ultimate beneficiai owners of ELSI, ELSI's
piant and ELSI's assets. Together, Raytheon and Machlett owned 100 per cent of ELSI.
Beginning with the uniawfui requisition, the Respondent embarked on a course of activity
that resulted in the acquisition of the buik of ELSI's assets for far iess than market vaiue.
The Respondent stripped Raytheon and Machiett of their ability to dispose of ELSI's piant
and assets promptly in an orderiy fashion, took over the piant, deiayed providing a decision on
the iegaiity of its actions, forced ELSI to go into bankruptcy since it couid not pay its bills,
and then obtained ELSI's assets in a piecemeai fashion during the bankruptcy process for far
iower than they were worth at the time of seizure by the Respondent. Whiie there are times
ARRINGA GARDNER 323
when a government must act to respond to a national emergency, the,Respondent's own courts
acknowledged that the requisition was not directed towards responding to or alleviating any
such emergency.
The Respondent characterizes its conduct in this case as an ephemeral exercise of a police
power (Rejoindet, pp. 228-229), an ephemeral exercise of a police power rather than the deprivation
of fundamental property rights. Nothing could be further from the truth. While the
Respondent may not have issued an expropriation decree, the Respondent's acts definitively
ended Raytheon and Machlett's ability to use and dispose of assets which they owned through
ELSI. This constitutes a taking of property giving rise to the obligation to provide compensation.
The Respondent cites to an artide on expropriation issues before the IranfUS Claims Tribuna!
(Rejoinder, p. 228, n. 43), but it ignores the salient conclusion of that same artide, which reads:
, « Severa! things have been dearly established by the Tribunal. First, the developing
nation's argument that there may be no duty to provide compensation was clearly·rejected
in these cases. When a taking has occurred, compensation will be required. The cases
also fail to lend any credence to the argument that compensation should not be required
because of Arnerican economie or politica! imperialism. The cases also establish that a
taking can occur without a physical confiscation of a foreign investment. For the most
patt the economie impact on the investor will be the main consideration. A taking will
be found when an investor is deprived of fundamental rights of ownership or his property
has become useless » (SWANSON, « Iran-US Claims Tribuna!: A Policy Analysis of the
Expropriation Cases », x8 Case Western Reserve, ]ournal of International Law, pp. 307,
359-360 [I986]).
Now in the ITT v. Islamic Republic of Iran case cited by the Respondent, which is an awardon-
agreed terms, Judge Aldrich in his concurring opinion stated that such fundamental rights
induded the right of a parent corporation to participate in the management of its Ioo per centowned
subsidiary, as well as the right to receive information on the financial affairs of that
subsidiary (ITT v. Iran, Award N. 47-156-2 of 26 May 1983, at pp. 4-8, 2 IranfUS Claims
Tribunal 348). Similar fundamental rights are at issue in this case.
Full compensation ordinarily entails payment of the fair market value of the property
taken, measured at the time of the taki.ng (Counter-Memorial, Annex x6, pp. I I-12) excluding
any diminution in value caused by the government action against it, or the perceived risk
thereof. The goal is to redress all of the injuries resulting from the taking. The Respondent
did pay fair market value at the time of the taking of the property here.
ELSI, as of I Aprii 1968, remained an ongoing enterprise. In addition to tangible assets
as you have heard, it had significant intangible assets which placed the fair market value of the
company appreciably above that of the physical assets standing alone. These intangible assets
included established customer and supplier relations, developed and fully functioning methods
and processes, access to all necessary patents, licenses, technical assistance, and other technology,
an established name and reputation for quality products, and a continued relationship with
Raytheon.
As will be di.scussed later regarding. the compensation due by the Respondent, given the
circumstances of ELSI, ELSI had a fair market value, as of 30 March 1968, of 17.05 billion
lire. The Trustee in bankruptcy ultimately received, however, only slightly more than 6.3
billion lire for ELSI's assets. There can be no doubt that Raytheon and Machlett were denied
payment of fair market value for the property that was effectively taken on I Aprii 1968.
The Respondent argues that because the requisition on its face was for six months, it
could not constitute a taking of property under Artide V, paragraph 2, of the Treaty. But as
I noted earlier the requisition order on its face contemplateci extension beyond a six month
period and President Carollo had stated that it would continue indefinitely to prevent orderly
liquidation. Further, the Respondent's argument is based on a definition of a taking which is
far narrower than is accepted in internationallaw. Interference with property to such an extent
that the property rights are rendered useless, that constitutes a taking.
324 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Respondent also attempts to complicate the very dear and ordinary meaning of Artide
V and the Protocol by finding what it perceives to be differences between the English and Italian
texts. The Respondent asserts that the use of « beni espropriati » and « esproprio dei beni » in the
Italian language version of Artide V is narrower in meaning than a « taking » in property.
Further the Respondent asserts that the use of «diritti» in the Italian language of the Protocol
is narrower in meaning than « interests >> as stated in the English version. After expressing concern
that the Chamber might subordinate the Italian text to the English text, the Respondent then
proceeds to try to subordinate its view of the English text to the Italian text.
But in fact, the Respondent sees differences in meanings where there are none. Certainly
the Respondent did not view Artide V or the Protocol as providing a narrow protection at the
time the Treaty was ratified. The Report of the majority in the Italian Chamber of Deputies
of 17 December 1948 states:
« the principle of expropriation with guaranteed payment of ' fair compensation ' normally
embodied in Treaties of establishment (cf. 'for example the Italo-Soviet Treaty of Trade
and Navigation of 4 February 1924, Art. 6) has been developed to a considerable extent in
the new Italy-United States Treaty >> (Counter-Memorial, Annex 4, p. 12).
And the discussion before the Foreign Relations Committee of the US Senate of 30 Aprii
1948 dearly shows that the passage of Artide V was meant to protect broadly foreign private
invesrment
(( in the face of the very obvious trend in many parts of the world toward nationalization
of industry, extension of public contro! over certain industries and the participation of the
State in industriai enterprises ... >> (Counter-Memorial, Annex 15, p. 25).
The Respondent's effort to restrict the meaning of Artide V simply does not comport with
these statements. Indeed, the concem expressed by the minority in the Italian Senate, sent
to the President on 28 May 1949 was in fact that Artide V, paragraph 2, not only provides
protection in accordance with the generai principles of intemationallaw but might even provide
greater protection (Counter-Memorial, Annex 7, p. 19).
But even if Artide V is read as meaning that property (( shall not be expropriated >> (the
Italian version) rather than that property (( shall not be taken >> (the English version) the result
is the same. Both versions encompass the kind of interference with property which rendered
Raytheon and Machlett's interests useless. Again, the fact that the requisition was for an
extendable six-month period does not make this any less of an expropriation of interests in
property, given the fact that the requisition drove ELSI into bankruptcy.
Likewise, even if the Protocol reads that Artide V is extended to (( rights held directly or
indirectly >> rather than (( interests held directly or indirectly », the result again is the same.
Both phrases were deigned to protect the investment of US corporations in ltaly (and, of course,
Italian corporations in the United States) through locally incorporated subsidiaries, that is, even
if the investment was in an Italian (or US) corporation.
Now at this point, with your permission, I think I should say a few words about the Barcelona
Traction case (case concerning the Barcelona Traction, Light and Power Company, Limited,
3udgment, Second Phase, IC] Reports I970). I do this because Italy invokes the Barcelona
Traction case in an attempt to show that international law does not protect the interests of
shareholders in their corporations. Such a reading of Barcelona Traction is simply inappropriate
for three reasons.
First, and f<>remost, the Barcelona Traction case was decided on the basis of customary
rules of law, it did not involve the interpretation of a treaty between the parties. The court in
Barcelona noted that the case would have been decided differently had the breach of a treaty
provision been involved. It dedared in paragraph 86 of its Judgment that:
(( the Belgian Govemment would be entitled to bring a daim if it could show that one of
its rights had been infringed and that the acts complained of involved the breach of an
intemational obligation arising out of a treaty ... "·
ARRINGA GARDNER 325
Now the case before you is tbat very situation in wbicb « the acts complained of involved
tbe breacb of an international obligation arising out of a treaty " wbere tbe Court in Barcelona
declared that a ·different conclusion would be required.
Second, the Barcelona Traction case concerned wbat the Court called in paragraph 3 I
a « triangular .relationsbip >> wbere there was one State whose responsibility for tbe wrongful
taking Qf property was being invoked (Spain) and two States (Belgium and Canada) whicb
w ere potentially in a position to assert a right of diplomatic protection arising out of that taking.
The • q:Q_estion a t issue there was . the allocation of the right of diplomatic protection between
thòse tvvo potential claimant States. The Court beld that in this « triangular >> situation, as it
put it, it was tbe State in wbich the injured.corporation was incorporated (Canada) thatbad the
jus sta?J,di to bring the claim, not tbe State of tbe sharebolder's nationality (Belgium). The
Court noted, bowever, that tbe situation would be entirely different in a bilateral situation wbere
tbere was only one potential claimant State and one State wbose responsibilìty was being invoked,
whicb is the situation we have in tbe case before you today. As the Court said in Barcelona
Traction in paragrapb 92:
« It is quite true that it bas been maintained that, for reasons of equity, a State sbould
be able, in certain cases, to take up the protection of its nationals, sharebolders in a company
wbich bas been the victim of a violation of internationallaw. Tbus a theory bas been developed
to · tbe · effect that the State of the sharebolders · has a right of diplomatic protection
wben the State whose responsibility is invoked is the national State of tbe company.
Whatever the validity of tbis tbeory may be », tbe Court continued, « it is certainly not
applicable to tbe present case, since Spain is not tbe national State of Barcelona Traction »
(IC] Reports I970, para. 32).
But in our case today, we bave exactly tbat bilateral rather than « triangular » situation which
tbe passage I have just cited envisaged: the State whose responsibility is being invoked, Italy,
is the State of the company, ELSI, and the United States, tbe State of the sharebolders, is the
only State in a position to assert the claim on their bebalf.
Now tbe third point ~tbout Barcelona Traction is tbis: even .under its reasoning, it is clear
that customary international law provides a remedy for foreign sbarebolders wbo are deprived
of their direct rights. In paragraphs 46 and 47 of its Judgment, the Court declared tbat:
«an act directed against and infringing only tbe company's rights does not involve responsibility
towards the shareholders, even if their interests are affected ».
But then it adds significantly:
« The situation is different if tbe act c<implained of is aimed at tbe direct rigbts of
tbe sharebolder as such ... Wbenever one of bis dìrect rights is infringed, tbe sbarebolder
has an independent rigbt of action >> (IC] Reports I970, paras. 46-47).
Our case, as we bave demonstrated, is that very situation where the direction rights of the
shareholder have been infringed. Because of the sequestration by the Italian autborities the
ELSI shareholders were deprived of tbeir direct rights to manage and eòntrol ELSI and liquidate
it in an orderly fashion. The otber rights of Raytheon and Machlett we are dealing witb today -
the right not to have their investment rights and interests impaired, the right not to bave tbeir
interests in property taken witbout just and effective compensation, and the right, which I will
discuss in a moment, to have the security of tbeir interests in property protected - those were
also tbe direct rigbts of the ELSI shareholders.
Tbe Treaty before us specifically provides protections for US nationals or companies in
their ownersbip, management and contro! of Italian corporations as well as tbeir investmerit
rights and interests.
On its Rejoinder (pp. 227 and 230), the Respondent tries to plead its own internallaws
to sbow tbat tbis is not an expropriation. Well clearly, the Respondent's internai laws cannot
exèuse violation of tbe opinion; it ignores the majority opinion which found that tbe US Government
was responsible for ali tbe damages tbat resulted from its intervention.
326 RASSEGNA DELL'AVVOCATURA DELLO STATO
In this case, the Respondent chose to intervene in ELSI's fate; by failing to operate the plant,
by failing to allow ELSI to meet its financial obligations, it forced ELSI into bankruptcy. The
Respondent in this case - like the United States in the Peewee Goal case - should be held
liable for all the losses that its actions caused.
Another case cited by the Respondent is Youngston Sheet & Tube Co. v. Sawyer (343 US
580 [I952]). Now the Respondent is correct that the United States Government seized most
of the steel mills in the United States in 1952 purportedly to avert a nation-wide strike (Rejoinder
p. 229). But what the Respondent does not point out is that the Supreme Court dedared
that the President's seizure of the milis was unlawful under both the United States Constitution
and US statutory laws, and affi.rmed an injunction preventing the seizure from continuing.
The mere assertion by the President of the United States that the seizure was necessary to avert
a national emergency was found by the Supreme Court to be totally insuffi.cient to sustain his
action when that action had no legai basis.
In the present case, the Respondent's acts were not an ephemeral interference with property.
This was not a valid exercise of a police power. The exercise of this power was found to be
unlawful by the Respondent's own courts. No, this was an outright taking amounting to a
wholesale expropriation of interests in property. Due process was not provided to Raytheon
and Machlett. Just compensation was not provided to Raytheon and Machlett and the failure
to do so constitutes a violation of Artide V of the Treaty, as extended by paragraph I of the
Protocol.
Mr. President, I have another ten minutes to my condusion, would you permit me to
finish it?
The PRESIDENT: Please go ahead.
Mr. GARDNER:
- Failure to provide protection and security.
I turn, finally, to the fourth Treaty violation, and that is the failure to provide protection
and security to property. The final obligation violated by the Respondent - which should be
evident from much of what I have already discussed - was the Respondent's obligation to
provide constant protection and security for Raytheon and Machlett's property under Artide V
of the Treaty. This violation occurred when the Respondent allowed individuals to occupy
ELSI's plant.
I invite the Court to look at Artide V, paragraph I, ofthe Treaty. That provides that United
States corporations shall receive in Italy « the most constant protection and security for their
pex:sons and property, and shall enjoy in this respect the full protection and security required
by international law "· Artide V, paragraph 3, provides that United States corporations shall
receive in Italy no less protection and security than that accorded to Italian corporations and
other foreign corporations.
Once the requisition occurred, the Respondent had an obligation to protect ELSI from
its deleterious effects. The Respondent failed to do this in two ways: first, by failing to provide
an adequate method of overturning the requisition, and second, by failing to prevent trespass
on to ELSI's property.
The delay in ruling on the challenge to the requisition order until after ELSI's plant, equipment,
and work-in-process had been acquired by EL TEL was a denial of the level of procedural
justice accorded by internationallaw. As was discussed in our presentation of the facts, normally
the legality of the requisition would have been reviewed by the Prefect within a few days after
the date the ruling was sought, which in the case of ELSI was on I9 Aprii 1968. Indeed, a
delay of I6 months was absolutely unprecedented in Italy (Memorial, Annex 26, para. xo). Had
there been a speedy decision by the Prefect, the bankruptcy of ELSI dedared on 7 May could
have been avoided. Since the voluntary petition in bankruptcy was filed on 26 Aprii 1968, had
the requisition been rescinded within a few days, or even a couple of weeks, the bankruptcy
could have been .avoided entirely.
ARRINGA GARDNER 327
Now, the occupation of the plant, which tesulted in its deterioriation and impeded the
Trustee's efforts to dispose of it, occurred with the tacit approvai of Government authorities.
I t .discouraged potential buyers from inspecting ELSl's plant and assets, and generally chilled
the process of selling ELSI for its full value, Thetefore this action also constitued a denial
of << constant protection and security>>, thereby violating Article V, paragraphs I and 3, of the
Treaty regardless of whether physical damage actually occurred from the occupation.
l woul.d like. to conclude my remarks with one final point. The Respondent has from the
outset of this dispute taken the position that because ELSI was incorporated in Italy, the actions
taken by the Respondent that harmed · ELSI are not covered by this Treaty. The Respondent
states on p. 220 of its ;Rejoinder:
<<In view 6f its natiomility, therefore, ELSI was not eligible for protection under the
rcj48 Tfeaty and 1951 Supplerrtentary Agteemelit between Italy and the United States
with referenèe to ìts itctìvities in Italy and the events concernmg it whìch occurred in
Italy ».
The Respondent also, in both the Counter-Merrtorial (p. Io6) and the Rejoinder (p. 220),
cites Sumitomo Shoji America, Inc~ v. Avagliano (457 US I76 [I982]), and the United States
Governrtient btief in. that ·case for the proposition that FCN treaiies do not protect companies
incotporated in the host State.
With ali due respect, this statement is completely ·inaccurate. As I have noted in citing
vadous provisions ofthe Tteaty, notably Article III, paragraph 2, second sentence, ELSI, as an enterprise acquired bY Unired States corporations and in which they had a substantial
interest, was itself protected by the Treaty. This was recogni?ed in rrtany of the legislative
reports and debates conéerning this Treaty. For instattce, the Rapporteur in the Italian Chamber
of Deputies, during thé debate of is December I959, utged passage of the Supplement to
help protectUnitedStates investment, in its severalforms, one ofwhichis<<setting up an industriai
plari't in Italy under the direct contro! of the Aniericitn parent companies" (Counter-Memorial,
Allriex n, p. 24)~ In a lettet sent by the Uliited States Secretary of Corrtmerce to the Senate
Foteign Relatioris Corrtmìttèe in: Mity ti)5:Z, the Secretary stated: ·
cc As yo~' ma~.· know, • the Pepa~trnent • of Commerce has recently been giving special
attention to the pro[)lem$. of facilitatÌ!;:tg mutually profìt,able. private United States investxnents
in foreign countries. The conditions under whichforeign enterprises may be established
and operated in the various çountries, the obligations which they must assume,
and the rights of w):J.ich they can feeF assured, are outstanding among these problems. It
is therefore particularly gratifying that the modernized commerciai treaties contain explicit
ptovisions on these questions. In our opinion, they<gci far toward creating - so far as
governmental agreements can - that much desired favourable climate necessary to attract
American capitai and technology » (Counter-Memorial, Annex I6, p. 4I).
Now, a word about this Sumitomo case. It is important that we be clear about it. It dealt
with a particular article of the United States/Japan FCN Treaty- Article VIII, paragraph I,
which by its terms granted a right to foreign parent companies, not locally incorporated subsidiaries,
to employ personnel of their choice. The United States Supreme Court held that
Sumitomo America, that is, the locally incorporated subsidiary, could not invoke this provision
to avoid compliance with the non-discrimination requirements of United States civil rights
legislation. This decision was grounded on the fact that Article VIII, paragraph I, of the United
States/Japan FCN Treaty did not contain a particular protection for subsidiaries incorporated
in the host State, just as its counterpart contained in Article I, paragraph 2 (c), of the United
States/ltaly FCN Treaty and Article II of the Supplement do not contain such protections either.
But the absence of protection for a locally incorporated subsidiary in Artide VII, paragraph I,
of the United States/Japan FCN Treaty does not say anything about the existence of such
protections in other Articles of the United States/Japan Treaty, and certairuy says nothing
328 RASSEGNA DELL'AVVOCATURA DELLO STATO
about Articles of the United States/Italy FCN Treaty where such protections are explicitly
provided.
But even if ELSI is not protected by the Treaty, we are not dealing here with a matter
"internai» to Italy. The Treaty protects Raytheon and Machlett's rights and interests in ELSI,
direct and indirect, that were infringed by the actions taken against ELSI. The Respondent
would like to view this case through the prism of just ltalian la w, or through the prism of just
customary intemational law - its repeated references to the Barcelona Traction case show this.
But, distinguished Members of the Court, w ha t we ha ve in this case is a Treaty; a Treaty which
by its terms gives greater protection to rights and interests of foreign investors than is accorded
by Italian law or customary internationallaw. And it is by the standard laid out in the Treaty,
and only by that standard, that Italy's responsibility must be judged.
In conclusion, it is clear that the argument of the Respondent comes down to a " no-win »
situation for foreign investors. According to the Respondent, the rights and interesrs of foreign
investors in locally incorporated subsidiaries are not protected with respect to actions against
those subsidiaries by the host government. And likewise, according to the Respondent, the rights
and interests of the locally incorporated subsidiaries themselves are not protected. Well this
is absurd. By this logic, whenever foreign investment is conducted through a locally incorporated
subsidiary - which was the characteristic form of investment at the time this Treaty was
concluded and of course remains so today - the foreign investor has virtually no protection under
the Treaty. That interpretation is contrary to the ordinary meaning of the provisions of the
Treaty. That interpretation is contrary to the object and purpose of the Treaty. That interpretation
is unsupported in the legislative history of the ratification of the Treaty. That interpretation
is unreasonable and must be rejected. Foreign investment in locally incorporated
subsidiaries was protected in 1948 and it is protected today.
Mr. President, distinguished Members of the Court, in the two generations since the
Second World War, the world community has benefited from enormous transnational flows
of investment capitai, technology, and management skills. These flows have been facilitated
in part, in considerable part, by a network of international agreements of which the Treaty
before you today is but one example. If the narrow interpretations asserted by the Respondent
were to be accepted by this Court, the value of this network of treaties would be emasculated
and the security of international investments, so important to the welfare of nations, would
be gravely undermined. This is not just a matter of interest to the United States, for today,
as judge Sofaer pointed out in his opening statement, many other countries have an interest
in the protection of their investments abroad and many other countries have undertaken bilatera!
agreements similar to the Treaty we are construing today.
Mr. President, that completes my statement. I thank you for your attention.
Mr PRESIDENT: I thank you Professor Gardner. We will continue tomorrow at xo o'clock
to hear Mr. Ramish.
The Court rose at I3.IO p.m.
C 3JCR 89j4
Thursday 16 February 1989, at IO a. m.
Mr. RAMISH, Mr. LAWRENCB, Mr. MATHBSON.
The PRBSIDBNT: Please be seated. I understand that Mr. Ramish is going to take the floor.
Mr. Ramish.
Mr. RAM:ISH: Mr. President, distinguished Members of the Court, it is with great honour
that I appear before the Court on behalf of the United States. I will address the relief reques
ted by the United States. First, I will deal with our request fora declaration by the Court that
the Respondent, through its acts and omissions, violated the 1948 Treaty of Friendship, Commerce
and Navigation, and the Supplement thereto. Then I will turn to the entitlement of the
United States to reparation for those violations. I will explain the method we have proposed for
calculating the appropriate leve! of reparation and, in that connection, will cali upon Mr. Timothy
Lawrence to provide expert testimony. And finally, I will address the issue of interest.
I. Declaration by the court that the treaty was violated
The United States respectfully requests that the Court adjudge and declare that the Respondent,
through the acts and omissions presented to the Court, violated the various provisions
of the 1948 FCN Treaty and Supplement that we have invoked in our Application and pleadings.
In the case concerning United States Diplomatic and Consular Staff in Tehran, this Court
declared that Iran had violated its international obligations under certain treaties, which included
the 1955 Treaty of Amity, Economie Relations and Consular Rights (IC] Reports zg8o, p. 44).
That Treaty is similar to the Treaty before the Court in this case. As was stated in the Factory
at Chorzow case, the purpose of such a declaration is to:
« ensure recognition of a situation at law, once and for all and with binding force as between
the Parti es; so that the legai position thus established cannot again be calle d in question in
so far as the legai effects ensuing therefrom are concerned » (Interpretation of ] udgments
N. 7 and 8 (Factory at Chorzow, I927, PCI], Series A. N. I3, p. 20).
II. Entitlement of the United States to reparation
In addition to a declaration by the Court, the United States is entitled to reparation for the
violations of the 1948 FCN Treaty and Supplement committed by the Respondent. The priciple
is firmly established in international law that a State that breaches its international obligations,
whether treaty or otherwise, must make reparation to the State injured by its breach.
The Respondent does not dispute this principle - at least tacitly, it acknowledges that if the
Court finds that it breached the Treaty, it must make full reparation.
In this case, the reparation is to be measured by the injury suffered by Rayt):J.eon and Machlett.
The Respondent does not seriously dispute this either; it merely observes that the injury
to a State's nationals is not strictly identica! with the injury to the State itself- a proposition
no one contests. lnternational arbitrators and commentators concur that, for convenience and
equity, the damages to an injured national may be used as a guide in measuring reparation to an
injured State (see US Memoria! pp. 57-58). The financial losses to Raytheon and Machlett
constitute the very kind of injury the Treaty was designed to protect against and are therefore
an appropriate and equitable measure of reparation. The financiallosses to Raytheon and Machlett
are also the only convenient measure of reparation. And, indeed, the Respondent itself has
not identified any other measure.
330 RASSEGNA DELL'AVVOCATURA DELLO STATO
Compensation far All Injuries Flowing from the Respondent's Treaty Violations.
If, as the Parties agree, the Respondent must pay compensation for any treaty violation that
occurred, of what must that compensation consist ? The Factory at Chorzow case provides the
classic answer, which has been reaffirmed consistently by international tribunals and commentators:
« reparation must, as fat as possible, wipe out ali the consequences of the illegal act and
reestablish the situation which would, in ali probability, have existed if that act had not
been committed. Restitution in kind, or, if this is not possible, payment of a sum corresponding
to the value which a restitution in kind would bear; the award, if need be, of damages
for loss sustained which would not be covered by restitution in kind or payment in
piace of it - such are the principles which should serve to determine the amount of compensation
due for an act contrary to internationallaw" (Factory at Chorzow, Merits, I928,
PCI], Series A, N. r7, p. 47).
Once again, the Parties appear to be in agreement on the basic principle, if not on its application.
One must ask, therefore: what losses did Raytheon and Machlett suffer at the hands of the
requisition and in the bankruptcy process ? Their losses can be quantified as the overall difference
between their position as it should have been absent the Respondent's wrongful intervention,
and their actual position as a result of that intervention. Those losses may be said to fall into
two basic categories.
First, there are generai financial losses associated with the loss of a small anticipated return
of investment in ELSI, the loss of open acco~,tnts, and the payment of loan guarantees. These
losses reflect the difference between the financial position Raytheon and Machlett would have
been in had they been permitted to proceed with the orderly liquidation and the position in which
they actually found themselves following the sale of ELSI's assets by the trustee in bankruptcy.
Second, there are legai and related expenses. These include the legai expenses forced on Raytheon
by the bankruptcy and by the unfounded lawsuits of banks controlled by the Respondent,
as well as the costs incurred by Raytheon in pursuing its claim against the Respondent.
I will deal with each of these items of loss separately, along with the Respondent's objections
to them. I turn first to the generai financial losses that flowed from the requisition and bankruptcy.
Generai Financial Losses from ELSI's Requisition and Forced Bankruptcy.
When a State deprives a foreign national of property or property rights in a business enterprise,
compensation should be based on the full value of the business. This includes not only
the value of tangible assets, but also the intangible values bound up with those assets - for
example, goodwill, know-how and access to patents and technology. Typically, the value of the
business takes into account the company's future earnings potential. However, as judge Sofaer
stated at the outset of the proceedings, althought ELSI was to be sold as a live business, ELSI
was not generating profits at the time of the requisition. Threfore, the United States is making
no claim to future profits.
The starting point for the computation of damages to Raytheon and Machlett is to determine
what amount ELSI, or its product lines if sold separately, would have brought if sold on the
open market in the course of the orderly liquidation that was planned. The value of a business
is market-based - it is sometimes referred to as the enterprises' « fair market value "· It represents
the bargain a willing seller and a willing buyer would strike, absent Government coercion
or the threat of adverse and illegal Government actions. As we have indicated, the orderly liquidation
team had a comprehensive plan to sell ELSI or its product lines as business units.
Thus, the orderly liquidation would have realized the market value of ELSI's physical assets
as well as the substantial value of ELSI's intangible assets. The pian was to include, in the sales
package, ELSI's customer and supplier contacts, technical assistance, patents, trademarks,
ARRINGA RAMISH 331
know-how, all backed by Raytheon's and Machlett's reputations as leaders in technology in the
world's electronics industry.
Because the Respondent prevented the orderly liquidation, we cannot know precisely what
this amo un t would have been. Therefore, we ·ha ve to arri ve at this value based on the bes t information
available. This is justified as. a matter of law, so long as the value is reasonable and based
on evidence and not mere speculation. In this case, we propose to measure the value of ELSI
by its . book value. .
.·. The Uniteçl States does not in generai view book value as a fair measure of the value of an
ongoing- enterprise; the market value of the physical an d intangible assets. of a going electronics
company may be many times the bookvalue of the company . .Book valueis infact widely rejected
as a sufficient rneasure of the value of a business enterprise. International tribunals have refused
to employ book value, because it fails to take adequate account of the elements of the business
to be valued (see The (lqvernment _qf the State qj Kuwait and the American Independent Oil Company
(AMINOIL), XXI ILM pp. 976, 1038-xoa9 at para. 165 [1982]).
Commentators condemn book value for the same reason (see Clagett, « Just Compensation
in International Law: The Issues before the Iran-US Claims Tribuna!», in IV The Valuation
of Nationali;;:ed Property in International Law, pp. 3I, 49 (I987); McCosker, << Book Values in
Nationalization Settlements », in II The Valuation o! Nationali;;:ed Property in International
Law, pp. 36, SI (I973); Weigel & Weston, « Valuation upon the Deprivation of Foreign Enterprise:
A. Policy-Oriented Approach to the Problem of Compensation Under International Law »,
in I The Valu(ltir:m ofNationalized Property in lnternational Law, pp. 3, 16-17 [1972]).
W e have c;l.ecided to rely upon book value in- this case, however, because reliance on market
value as such is impracticable. International tribunals, while disfavouring book value, have relied
upon i t or. upon similar proxies in some limited circumstances.
This has occurred, for exemple, in cases in whi.ch a claimant has proposed book value. In
the Sedco case (Sedco, Inc. and Nationallranian Oil Company et al., x.o Iran-US Claims Tribuna!
Reports, pp. I8o, 182 [27. March 1986]), the claimant sought its share of the liquidation value of
a coi:npany. The award for certain of the company's assets took into account the calculations of
book value that had been put forward by the claimant. It may be noted, too, that book value
there was calculated on the basis of the « cm:rent.cost accounting' method, which allows the upward
adjustment of asset values to reflect inflation (IS Iran-US Claims Tribunal Reports, pp. 23,
I03-II5 (2 July I987]).
A number of awards have used a claimant's originai investment as a proxy for the fair market
value of property, when other measures were inappropriate. This approach was adopted in
the Phelps Dodge case (Phelps Dodge Corp. and The Islamic Republic oj Iran, IO Iran-US Claims
Tribunal Reports, pp. 121, 132-133 [19 March 1986]), in which a market value based on projected
earnings was considered too uncertain in the circumstances. It was also adopted in the INA
case (INA Corp. and The Government of the Islamic Republic of Iran, 8 Iran-US Claims Tribuna!
Reports, pp. 373, 380 (13 August 1985)], in which the claimant's investment was recent and the
cost of determining fair market value . by other means would have been excessive. A similar
approach was adopted in the Benvenuti et Bonfant case (Benvenuti et Bonfant v. People's Republic
of the Congo, XXI ILM, pp. 740, 759-760 at paras. 4·73-4·79 [1982]).
In.the particular circumstances of this case, book value is the only practicable and therefore
the only fair measure. First, ELSI was not a profitable enterprise, so the traditional formulations
that would recognize future profits are inapplicable. Second, book value is simply the
closest approximation of the value of ELSI's plant and assets that we have. The events at issue
occurred, more than 20 years ago. After 20 years, i t would, be exceedingly difficult to _reconstruct
the value of ELSI's prod,uct lines, spread as they were over markets that vary by product line.
I emphasize once again that the adoption of a book value approach in this case is called for
by special circumstances. Nothing in the approach of the United States to this case should be
construed to suggest that the United States would view book value as nece!)sarily proper in other
cases, especially where the property to be valued is primarily of an income-generating kind.
In this case, book value represents a conservative approximation of the equivalent value of
ELSI's assets on the open market. The book value on ELSI's financial statements as of 31
332 RASSEGNA DELL'AVVOCATURA DELLO STATO
March I968 was I7.05 billion lire. In aggregate, this value represents a fair accounting of ELSI's
assets. It was prepared on a basis consistent with the balance sheet of 30 September I967. That
balance sheet had been audited by the internationally reknowned accounting firm of Coopers &
Lybrand.
I will shortly be calling upon Timothy Lawrence, a member of Coopers & Lybrand, to provide
expert testimony explaining how book value in this case fairly refl.ects the value of ELSI's
assets. His testimony will refute statements by Dr. Mercadante and adopted by the Respondent
in its written pleadings suggesting that book value did not fairly refl.ect ELSI's value. Before
receiving his testimony, however, I would like to focus the attention of the Court on the
figures that rnake concrete the losses suffered by Raytheon and Machlett. For that purpose, I
would respectfully direct your attention to the chart appearing on p. 6o of the United States
Memoria!. (This is also set out on a transparency that we have provided for your convenience).
Column I charts the basis for the United States claim for reparation in this case. It starts
from the conservative premise that ELSI's physical and intangible assets were worth at least
book value. In fact, ELSI's assets may have recovered more than book value if the orderly liquidation
had proceeded as planned. However, as I have indicated, for the purpose of this claim
the United States bases its request for reparation on book value. Thus, the top line of the chart
- Proceeds for Distribution - refl.ects ELSI's book value as of 3I March I968, an amount
totalling I7,053·5 million lire.
The other figures that appear in Column I are taken from Schedule E attached to the affidavit
of Mr. Arthur Schene, formerly the Vice President-Controller of Raytheon. His affidavit
appears as Annex I3 to our Memoria!. As that schedule and the chart make clear, if ELSI had
been liquidated as planned and if book value had been recovered, preferred creditors would ha ve
been paid first in the amount of I,o36.8 million lire. Secured creditors would also have been paid
in full in the amount of 3,819.5 milion lire. Raytheon, in its capacity as unsecured creditor,
would have been paid in full in the amount of I,I43.8 rnillion lire. The reamaining unsecured
creditors - these were the small creditors, the banks with unguaranteed loans, and the banks
with guaranteed loans - would have been paid in full in the total amount of I0,292.4 million
lire. Finally, 370 million lire would have been paid to cover the estimateci administration and
liquidation costs. Subtracting all of these payments from I7,053·5 million lire would have left
Raytheon and Machlett with 39I million lire as a recovery of a very small portion of their investment
after paying all creditors in full.
Now compare the results of the planned liquidation with what actually happened in bankruptcy.
Column 3, which is on the far right side, depicts the distribution of the proceeds in
bankruptcy. In this case, the figures are taken from Attachment B, Schedule A, to the affidavit
of Mr. Dominic Nett, formerly the Controller of ELSI. His affidavit appears as Annex 30 to our
Memoria!. The proceeds realized in bankruptcy, and their distribution, are matters of record
and are not disputed by the respondent.
Line one shows the proceeds actually recovered by the trustee in bankruptcy from the sale
of ELSI's assets to the Respondent's IRI subsidiary, ELTEL- an amount of 6,373.8 million
lire.
Preferred creditors who filed claims in bankruptcy were paid in the amount of 1,961.7 million
lire, while the secured creditors who filed claims in bankruptcy were paid in the amount of
3,705.I million lire (I would note that these figures are slightly different from those appearing
on the chart; however, their total is the same). The administrative costs of the bankruptcy proceeding
were paid in an amount of 673.6 million lire. This left only 33·4 rnillion lire available
for payment on a pro rata basis to unsecured creditors. As you can see, unsecured creditors recovered
less than I per cent of their claims. Raytheon itself lost the full value of its own unsecured
loans - the so-called « open accounts >>. This explains the zero figure on the line marked
« Unsecured Raytheon >> as well as the figure of I,I43.8 million lire which appears on the line
marked « Open Accounts n. In addition, because proceeds from the sale in bankruptcy were
insufficient to pay the guaranteed creditors in full, Raytheon paid the guaranteed loans and interest
out of its own pocket in the amount of 5,787.6 million lire. That figure is derived from
Schedule II of Mr. Schene's affidavit (US Memoria!, Annex I3).
ARRINGA RAMISH 333
Now; you may ask why Raytheon did not share in the pro rata payment to unsecured creditors.
The answer is an economie one, but has no legai relevance. Because Raytheon determined
that the expense of filing a claim in bankruptcy would likely be. greater than any pay-out,
Raytheon refrained from filing a. claim in bankruptcy. This is immaterial to the claim, however.
As you see from Column 1, Raytheon stood to recover the full value of its loans from the sale of
ELSI's assets in an oxderly liquidation.
Having lost the • open accounts an d having paid the guaranteed loan,s, Raytheon suffered
actuallosses totalling 6·,931.4 million lire. Now contrast this with the small return of 391 rnillion
lire that Raytheon and Machlett wmdd have received from sale at book value. The sum of these
two figures is 7,322.4 million lire, which in dollars translates to US$II,739,200, and this represents
the United States claim for reparation for this category of injury.
What we have prop.osed ~ book value- is in these circumstances a reasonable proxy, and
the only.fair measurement for ELSI's value. As Mr. Lawrence will explain in some detail -
an d l would emphasize this point here ~ the valuation that was ordered by the bankruptcy court,
which we will refer to as the « Puglisi valuation », supports the recovery of at least book value
when one takes into account the depreciation in the intervening period. . The Puglisi valuation
does not even purp()rt to value the substa1J.tial intangible value of ELSI's business. Thus, in
this case book value is a conservative 7 indeed understated - value of ELSI.
As Mr. Lawrence will al!>O explain, the valuation submitted by a member of the IRI group,
which we will refer to as the << Siemens valuation », does not refl.ect the fair value of ELSI's
assets •••.. Indeed, pnt even the Respondent has seriously argued that the Siemens valuation should
be accepted by this (:ourt. lt values ELSI's assets. many months after the requisition. I t wholly
fails to value. ELSI;s intangible assets. Moreover,. it fails to value the X-ray, semi-conductor,
complex components, and other products. Finally, that valuatlon cannot .be treated as objective.
It was prepareclby ELTEL's parent, Siemens, as a basis for reducing further the minimum bids
establisbed by the bankruptcy judge.
This brings us to the ()nly other value on the record in this case, the quick-sale value. In
the course of planning the orderly liquidation, Raytheon management instructed the liquidation
team to prepare a worst-case scenario of the sale of ELSI's assets. This worst-case scenario
was to be used for internai Raytheon planning purposes only. It would allow Raytheon and
Machlett to deterrnine whether orderly .liquidation in the worst of circumstances was indeed
feasible. It was not meant to forma basis upon which ELSI's assets would be offered, nor did
it attempt to predict the actual value that ELSI's assets would bring under the liquidation pian.
Obviously, the incentive was to provide the parent- Raytheon- with as low a number as
possible. Againstthis low nuniber, the actual proceeds recovered on the open market for ELSI's
physical and. intangible assets could be treated as refl.ecting the successful efforts of ELSI personnel.
Consequently, the Hquidation teamprepared ~n estimateci minimum value of ELSI's assets.
1'his value has been referred toby both Parties throughout their written pleadings as the « quicksale
value ». To start, the liquidation team arbitrarily assigned a zero value to ELSI's intangible
assets. Next, the liquidation team artificially reduced the value of each category of ELSI's
assets to refl.ect whatthose assets might recover if put fot quick-sale on the market. Using this
approach, the liquidation team established a quick-sale value of 10,838.8 rnillion lire.
The liquidation team had every reason to expect that ELSI's physical and intangible assets
woùld have recovered far more thari. quick'-sale value given the steps taken by Raytheon and
Machlett to obtain the maximum possible value for ELSI's assets. As you will recall, these steps
inch:ided the sale of ELSI as a business, the alternative offer of sale of ELSI's assets by product
line, the aggressive marketing of ELSI's product lines to potential purchasers ali over the world,
and the comrnitment by Raytheoti and Machlett to supply, as part of the package, patents, trademarks,
technical assistance and know-how, in the context of their own established reputations
in the electronics industry. Thus, the quick-sale value substantially undervalues what Raytheon
and Machlett would have recovered for ELSI had the orderly liquidation been completed as
planned.
The quick-sale value served as the basis of the request by the United States in its diplomatic
claim in 1974. However, this was by no means a concession of the propriety of relying
22
334 RASSEGNA DELL'AVVOCATURA DELLO STATO
on quick-sale value in litigation. The diplomatic claim was an attempt by the United States to
achieve an amicable and rapid settlement of the dispute with a good friend and ally, ltaly. Indeed,
the diplomatic note of the United States dated 7 February 1974 made this clear, expressly
stating that the United States was prepared to enter into negotiations with the Italian Government
« with a view to concluding an expeditious and equitable settlement of the claim ... ».
As a settlement effort, the diplomatic claim represents neither an expression of opinion that
such artificial reduction of value corresponds to the international standard of compensation
- it does not - nor an evaluation of the worth of the claim. Many factors go into such settlements
- including the recognition that a small but certain recovery now may be more valuable
for a commerciai enterprise like Raytheon than a larger recovery that may come much later, if
at ali. The fact that a party may attempt to settle for a smallar sum early in the process by no
means vitiates its right to full compensation later, when its offer of settlement has been rejected.
This principle is illustrateci clearly in the judicial system of the United States, in which the
Federai Rules of Evidence preclude reference to the terms of settlement offers made during
negotiations (see Federai Rules of Evidence, Rule 408).
Let us consider, however, for purposes of comparison, what would have been the result
if the orderly liquidation had proceeded as planned and if Raytheon and Machlett had recovered
only 10,838.8 million lire for ELSI. The numbers show that even if no more than quick-sale
value had been recovered, Raytheon and Machlett would stili have been significantly better
off than with the sale in bankruptcy.
May I again respectfully invite you to turn your attemion back to tbe cbart. In this case
the Middle Column is the relevant one, and the figures are taken from Schedule F to Mr. Schene's
affidavit (US Memorial, Annex 13). The first line-Proceeds for Distribution-sbows tbe quicksale
value of ELSI's assets: 10,838.8 million lire. This amount would ha ve been sufficient to
pay first ali preferred creditors in the amount of I,OJ6.8 million lire - exactly as in Column
I. It would also have been sufficient to pay ali secured creditors in full, in the amount of 3,819.5
million lire - again exactly as in Column I. Tbe amount would also ha ve been sufficient to pay
the administrative and liquidation costs of 370 million lire.
Tbe remaining funds would have been used to pay the claims of the unsecured creditors.
As I indicated earlier, there were four categories of unsecured creditors: the small creditors,
banks witb unguaranteed loans, banks witb guaranteed loans, and Raytheon itself.
Raytheon and Machlett had planned to pay the small creditors' claims in full in the amount
of 520.6 million lire. They had planned to settle the unguaranteed bank loans at so per cent
of value, which would have been 2,030.2 million lire. Tbis would have reduced the funds available
to 3,061.7 million lire, wbich would then have been used to pay the banks with guaranteed
loans and Raytheon itself on a pro rata basis at 44.66 per cent (l would note in this connection
that this is the correct percentage, rather than the 42.89 per cent that appears in the beading of
Schedule F.). The banks with guaranteed loans would have received 2,550.9 million lire. Tbis
amount, added to the amounts I have just mentioned for tbe small creditors and the banks with
unguaranteed loans, results in the figure of S,IOI.7 million lire, whicb is reflected in the chart.
In the pro rata distribution, Raytheon would bave received 510.8 million lire, and again tbis
is the figure tbat is reflect~d in tbe cbart.
Tbe bottom portion of the chart shows the cost to Raytheon under this scenario. Raytheon
would have had to pay the balance of tbe guaranteed bank loans and interest in the amount of
3,160.6 million lire. Raytheon would also bave bad to write off the uncollected balance of 633
million lire of tbeir accounts receivable. This would bave resulted in a cost to Raytheon of 3,793.6
million lire, or in dollar terms US$6,o82,6oo. Compared with tbe actual bankruptcy proceeds,
Raytbeon would bave been better off with a quick-sale liquidation by a margin of 3,137.8 million
lire, or US$5,03I,ooo.
No matter how one views the orderly liquidation, tberefore, Raytheon and Machlett would
bave clone significantly better in such a liquidation than they did as a result of tbe sale and distribution
in bankruptcy. As Mr. Lawrence will discuss in more detail, however, book value
is tbe most appropriate measure of ELSI's assets in this case. Ali otber valuations should be
rejected.
CONSULENZA LAWRENCE 335
A t this time I would like to call upon Mr. Lawrence to make a statement explaining his
analysis and conclusions. Mr. Lawrence is a Fellow of the Institute of Chartered Accountants
in England and Wales and is a partner in the United Kingdom firm of Coopers & Lybrand.
He joined Coopet:s & Lybrand in 1960, became a partner in 1967 and a member of the firm's
Governing Board in 1975. He is now vice-chairman of that Board.
Mr. Lawrence has been a member of the Parliamentary and Law Committee of the Institute
of Chartered Accountants in England and Wales since 1980 and is a past member of that
Institute's Technical and Technical Advisory Committees. He has served as chairman of the
London Society of Chartered Accountants. Mr. Lawrence has considerable expertise in the
field of valuation of securities and business assets. He has lectured widely in courses and seminars
on valuatitm organized by the Institute of Chartered Accountants in England and Wales,
and other organizations. He is · the author of two audio-cassettes on the subject, published by
the lnstitute as part .of its training materials.
In 1974, Mr. Lawrence was appointed by Her Majesty's Secretary of State for Foreign and
Commonwealth Affairs to act as an independent expert valuer and has been appointed as arbitrator
or independent expert in valuation disputes, including those in the electronics industry.
Mr. Lawrence has also appeared extensively as an expert witness in the United Kingdom courts
and before arbitration tribunals, including the International Chamber of Commerce.
Mr. Lawrence has examined the pleadings in this case, including the documenta attached
by each Party. He will be providing his professional opinion as to the amount that would have
been realized from ELSI's. assets if Raytheon and Machlett had been permitted to proceed with
an orderly liquidation. May I now request the Court to invite Mr. Lawrence to make his statement,
please ?
The PRESIDENT: Thank you. Would Mr. Lawrence please take the floor. Before giving
your statement you have to make a solemn declaration, according to Article 64 of the Rules of
Court. Y ou have i t provided with the text.
Mr. LAWRENCE: I solemnly declare upon my honour and conscience, that I will speak the
truth, the whole truth and nothing buth the truth, and that my statement will be in accordance
with my sincere belief.
I. Mr. President, distinguished Members of the Court, I have been asked to explain to the
Court why I believe that if the management of ELSI had been permitted to proceed with a wellmanaged
and orderly disposal of its assets and business they could have realized at least the
amount of 17 billion lire, at which they were stated in the company's books.
2. In considering the relevance of book values to the issues in this case it is necessary to
refer first to the way in which companies draw up their balance sheets, and to the conventions
that are used. A balance sheet is a summary of the financial position of a company at the end of
its accounting period and summarizes the assets owned by a business, the liabilities owed by it,
and the shareholder's capitai and reserves, the capitai and reserves being equal to the amount
by which the assets exceed the liabilities.
3· The amounts at which the various assets appear in the balance sheet are referred to as
book value. These are the balances standing in the accounting records of the company and are
not necessarily the same as their current market value. They are based on certain principles and
practices that are widely accepted internationally. One of the fundamental accounting concepts
is the concept of prudence, which requires that losses in value should be recognized as soon as
they are anticipated but that profits should not be recognized until they are realized. The effect
of this is that book values will generally be no greater than market value but may be substantially
lower.
4· For example, fixed assets such as land and buildings are normally recorded at their cost
to the company at the time of purchase. The value of the land will be retained at that amount
but provision will be made for depreciation of buildings to reduce their book value year by year
over their expected useful life. The market value of the property may rise substantially above
book value but there is no accounting requirement to adjust the book value upwards, nor is adj
ustment norma! practice. I t should also be appreciated that intangible assets may have very
336 RASSEGNA DELL'AVVOCATURA DELLO STATO
substantial values that are not reflected in the company's books. The benefit to a company of
such matters as its technological know-how, its customer base and distribution channels, its
market share, the training and technical competence of its work force, its relationships with its
suppliers and its new product development and research activities represent a very great difference
between a new company just starting out with none of these advantages and an established
company which has them. These benefits have a substantial value that is not included in the
company's accounts.
Mercadante.
5· Before proceeding to consider the question of value, Mr. President, I should refer first
to certain criticisms of ELSI's accounting made in a report by Dr. Giuseppe Mercadante which
is amongst the papers before the Court. I t is clear that this report was prepared some six months
after the ELSI plant had been requisitioned. During this period no accounting records were
maintained and some of those that existed before may well have disappeared. It is extremely
difficult for any accountant to establish from a retrospective examination of accounting records
alone the exact nature and explanation of ali of the company's transactions and the reasonableness
of its expenditure.
Professional auditors have access to the accounting staff and to the management of the company
when they carry out their audit and are able to obtain from them important supplementary
information and explanations to aid their understanding and their ability to draw the right
conclusions. Dr. Mercadante had no such access to those responsible for the accounting and
management of ELSI and he makes it clear that this imposed substantial difficulties on his task.
6. Making full allowance for those difficulties, I found Dr. Mercadante's report confused
and lacking in objectivity. He appears to have set out with a positive intention to discredit or
blame ELSI's management and Raytheon and to treat every matter which he did not understand
as evidence of wrong-doing on their part. Many of his conclusions are manifestly unjustified
by the premises upon which they are based. In generai, his report does not aid the
determination of the value that should be placed on ELSI's assets and I will not dwell on it
further.
Valuation.
7· Turning then to the question of values, the evidence of value before the Court includes
three sources. First, there is the so-called << quick-sale » valuation, prepared by Raytheon personnel
in March 1968. Next there is a valuation of some, but not ali, of ELSI's fixed assets,
made by Siemens in May 1969 and, finally, there are the book values of ELSI's assets.
Quù:k-Sale Value.
8. Dealing first with the quick-sale valuation, the affidavit of Mr. Joseph Scopelliti shows
that the objective of the so-called << quick-sale » value was to prepare a very conservative plan
reflecting the minimum prospects of recovery of values which Raytheon could be sure of, in
order to ensure an orderly liquidation process. It concluded that the absolute minimum figure
for the proceeds of the tangible assets was 10.8 billion lire, the recovery of which could be relied
upon from a liquidation in any event. I t took nothing into account for any amounts which might
be received for intangible assets.
9· In my experience, it is quite normal, when consideration is being given to the liquidation
or disposal of part of a group of companies for estimates to be prepared of the possible outcome.
Such estimates are normally made on a very cautious or pessimistic basis. This is to ensure that
the subsequent outcome should not be a disappointment to the management or to the creditors
who may have agreed to a course of action based on such estimates. Where those making such
estimates are also to be responsible for the realization of the assets, there is a natura! tendency
to underestimate the proceeds so that their subsequent efforts will appear successful.
CONSULENZA LAVVRENCE 337
Io. In my vievv, the « quick-sale » valuation is only of limited direct relevance. It must be
recognized that the intention of those preparing it vvas to establish an extremely conservative
« vvorst case >> figure vvhich vvould have been considerably lovver than the proceeds they expected
to realize in an actual orderly disposal of ELSI's assets.
The Siemens Appraisal.
I I. I turn next to the Siemens appraisal. I do not propose to discuss the Siemens appraisal
in any detail but I vvould dravv the attention of the Court to three points. The first is the fact
that it did not extend to ali the company's fixed assets but omitted assets of a substantial value.
The second is the date of the report. I t vvas produced shortly after the third auction vvhich vvas
held on 3 May I969, over a year after the requisition of ELSI's assets. In the intervening time
those assets must have deteriorateci rapidly due, among other things, to lack of maincenance
and possibly pilferage. My final observation is that it vvas produced by the majority shareholder
in EL TEL vvhich vvas seeking to buy ELSI's assets a t the lovvest possible price. It is clearly
subjectively based and aimed at securing the bankruptcy court's consent to a substantial reduction
of the auction price. While I vvould not criticize Siemens for seeking to obtain the best
possible bargain, I do not believe that their document can be regarded as a fair and objective
assessment of the situation vvhen it vvas prepared and, stili less, the situation as it existed in
March I968.
Book Values.
I2. This brings me to the book values. With your permission, Mr. President, I vvould novv
like to present to the Court, in the form of a chart, a summary of the book values of ELSI at
3I March I968. I believe that the Court has copies of the charts before it. The figures shovvn
in this chart are derived from Attachment A to the affidavit of Mr. Dominic Nett, a document
vvhich is already before the Court as Annex 30 to the United States Memoria!. I have produced
the charts solely vvith a vievv to bringing together the key figures in a vvay that I hope the Court
vvill find convenient.
I3. I understand that the balance sheet at 3I March I968 vvas dravvn up by those responsible
vvithin ELSI using the same accounting principles and practices as had been adopted for
the purpose of the audited balance sheet at 30 September I967.
14. That balance sheet vvas audited by the Milan offi.ce of Coopers & Lybrand vvho, vvith
minor exceptions to vvhich reference vvas made in their audit report, reported that the balance
sheet vvas dravvn up in accordance vvith generally accepted accounting principles.
I5. I propose to refer in turn to each of the main tangible assets in the 1968 balance sheet
and to explain to vvhat extent it can be regarded as a reasonable refl.ection of the amount realizable
in the conditions applicable to a vvell-planned and successfully executed liquidation. I shall
then refer to the values that might have been obtained for the intangible assets of the business.
16. The balance sheet is expressed in millions of Italian lire and ali the figures that I shall
refer to in vvhat I have to say are also expressed in millions of Italian lire.
FIXED AssETS
17. I turn first to the fixed assets of the company.
I8. The Court vvill see that the total book value of 5,764.4 vvas made up of 5,300.8 in
respect of actual assets and 463.6 vvhich is described as « taxed reserve ». This latter amount
represented expenditure vvhich vvas disallovved by the Italian Revenue Authorities for tax purposes.
The company had reinstated it in its books in order that they should meet the Italian
legai requirement that the books should be kept in line vvith the tax position. lt seems clear that
the taxed reserve had no definite separate realizable value and I have therefort;- excluded it and
have used the lovver figure of 5,300.8 as my starting point.
338 RASSEGNA DELL'AVVOCATURA DELLO STATO
19. During the course of the bankruptcy proceedings of ELSI, the Court appointed Professor
Mario Puglisi of the University of Palermo as a technical consultant for the purpose of
appraising the value of the fixed assets of ELSI, with a view to determining the base price to
be set for the sale of its assets by auction. Professor Puglisi carried out his appraisal towards the
end of September xg68, some six months after the plant had been requisitioned by the Government
of Italy. His report describes his approach to the appraisal exercise as follows:
« this report ... is designed to determine the current market value of ELSI as a whole, if
sold to a third party which intends to operate the facility without substantially changing the
nature of the products or mode of manufacture. All valuation criteria applied must therefore
be seen in the light of this concept ''· Counter-Memorial, Unnumbered, Documents,
Exhibits, III-41.
I t appears from the Puglisi appraisal that he had access to a physical inventory of fixed assets
and was able to consider item by item the value of each of the main assets in this category. His
appraisal took into account the effects of obsolescence and the physical condition of the assets.
His approach appears to me to be entirely consistent with the assumption that the sale of the assets
should be achieved as part of a well-planned orderly disposal in which all the assets were disposed
of together to a single purchaser or as groups of assets disposed as a series of packages each comprising
all the assets associateci with a particular product or product group.
21. It is my opinion that the Puglisi appraisal, which directly addressed the question of
realizable market values (albeit at a date some six months after the requisition of ELSI's property)
provides an appropriate basis for estimating the realizable value of its fixed assets.
22. The Puglisi appraisal concluded that the aggregate current value of ELSI's land and
buildings at Palermo was 1,716.g which is in excess of the book value of 962.5. I7,I69·9 was
the value at the end of September 1968. The value at 31 March 1968 may have been somewhat
higher, having regard to the deterioration of the fabric of the buildings following their requisition
when, I understand, the company's normally high maintenance standards lapsed.
23. The assets covered by the heading « Machinery and Equipment >> in my summary of
fixed assets also include furniture, fixtures and automobiles and had a book value of 4,I54.2.
Not all of the assets included against this balance sheet heading were considered by Professor
Puglisi. He placed a value on those that were included in his appraisal of 2,843.6. This may
be a somewhat conservative assessment since no less than 3,691 had been expended on new machinery
and equipment within the past five years. His aggregate valuation of the land, buildings
and other fixed assets was 4,560.5.
24. However, he did not consider any of the assets at the Rome and Milan premises of
ELSI nor the automobiles. Something clearly needs to be added to the amount of his appraisal
in respect of those assets.
25. It must also be kept in mind that Professor Puglisi was considering the value at a time
when the plant had been idle for six months, during which no maintenance and repair work had
been carried out. Also, of course, all of the assets were six months older. These factors could,
in my view, easily account fora difference of some IO per cent between the value at 31 March
1968 and the value at the time of the Puglisi appraisal.
26. I would also mention that it is unclear whether the inventory of fixed assets which Professor
Puglisi used for the purpose of his appraisal included the items of construction-in-process
which are shown in the books at 184.1. If not, some further addition should be made for
these.
27. If allowance is made for the fall in the value between 31 March 1968 and the time of
the Puglisi valuation, for the automobiles, for the assets in Rome and Milan and for assets that
may have been omitted from the inventory, the apparent gap between the amount of the Puglisi
valuation of 4,560.5, and the book value of 5,300.8 can reasonably be accounted for.
28. I conclude that, to the extent of 5,300.8 the book value at 31 March 1968 is substantially
corroborateci by the Puglisi valuation and that it can properly be regarded as a fair indication of
the amount that would have been recovered in a well-planned orderly disposal.
' CONSULENZA LAWRENCE 339
Z9· In considering the reasonablimess of the belief that the amount of 5,300.8 was fully
realizable, I would invite the Court to bear in mind that ELSI had incurred substantial expenditure
in the years immediately preceding 31 March 1968 in upgrading its plant and providing
the equipment needed for the manufacture of sophisticated electronic equipment. No less than
4,175,,3 had been expended on property, plant and equipment during the five years ended ,30
September 1967. This supporta the view thatmuch of ELSI's fixed asseta comprise modern
up-to-date plant. , , , ,
, , 30. With allowartce made for the effects of inflation and for Professor Puglisi's finding that
the land and buildings were worth some 750 more than their book value, the prospects of realization
of the total book value appear to me to have been very good.
INVBNTORil!S
3 I. The next main group of assets is the inventory of materials an d work-in-process which
had a book value at 3 I March 1968 of 6,534.6.
3z. This atnoùnt included a taxed reserve, similar to that which I referred to in respect of
fixed assets, of t;o15 and this figure should be elìminated as having no recoverable value, so
reducing the book value to s,5I9.6.
33· The accounting principles upon which balancè sheets are drawn up require that a company's
inventory of materials and work~iri-process should be valued at cost, unless their realizable
value is lower than cost, ìn which case the book value is required to be reduced to net realizable
value.
34· A reduction amounting to 294·4 was made at 30 September I967 but the corresponding
adjustment may not have been made in arriving at the book value at 31 March I968.
35· I have therefore assutned that a simìlar provision would have been required at that
date and have reduced the book value further to 5,zzs.z.
36. The book value of the inventory, under generally accepted açcounting principles, must
be equal to or lower than its realizable value on a going concern basis. I believe that the book
value as adjusted of 5,225.z would have been recoverable in the context of a well-planned and
orderly disposal, in which the inventory associated with each product group was disposed of as
part of a package together with the associated plant and machinery, to a purchaser who would
also obtain the benefit of the established business connections with customers and suppliers.
ACCOUNTS RECBIV ABLB
37· I turn next to ELSI's accounts receivable, which appear in the balance sheet at a total
of Z,4IZ·4· This amount is made up as shown in this chart.
38. Itwill be seen that at 31 March 1968 the amount receivable from ELSI's customers
was z,x5o.8. Against this a reserve of 8o;6 had been madè for bad debts. Mr. John Clare has
testified that athorough purge of accounts i:eceivable had been carried out in 1967. The provision
of 8o.6 established at that date was arrived at after seeking positive confirmation from
all customers of amounts that they owed, thoroughly investigating accounts that were not agreed
and making appropriate adjustments. Mr. Clare has also told the Court that Raytheon would
have been prepared to guarantee these accounts receivable at their full face value. On the basis
of this information, I conclude that the net book value of 2,o7o.z fairly represents the realizable
value of these assets.
39· The amount of I06.o was shown in the accounts as owing to ELSI by its two subsidiary
companies in Zurich and Stockholm. These balances appear to have been regarded as recoverable
at 30 September I967 notwithstanding the fact that the subsidiaries had made losses which
had the effect of reducing the value of ELSI's investment in them. I can see no reason why thes~
340 RASSEGNA DELL'AVVOCATURA DELLO STATO
balances should not have been regarded as recoverable in full in the context of an orderly liquidation.
40. I have reviewed the items making up the other accounts receivable totalling 236.2,
which appear, for the most part, to be likely to have proved fully recoverable but include some
small items for which some adjustment might be appropriate. I have, therefore, rounded this
figure down to 200 by deducting an allowance of 36.2 for the amounts that might prove irrecoverable,
such as certain pre-paid expenses.
41. I conclude that the book value of accounts receivable, of 2,412.4, would have been realizable
to the extent of 2,376.2.
OTHER AssETS
42. Other assets included in the balance sheet of 31 March 1968 totalled 621. This included
a number of smaller balances, cash and bank balances, notes receivable, investments in subsidiary
companies, accrued receivables and pre-payments as shown in this chart.
43· I have carefully considered the items making up each of these headings and have identified
some minor respects in which adjustment appears appropriate in considering what might
have been realizable.
44· I t appears that the two subsidiaries would probably not ha ve realized any significant
amount and I have therefore eliminateci their value. I have also deducted an allowance of 71.3
for certain other minor amounts included within these headings that might not prove recoverable,
including part of a claim for a price adjustment on a sale contract relating to klystrons.
45· I conclude that these assets could be regarded as having a value of the order of 430.5.
46. In addition to these amounts appearing in the books, ELSI's outstanding claims to
grants under the Mezzogiorno legislation were expected to be metto the extent of 300. Nothing
was included in the balance sheet, pending agreement with the administering authority, but it
seems reasonable to bring this amount into consideration as a further recoverable asset, and I
have therefore increased the figure of 430 to 730.5.
INTANGIBLE AsSETS
47· Turning back to the chart showing the summary of the book values of ELSI's assets
at 31 March 1968, the final category that has to be considered is the intangible assets of the company.
As the Court may appreciate, the value of a company's intangible assets is not normally
fully reflected in its balance sheet. Some book value may be attributed to certain items of an
intangible character, the cost of which is being carried forward into future accounting periods,
but these do not tell the whole story. ELSI's balance sheet included certain headings which
contained items of this sort, such as studies in process, deferred costs of production, improvements
and reorganization. Such items totalled I,72I.I. While no separable value could be
attached to these items there was, in my opinion, a real prospect that intangible assets would
have realized a substantial value in connection with the sale of ELSI's businesses.
48. The purchaser of a business does not acquire simply its land, buildings, machinery and
equipment, its inventory of stores an d materials an d the right to collect its debts. I t acquires
also the whole of the benefit of its continuing business connections and of the cost and management
effort devoted to establishing and developing the business. This is sometimes referred
to as the goodwill of the business. It is my opinion that there was a good prospect that a purchaser
of any or ali of those businesses would have been prepared to pay a substantial premium
over the value of the tangible assets for the benefit of this goodwill, particularly if there was competition
between more than one prospective purchaser to acquire the business.
49· The particular features of ELSI's business connections that should have commanded
a substantial premium for goodwill were the following.
CONSUJ:,ENZA ·LAWRENCE 341
so. It had a strong technical base with great experience of the production methods required
for the manufacture of complex electronic products, such as microwave tubes for the Hawk
missile programme.
sx. It had the benefit of well-established sources of supply.
52. It had a well-established customer base and a substantial market share in certain markets,
such as the Italian cathode ray tube market of which, as Mr. Clare has testified, ELSI held
some 20 per cent.
53· It ,had a well-trained and technically competent workforce.
54· It had a strong technology base, which had been strengthened over the recent past
to form the basis for new product development.
55· It had dose conrtections with Raytheon, with that company's great technical strength
and the prospect of future ·access to the results of Raytheon's research and development activity.
Its existing technology included microwave ovens, for which there was an enormous potential
market, as well as new and improved Raytheon defence systems being introduced for production
in Europe.
56. And finally, there was the possibility that the acquiring company might obtain the
benefit of past losses against its future tax liabilities.
57. In my opinion there was a good prospect that the benefit of these intangible assets would
have produced a prexnium of at least 3,500 above the values attributable to the tangible assets.
And this would have had the effect of bringing the total amount realizable to a figure somewhat
higher than the total book value appearing in ELSI's 1968 balance sheet.
CoNCLUSION
58. By way of summary, I would present to the Court this chart, which sets out a comparison
of the book values shown in the chart produced earlier with the realizable values that
I have arrived at in considering each separate category in _turn: out of the book value 5,764.4
for the fixed assets, I conduded with thesupport of the Puglisi appraisal that some 5,3oo.8 would
be recoverable, but that the amount described as taxed reserve should be eliminateci.
59· Out of the book value of 6,534.6 for the inventories of materials and work-in-process,
I concluded that the taxed reserve of x,oxs should be eliminateci and that a further provision
should be made to reduce the realizable value to 5,225.·2.
6o. The àccounts receivable appeared to require only very xninor adjustment to elixninate
certain irrecoverable accruals and I reduced those from 2,412.4 to 2,376.2. The other assets of
62 I ha ve been adjusted to elixninate the investments in the subsidiary companies and some further
small irrecoverable amounts that have been increased by an estimateci amount of 300 which
was expected to be recoverable from the authorities administering the Mezzogiorno legislation.
6x. Finally, in piace of certain balance sheet categories of an intangible nature totalling
I,72I.I, I have concluded that a premium above the value a:ttributable to the tangible assets
could reasonably have been envisaged of the order of 3,5oo. This would bring the total prospective
recovery on a well planried properly conducted liquidation to a figilre marginally higher from
the book value which the United 8tates of America claims is the minimum amount that might
have been realized if the management of ELSI had been permitted to carry out an orderly disposai
of its assets and undertakings.
Mr. President, distinguished Members of the Court, that concludes my evidence.
The PRESIDENT: T.hank you very much. Mr. Matheson.
Mr. MATHESON: Mr. President, I have discussed with the Agent for the Respondent the
order of proceeding, and on the basis of that conversation I would suggest that we break now.
When we resume, Mr. Lawrence would be available for questions either by the Respondent or
342 RASSEGNA DELL'AVVOCATURA DELLO STATO
Members of the Court, after which Mr. Ramish would conclude our presentation on this aspect
of the case. I will then offer a final summary of the oral argument of the United States.
The PRESIDENT: Very well, we are going to proceed according to this agreement of the Parties.
Thank you very much.
The Court adjourned from II.IiiO to II.JS a.m.
The PRESIDENT: Please be seated. I call upon the Italian delegation to examirìe Mr. Lawrence
as an expert, please.
Mr. FERRARI BRAvo: Mr. President, with your permission, Professor Bonell will put some
questions to the expert and after that I might have another request to the Court.
The PRESIDENT: Very well. Please, Mr. Bonell.
Mr. BoNELL: Thank you Mr. President, distinguished Members of the Court. I shall be
very brief, I promise you I do not want to duly postpone our debate. Mr. Lawrence, are you
familiar with Italian accounting?
Mr. LAWRENCE: I do not profess to be familiar with Italian accounting. I have some experience
of Italian subsidiaries of British companies with which I have been concerned.
Mr. BoNELL: I see. Now, in your opinion, would a top manager of a United States company
normally be in a position to read and fully understand an Italian financial statement? I
mean, drawn up by an Italian company, in Italian, according to principles generally adopted in
that country?
Mr. LAWRENCE: As I understand the position, the accounts of ELSI were drawn up not
only so as to comply with Italian law but also so as to comply with the requirements of its parent
company Raytheon. Therefore I would expect information to be available to the parent
company management in a form which it could understand.
Mr. BoNELL: I see. This leads now to my next question precisely. You, earlier on this
morning, told us that the last regular balance sheet of ELSI, the one dated 30 September, was
audited, certified by your firm. Is that correct ?
Mr. LAWRENCE: Yes.
Mr. BoNELL: On the basis of that balance sheet then ELSI's management extrapolated and
prepared the balance sheet of 3 I March which you did not certify. Is that correct?
Mr. LAWRENCE: We did not. My firm did not carry out an audit at March I968.
Mr. BoNELL: Now could you tell us please how many kinds of audit reports do there exist?
I understand that if an auditing firm certifies or approves, so to say, a balance sheet, it states all
right without any further qualification or it states no, that is not all right and does not thereby
certify. Is there something in between? In other words, can it be that an auditing fl.rm certifies
a balance sheet but, under certain conditions, subject to certain qualifications ? Is that correct?
Mr. LAWRENCE: The word certify is one which auditors pre(er not to use because no audit
report is a certificate of accuracy. It is a professional opinion that the accounts give a fair presentation.
An audit opinion can be expressed with no qualification at all or it may be qualified
in some respect, or it may contain an observation that doesn't amount to a qualification of opinion
but which refers to a matter which the auditors feel should be brought to the attention of
the readers of those financial statements.
Mr. BoNELL: Thank you very much. Could you give us an example of such a qualification.
I mean w ha t kind, what sort of qualification could you envisage and indicate to us here and now ?
Mr. LAWRENCE: Well, if the auditors considered that, for example, the value of the investment
in the subsidiary companies which was carried in the books at I I9 million lire was not
ARRINGA RAMISH 343
supported by their examination of the financial statements of those subsidiary companies, they
might make a reference to that in their audit report.
Mr. BoNELL: I see. You, several times in your previous statement, refer to the fact that
your figures were based on the assumption that the balance sheet related to a going concern.
Could you imagine that the qualification added to an audit report, or contained in an audit
report, is made along these lines subject to being and remaining a going concern ?
Mr. LAWRENCE: Yes.
Mr. BoNELL: I see. You told us that your Milan Branch did do the job. I mean they prepared
the audit report.
Mr. LAWRENCE: Yes, that is right.
Mr. BoNELL: Have you seen the report?
Mr. LAWRENCE: Yes.
Mr. BoNELL: Very recently?
Mr. LAWRENCE: Yes.
Mr. BoNELL: I see. Well, Mr. President, thank you very much. I have no further questions.
The PRESIDENT: Thank you very much. Oh, I am sorry, I forgot that Professor Ferrari
Bravo wants · to put some question or questions.
Mr. FERRARI BRAvo: Mr. President, it appears from the argument of counsel this morning
and from the statement of the expert that it is essential for the Court to have before it the complete
financial reports concerning ELSI as at 30 September 1967 from which the book value has
been extrapolated. Those reports were prepared by Coopers & Lybrand, the same firm to
which today's expert belongs and which was referred to this morning specifically by Mr. Lawrence.
May I ask the Court to request, under Artide 62 of the Rules, the Applicant government
to produce these reports as soon as possible. I understand that it should not be difficult to find
them by applying either to Raytheon or to Coopers & Lybrand. Thank you Mr. President.
The PRESIDENT: Thank you. I think if there is no objection from my colleagues we are going
to require the American delegation to provide the evidence that has been requested by the delegation
of Italy.
Mr. MATHESON: We will be happy to do so.
The PRESIDENT: Thank you very much Mr. Lawrence. Now I think Mr. Ramish will give
us his statement.
Mr. RAMISH: Mr. President, before moving on to the other elements of the reparation the
United States claims, I would like to address a number of contentions that have been put forward
by the Respondent. The Respondent attempts to chip away at a major element of Raytheon's
damages from this portion of the claim: the loss Raytheon incurred when it made
good on its guarantee of certain ELSI loans. The Respondent's arguments on this issue are
difficult to make out. However, the Respondent appears to suggest that the United States is
attempting to shift the burden of the guarantee payments to the Respondent and that this is unfair.
The plain and simple fact is that the payment of the loan guarantees was an out-of-pocket
cost that Raytheon would never have incurred, but for the Respondent's wrongful acts and
omissions. Since those acts and omissions caused this injury, the Respondent must pay compensation
that will make the injured party whole. There can be no justification for any other
result.
The Respondent raises another objection that the United States has already addressed, but
which bears repeating. The Respondent asserts that, whatever wrong it may have committed,
it did not cause Raytheon's injuries. The Respondent argues that ELSI's bankruptcy and the
injuries that flowed from it resulted solely from ELSI's poor financial condition and from Raytheon's
unwillingness to invest further funds. According to the Respondent, the requisition of
344 RASSEGNA DELL'AVVOCATURA DELLO STATO
ELSI's assets, the delay in deciding the appeal against the requisition, and the subsequent manipulation
of the bankruptcy proceedings ali had nothing to do with Raytheon's injury. The
only thing the Respondent admits to have caused is the « temporary unavailability » of ELSI's
assets.
This is sophistry, pure and simple. The « temporary unavailability » of ELSI's assets is
precisely what caused - immediately, directly and predictably - ELSI's bankruptcy. ELSI
had valuable assets, the reasonable worth of which was lost because of the requisition, exacerbated
by the Respondent's foot-dragging during the appeal and by the Respondent's manipulation
of the bankruptcy.
To be sure, ELSI was in bad financial shape. No one has ever denied it. That was precisely
why Raytheon, after investing substantial sums in ELSI, finally decided to liquidate it.
No rule of law or equity required Raytheon to invest additional funds in ELSI. In Raytheon's
business judgment, it was better to liquidate. The Respondent had no right to second-guess
Raytheon's business judgment and hinder its execution, without compensating Raytheon for
the consequences.
The Respondent also asserts that no duty to compensate can arise if the benefits anticipateci
by the claimant, and destroyed by the Government, are too speculative. However, the cases
relied upon by the Respondent provide no support for the unrealistically strict standard i t asserts.
The Rudloff case (IX Reports of International Arbitrai Awards, pp. 244, 259) involved a
claimant who sought compensation for r8 years of future income from a marketplace he had
not yet built. In the decision in the case, such income was labelled speculative and it was
emphasized that the claimant's enterprise was not an « established business» - a sharp contrast
from the present case, in which ELSI was an established business and in which no future
income is claimed.
In Rice's case (IV J.B. MooRE, History and Digest of the International Arbitrations to which
the United States has been a Party, p. 3248, [r8g8]), the claimant sought the profits of the << business
which he would have clone» during a period of unlawful imprisonment. However, the
umpire found it « impossible to say what the loss of profì.ts may have been to claimant, if there
were any, for he cannot find out whether claimant pursued any distinct line of business ». Again,
the contrast with the present case could hardly be more evident.
In the case of Mora and Arango (IV J.B. MooRE, supra, pp. 3728-3783) the claimants sought
an indemnity for the wrongful stoppage of their firms' business with Cuba during an embargo.
The Tribuna! found, without explanation, that the firm's prospective earnings were very speculative
in character. But it did not deny compensation altogether, as the Respondent's outof-
context quotation suggests. Instead, the Tribuna! did what we are asking this Court to do:
it employed a reasonable proxy to measure the loss - in that case, an award in the nature of
interest on the stated capitai of the firm.
Surely the Respondent cannot mean to suggest that any damages not proven by having an
actual contract of sale in hand are excluded. Under such a standard, compensation for the fair
value of a business could rarely be awarded. The many cases awarding going concern value,
calculated not as a certainty but according to reasonable methods of prediction and valuation,
refute the narrow position suggested by the Respondent.
In any event, ELSI's anticipateci liquidation value was anything but speculative. We have
established ELSI's value, and we have shown that it would have been liquidated in an orderly
manner, rather than being forced into bankruptcy, if it had not been for the Respondent's wrongful
intervention. That intervention caused Raytheon and Machlett to lose the entire return on
capitai and ali of the open accounts with ELSI. In addition, it resulted in Raytheon's having to
pay ELSI's guaranteed debts. As a result, as we have shown, Raytheon and Machlett suffered
a loss of US $ rr,73g,2oo.
I now turn to the remaining categories of the United States claim. May I recall that these
relate to Raytheon's legai expenses and interest.
ARRINGA RAMISH 345
Raytheon's legal expenses
Raytheon incurred three kinds of legal and related expenses as a result of the Respondent's
unlawful acts. It incurred such expenses in connection with ELSI's forced bankruptcy; in connection
with the lawsuits brought against Raytheon by government-controlled creditor banks
to recover on ELSI's debts; and in connection with its efforts to recover compensation from the
Respondent. These were all predictable and foreseeable results of the requisition and resulting
bankruptcy, and are therefore recoverable under international law.
The first and third of these categories are most straightforward, and I will take them up
first. As we have detailed in our Memorial (Annex 40 and Annex 13, Schedule K), Raytheon incurred
legal expenses of US $ ns,638 in connection with the bankruptcy. Those legal expenses
were unavoidable costs associateci with the bankruptcy.
We have also detailed (Annex 40 and Annex 13, Schedule K) the US $57,226 in legal and
related expenses that Raytheon incurred in pursuing its claim against the Respondent up to the
time when this proceeding was commenced. The precedents are clear that an injured party may
recoyer costs sustained in pursuit of a successful international claim. The Respondent does
not c~ntest the law on this point, so I will simply refer the Court to the discussion of the relevant
cases that appears at p. 62 of our Memorial and at p. 156-157 of our Reply.
Raytheon also incurred very substantial legal expenses in defending against the lawsuits
brought by the Italian banks. As reflected in the chart to which I referred earlier, the unsecured,
.unguaranteed creditor banks received less than 1 . per cent of the value of their loans to ELSI
in the bankruptcy distribution. Consequently, five Italian government-controlled banks brought
suit against Raytheon for payment of these unsecured, unguaranteed loans. The Italian courts
subsequently dismissed all of the lawsuits as groundless, but only after several years of litigation
and great expense to Raytheon.
The lawsuits were the direct and foreseeable result. of the Respondent's requisition of ELSI.
In fact, the President of the Sicilian Region had adyised Raytheon, even before the requisition,
that such suits would be brought .. · .They would not have been brought - they would have been
unnecessary - but for the Respondent's requisition of ELSI. Had the orderly liquidation been
completed as planned, these banks would have been paid in full or would have settled their debts
with ELSI. However, the requisition prevented Raytheon and Machlett from settling ELSI's
debts with the creditor banks. Then, to compound the problem, the diminished proceeds from
the bankruptcy sale directly and proximately caused the banks to be paid a mere fraction of the
value of their loans. Although the bank suits were utterly unfounded - and were ultimately
dismissed as such - Raytheon's legal defence cost US $766,936 (see US Memorial, Annex 40,
and Annex 13, Schedule K).
In arguing that the banks were reasonable in pursuing Raytheon, the Respondent clinches
the causai connection. If, as the Respondent argues, the lawsuits against Raytheon were normal
and reasonable responses to ELSI's bankruptcy, then- as forecast by President Carollo- they
were the predicatable, foreseeable consequences of that bankruptcy, which was itself caused by
the Respondent. It is undisputed that internationallaw requires reparation for all injuries caused
by an internationally wrongful act. Such injuries can include expenses arising from third-party
lawsuits. In the case of Cerruti (II J.B. MooRE, supra, p. 21 17), Colombia seized the assets of the
claimant's firm, and thus destroyed his ability to liquidate the firms's debts. The arbitrator
recognized that this could predictably lead to suits by the firm's creditors against the claimant.
To make the claimant whole against all the injuries flowing from the wrongful act, the arbitrator
required Colombia to gurantee the claimant against potential third-party suits, and to
pay not only all judgments, but also the claimant's costs of defence.
The Respondent points out that the Italian courts, in dismissing the bank suits, awarded
Raytheon costs. Although legal fees were included, the costs were limited in accordance with
Italian law. The Respondent contends that the United States must be content with this, and
not seek Raytheon's actual legal expenses. But it is well established that municipal law cannot
346 RASSEGNA DELL'AVVOCATURA DELLO STATO
control a State's international obligations. As the Italian-United States Conciliation Commission
stated in the Wollemborg case:
« one thing is certain: the Italian Government cannot avail itself, before an international
court, of its domestic law to avoid fulfilling an accepted international obligation » (Commentary
to Art. 4, Chap. I of the International Law Commissions' Draft Articles on State responsibility,
II Yearbook of the International Law Commission, I973, p. I86; see also Eagleton,
The Responsibility of States in International Law, pp. I2-I3 [I928].
International law requires that Raytheon be returned to the position in which it would
have been absent the Respondent's wrongful acts and omissions. This requires compensation
of Raytheon's actual legai expenses.
The award of interest
The final element of the claim of the United States against the Respondent is for interest
on the total amount of damages, including lost value and legal expenses, or US $I2,679,ooo. Interest
is an essential componentof full compensation. Its function is to redress one of the most
significant injuries flowing from an illegal action: delay in the payment of compensation.
During such a delay, the benefits from the productive use of the claimant's property are diverted
from the claimant to the respondent. An award of interest merely rectifies this inequity - it
is not a windfall to the claimant, nor is it a punishment of the respondent.
The essential compensatory role played by interest is widely recognized by the commentators.
As Professor Lillich observes:
« Interest as part of an award by an international arbitrai tribunai, i.e., ' compensatory interest
', is recognized by customary internationai la w .. . as an element of damages inherent
in just compensation >> (R. LILLICH, « lnterest in the La w of Internationai Ciaims >>, Essays
in Honor of Voitto Saario and Toivo Sainio, pp. SI, 59 [I983]) (itaiics added).
The '' inherent >> compensatory roie of interest is reflected by the practice of international
tribunals, which have routineiy awarded it. As the Permanent Court of Arbitration stated in
the Russian Indemnity case:
« Legai interest allowed a creditor for a sum of money ... is the legai compensation for the
delinquency of a tardy debtor exactiy as interest-damages or interest allowed in the case of
... the non-fulfillment of an obligation, are compensation ... >> (The Russian Indemnity case
[I9I2j, I Hague Court Reports, pp. 297-3I3 [I9I6]).
The Permanent Court of lnternational Justice approved and awarded interest (see S.S.
« Wimbledon », I923, PCI], Series A, N. I, p. 33; Factory at Chorzow, Merits, I928, PC!],
Series A, N. I7, p. 47). So have the vast majority of other internationai tribunais. A brief
discussion of some oft he prominent cases may be found at p. 63-64 of our Memorial.
A Chamber of the lran-US Claims Tribunai has summed up the state of the law in these terms:
« The first principie [that can be deduced from international practice] is that under normal
circumstances ... interest is allocated on the amounts awarded as damages in order to compensate
for the delay with which the payment to the successfui party is made » (McCollough
& Company, Inc. and The Ministry of Post, Telegraph and Telephone et al., I I IranUS
Claims Tribunal Reports, pp. 3, 29 [22 Aprii I986]).
And more recently, the same body, sitting as the Full Tribunal confirmed that « it is customary
for arbitrai tribunais to award interest as part of an award for damages », and that the power
to do so is «inherent» in the authority to decide claims (The Islamic Republic of Iran and the United
States of America, Request for a decision of the Full Tribuna[ on whether the Claims Settlement
ARRINGA RAMISH 347
Declaration empowers the Tribuna[ to grant interest on its awards, Decision N. 65-Arg-FT, p. 8
[30 September 1987]) (italics added).
The Respondent, in its Rejoinder (p. 239), makes the surprising assertion that « international
case law is virtually unanimous [ ... ] in refusing to ackowledge a right to interest .... "· l t should
be clear from the foregoing discussion that the Respondent's position in this regard is simply
untenable. The Respondent cites the Corfu Channel case as an instance in which interest was
not awarded, but this can hardly serve to establish any proposition at all on the subject, since
interest was not requested in that case and the Court was very careful in applying the principle
of ne ultra petita,
The award of interest a ta commercially reasonable rate, from the date of injury to the date
of payment.
In order to provide full compensation, an award of interest must be at a rate that will actually
compensate a claimant for the loss of the use of his money. In determining that rate, the
Court should enquire: « [W]hat could the claimant reasonably ha ve expected had he had the use
of the property? " (D. O'CONNELL, 2 International Law, p. 1213 [1965]).
lnternational tribunals have varied in their approaches to this question. But over time a
clear consensus has emerged that interest must be awarded at a « commercially reasonable "
rate. The Court must, as in the Wimbledon case, take account of « the present fìnancial situation
of the world "• including contemporary rates of interest (S.S. « Wimbledon "• supra, p.
32).
In the discussion at pp. 64-65 of our Memoria!, we show that a « commercially reasonable"
rate in the present case would be the average annua! prime rate in the United States
during the relevant period. The Respondent appears to concede this point. In order to update
the information in our pleadings, I may add that for the last two calendar years the appropriate
rates were 8.21 per cent and 9·32 per cent, respectively.
As to the period during which interest should run, under the generally accepted rule interest
accrues from the date of injury unti! the date of payment of the award. Again, the Respondent
does not quarrel with this generai proposition, and I refer the Court to the discussion
that appears at p. 66 of our Memoria!. In this case, for the sake of simplicity, the United
States respectfully suggests that the Court calculate interest from the end of the calendar year in
which the injury occurred.
The Respondent does, however, quarrel with the application of this generai rule in the present
case. According to the Respondent, the lapse of time between Raytheon's injury and the presentation
of the case to this Court should reduce, perhaps even eliminate, an award of interest.
This argument is wholly without foundation.
As a matter of fact, the time between the injury and this claim's presentation was anything
but excessive, and the Respondent has in no way been prejudiced. The trustee's suit for recovery
of ELSI's loss of value due to the requisition was resolved against the trustee only in 1973.
In 1974 the United States formally presented its diplomatic claim to the Respondent. Only
some four years later did the Resporìdent send a reply to the note, asserting that the claim on
behalf of Raytheon and Machlett was groundless. Thereafter, the two Governments engaged
in diplomatic communication over the claim, up to the time it was placed before this Court.
The Respondent proposes to penalize the United States for attempting over a reasonable period
to settle Raytheon's claim amicably. But the Respondent can cite no authority suggesting that
the time spent in attempting to settle the claim was excessive or that any prejudice has resulted.
The controlling fact is that the Respondent has had the benefit of Raytheon's and Machlett's
property forali of these years; in no way could it fairly be said to be disadvantaged by having
to restore that benefit now. The award of interest does not punish here - interest simply
avoids a windfall to the Respondent, and it provides full compensation to Raytheon and Machlett.
348 RASSEGNA DELL'AVVOCATURA DELLO STATO
The award of interest on a compounded basis.
I turn now to the question whether interest should be simple or compound. The United
States recognizes that arbitrai tribunals historically have not shown much inclination to award
compound interest. Indeed, the Iran-US Claims Tribuna! has not awarded compound interest.
We submit, however, that in this case compound interest is fulfy justifìed.
In preventing the sale of ELSI's assets in the orderly liquidation, the Respondent effectively
deprived Raytheon and Machlett from recovering and using a sum of money, money that
would have been invested by each ·company throughout i:he period. Deprived of this investment,
Raytheon and Machlett were at the same time deprived of ali of the fruits of this investment.
Those fruits included the interest or savings that accumulated over time, which themselves
would have been put to work, earning further interest or savings. In consequence, the reparation
due here should also include compound interest.
The underlying purpose of interest - to provide full compensation - makes further evident
why in this cas~ interest should be compounded. As Dr. Wetter observes:
« the issue as to whether or not compound interest is permissible as an element of damages
must be resolved with reference to the ultimate legai rationale for awarding interest » (G.
WETTER, « Interest as an Element of Damages in the Arbitrai Process », 5 International Financial
Law Review, pp. 20-22 [1986]).
Dr. Mann explains it forcefully:
« [I]t is necessary ... to take account of modern economie conditions. It is a fact of universal
experience that those who have a surplus of funds normally invest them to earn compound
interest . .. On the other han d, many are compelled to borro w from banks an d therefore
must pay compound interest. This applies, in particular, to business people whose own
funds are frequently invested in brick and mortar, machinery and equipment, and whose
working capitai is obtained by way of loans or overdrafts from banks . . ..
lf, in accordance with the usual formula, damages are intended to afford restitutio in
integrum (complete compensation for the wrong suffered) such items of damage should
not be excluded » (F.A. MANN, « Compound Interest as an Item of Damage in International
Law », 21 UC Davis Law Review, pp. 577, 585 [1988]).
Similarly, in commenting on the issue of compound interest in the Starret case (Starret
Housing Corporation et al. and The Government of the Islamic Republic of Iran et al., Award N.
314-24-1 (14 August 1987), Concurring Opinion of Judge Holtzmann, p. 24), judge Holtzmann
of the Iran-US Claims Tribuna! observed that, whether or not a rule against compound interest
may have existed in the past, « it is no longer appropriate or justifìable .... [T]imes change and
the law should not be oblivious to such change ».
Some arbitrai decisions have, in fact, awarded compound interest and these cases are instructive
(see, e.g., Affaire Fabiani (France and Venezuela) (1896), V MooRE, supra, p. 4878,
summarized in III M. WHITEMAN, Damages in International Law, pp. 1785-1788 [1943]); Affaire
des Chemins de fer Zeltweg-Wolfsburg et Unterdrauberg-Woellan (Austria and Yugoslavia),
3 Reports International Arbitra[ Awards pp. 1795-1808 [1934]; Government of the State of Kuwait
and The American Independent Oil Company (AMINOIL), XXI ILM, p. 976 [1982]). In this
connection, I would cali to the Court's attention particularly the Fabiani case. In Fabiani, the
rationale offered for awarding compound interest was precisely that urged by Dr. Mann:
« The compounding of interest is authorized in the fìeld of current accounts and of
similar operations since the legislator presumes that in commerce money does not nemain
unproductive » (V MooRE, supra, at p. 4914) (translation).
Even the case primarily relied upon by the Respondent, Great Britain v. Spain (Spanish
Zone of Morocco (2 Reports of International Arbitral Awards, pp. 615-650 [1924]), suggests that
compound interest may be awarded in appropriate circumstances. The circumstances suggested
there are cases in which the goods that the damages awarded are intended to replace increase by
ARRINGA MATHESON 349
geometrie rather than arithmetic progression. As Dr. Mann observes, this analysis is compelling
in the case of money claims,.. for money invested at compound interest does « increase by
geometrie ptogression » (MANN1 supra, p. 579).
As a final objection, the Respondent. raises the spectre that an award of interest could exceed
the principal sum awarded. The Respohdent apparently believes that the incongruity and
inequity o(such a result is self-evident. In fact, that reault is entirely reasonable and realistic.
The Respondent should have èompensated Raytheon and Machlett at the time they suffered
their losses, but it did not. Since that time, the Respondent has in effect enjoyed the use
of the monetary equivalent of their property, which should have been paid over. Since that time,
the Respondent has avoided the cost ofthat amount of i:ntmey, which on the world's fìnancial
markets would have been available at compound interest. Since that time, too, Raytheon and
Machlett have been deprived of that money, which they · could have invested at compound interest
(or could have used to avoid borrowing the equivalent sum at compound interest). As Dr.
Mann puts i t i
'« [I]t is completely wrong to attach any signifìcance t() the fact that the award of interest
or compound interest may lead to the payment of a sum exceeding the capitai due from the
wrongdoer. This may happen in many cases as a result of the wrongdoer's delaying tactics
or the court's work load. But during that. period the wrongdoer has enjoyed the fruits of
the money withheld » (MANN, supra, p. 585). ·
Indeed, the perverse result of the Respondent's reasoning is that the more the wrongdoer
delays, and thus aggravates its victim's injury, the safer it is from having to cure that injury completely.
It cannot be that international law would more readily impose compound interest on
a wrongdoer who promptly erases the effects of his illegal act, .than on one who obstinately refuses
to do so for a protracted period. Such reasoning offends both good sense and equity.
Summary of the compensation sought
It may be helpful at this point to summarize the compensation requested by the United
States. As we have shown, Raytheon and Machlett's generai fì.nancial injury consists of the difference
between the position they would have been in had they been permitted to proceed with
liquidation, and the position in which they actually found themselves as the result of the Respondent's
unlawful intervention. This difference amounts to 7,322-4 million lire, or
US $II,739,20o dollars.
Raytheon's legai expenses are broken down as follows: US$I I 5,638.35 inlegal expenses in connection
with the bankruptcy; US $766,936.77 in legal expenses in connection with the successful
defense against the lawsuits brought by the Respondent's government-controlled banks; and
US$57,226.38 in legai expenses in connection with the pursuit of its claim against the Respondent
up to the time when this proceeding was çommenced.
The total of these claims is US $z2,679,ooo.
The United States respectfully utges the Court to award this amount, together with interest
calculated at the United States average annual prime rate, from the date of the injury unti! the
date of payment, compounded annually.
This concludes my presentation. Thank you for your attention and, at this time Mr. Matheson
will present the closing statement.
The PRESIDENT: Thank you .Mr. Rarnish. I give the floor to Mr. Matheson.
Mr. MATHESON: Mr. President, distinguished Members of the Court. It is now my honour
to conclude the oral presentation of the United States in this case. W e of course reserve the right
to rebut points of fact and law made by the Respondent in its oral presentation, through further
argument or, if necessary, testimony.
As we have noted, bilatera! commerciai treaties have been of great importance for many
years in helping to structure economie relations. In the era following the Second World War,
23
350 RASSEGNA DELL'AVVOCATURA DELLO STATO
the need to encourage and protect foreign investrnent was criticai to the reconstruction of the
European economy. Consequently, in 1948 the United States and Italy signed a Treaty of Friendship,
Commerce and Navigation. The principle objective of this Treaty and other FCN treaties
that followed was to develop an environment conducive to the flow of investment capitai.
As we have explained, the 1948 Treaty protects investors in a variety of ways, both as individuals
and as corpora te entities. The case before this Court- involving an investment through
establishment of a Iocally incorporated subsidiary - is a good example of the investment practices
which the Treaty was specifìcally designed to prevent, as a means of encouraging foreign
investrnent.
The facts of this case are not complicateci. To recapitulate briefly, in 1956, Raytheon invested
in and became a minority shareholder of ELSI, at that time a relatively new ltalian company.
By 1967, Raytheon and Machlett owned 100 per cent of ELSI.
As you have heard, ELSI never became fìnancially self-sufficient, in spite of extensive
efforts and fìnancial contributions by Raytheon. Raytheon made every effort to give Italian
authorities the opportunity to keep ELSI alive and its workers employed through normal and
lawful means, but the Italian authorities ultimately were not interested in doing so. Consequently,
Raytheon and Machlett decided to piace ELSI through an orderly liquidation. We have shown
that this orderly liquidation pian had a high likelihood of success, for ELSI had a number of
successful product Iines, with established customer and supplier relationships, which were supported
by Raytheon's patents, technical assistance and worldwide reputation. By selling ELSI
as a unit or by its individuai product lines, ELSI's creditors could have been satisfìed and ELSI's
shareholders could have avoided further Iosses.
This orderly liquidation, of course, never occurred. In Aprii 1968, when the Respondent
discovered the steps Raytheon intended to pursue, the Respondent requisitioned ELSI's plant
and equipment. As a result, Raytheon was unable to maintain the plant and equipment, to complete
work-in-progress, to show the plant and equipment to prospective buyers, or to sell any
of ELSI's assets.
ELSI unsuccessfully appealed to the Mayor of Palermo and other ltalian officials to set
aside the requisition order. It promptly fìled an appeal with the Prefect of Palermo. The next
day, the President of Sicily threatened that the requisition would be maintained indefìnitely
unless Raytheon abandoned its liquidation pian. He made clear that the Government would
ensure that in the meantime no potential buyers- whether public or private - would buy ELSI
or its assets. With debts continuing to come due, and with no prospect of regaining custody
of ELSI's assets and conducting an orderly liquidation in the near future, ELSI's ltalian counsel
advised the Board of Directors that, under the conditions brought about by the Respondent,
they were required to file a petition in bankruptcy. A bankruptcy petition was accordingly fìled
and ELSI was declared bankrupt.
In July 1968, the Government of Italy made public its intention to take over ELSI's assets
through a subsidiary of IRI. In December, IRI formed a new subsidiary, EL TEL, in order to
implement this decision.
The bankruptcy judge scheduled three auctions, in January, March and May of 1969,
at which ELSI's plant and other assets were offered as a single unit, at a set minimum price.
Despite the announced intention of the Government of ltaly to take over ELSI, EL TEL did
not bid at these auctions. Nor were there other bidders. The planned Government takeover
of the plant had been publicized and, by the time of the second auction, was well on the road
to completion. The terms of the auction, moreover, effectively excluded those whom Raytheon
had earlier identifìed as the most likely purchasers - companies interested in buying individuai
product Iines.
EL TEL therefore was ab le to negotiate its own terms of sale with the bankruptcy authorities.
As a fìrst step, EL TEL Ieased the pian t for nominai rental and acquired the work-in-process
at a bargain price. Once it was fìrmly in contro! of ELSI's assets, EL TEL then offered to purchase
the plant and most of the remaining tangible assets for substantially less than their fair
market value. The bankruptcy judge accepted this offer and ordered a fourth auction, at which
the minimum bid was set at the negotiated price. As a result, in July 1969, ELTEL purchased
ELSI's plant and equipment, and certain of its other assets, at a price well below its real value.
ARRINGA MATHilSON 351
In August 1969, 16 months after the requisition began but only shortly after ELTEL had
acquired ELSI's assets, the Prefect of Palermo finally acted on the Mayor's order of requisition.
He annulled that order, finding that it was not justified by any legai grounds and, moreover,
appeared to have been motivated by improper considerations.
The law ìn this.case is also rtot complicated. Indeed, the Respondent's steps were precisely
the type of action the FCN Treaty prohibits. Raytheon and Machlett were stripped of their
ability to · manage an d contro l ELSl when the Respondent prevented the exercise of a fundamental
shareholder right: the right to dissolve ELSI and dispose of its assets in an orderly manner.
As we have demonstrated, interference with management and control violates Articles III
an:d VU of the Treaty an d Article I of the Supplement.
The Respondent's failure to ovetturn the requisition in a reasonable period of time further
interfered with management and control, and ultimately resulted in the impairment of the in•
vestment rights of Raytheon and Machlett in violation of Article I of the Supplement.
The requisition was finally declared unlawful under Italian law, but only after the Respondent's
State-owned enterprise had bought ELSI's plant and equipment at bargain prices.
The Resptmdent's refusal to pay just and effective compensation for the takìng of Raytheon and
Machlett's property violated Article V; paragraph 2, of the Treaty.
By allowin:g ELSI's plant to be. occupied aftet the requisition and by failing to overturn the
requisition in a reasonable amount of time, the Respondent failed in its obligation under Article
V, paragraphs I and 3, to provide to Raytheon and Machlett the most constant protection and
security for theit ptoperty. ·
The Respondent's defence is based on the clearly incorrect proposition that the FCN Treaty
protects 11either the rights i!nd interests of a foreign investor in its locally ìncorporated subsidiary,
nor the rights and ìnterests of the subsidiary itself. Essentially the Respondent concludes that
the Treaty protects oruy the foreigp: shareholder's right to hold in its hand pieces of paper proving
ownership, but not the foreìgn shareholder's rights and interests that make those pieces of paper
valuable. The Respondent's interpretation is contrary to the ordirtary meaning of the Treaty's
provisiorts; contrary to the object and purpose of the Treaty, and contrary to the relevant supplementary
materials.
. T o vindicate their rights. and interests, Raytheon and Machlett had pursued every remedy
known to them to ptevent these actions a:nd tomitigate the damage caused by the Respondent.
Efforts were made to overturn the requisition. Effotts were made to avoid the bankruptcy and
its deleterious effects. Decision of the bankruptcy judge were appealed, such as the decisions
to lease the plant to EL TEL, and to sell the plant, equipment and supplies to EL TEL.
When the Prefect of Palermo finaliy ruled that the requisition was unlawful, the Trustee
of ELSI - who represented Raytheon and Machlett's ìnterests as creditors of ELSI - brought
suit against the Respcmdent seeking damages for the unlawful requisition. The Respondent
appeared before the Court of Palermo and rejected ali the claims brought against it. lndeed,
the Mayor of Palermo asserted that the claims were « inadmissible, unacceptable, unfounded,
and reckless "· When the Court of Palermo ruled ìn favour of the Respondent, the decision was
appealed to the highest court in ltaly, which required the Respondent to pay compensation, but
only for the six ... month cc use " of the pian t.
To be absolutely sure that no further remedies were available under Italian law, Raytheon
sought two separate legai opinions from eminent Italian lawyers who were leadìng experts in
theit field. Mter extensive scrutiny, both of them opìned that no such further remedies existed.
We have provided the Court with expert opinion that strongly supports that conclusion.
Despite ali of these efforts to get the Respondent to remedy its injuries, the Respondent
now asserts that local remedies were not exhaust~, and that this renders the entire claim inadmissible.
With ali due respect, invokìng the local remedies rule in this case is improper and unfair,
whatever the situation under Italian law. The United States does not concede that the local
remedies rule is applicable to violations of this FCN Treaty and, in any event, there is clearly
no requirement for suit in Italian courts prior to obtaìning a declaration from this Court that
the Treaty has been violated. Further, the Respondent was provided every opportunity through
its domestic procedures to canee! the requisition or to pay for the damage caused by it, but it
352 RASSEGNA DELL'AVVOCATURA DELLO STATO
refused to do so. Consequently, the local remedies rule - even if it were applicable to this case
- has been satisfied.
As you have heard, when the United States filed its claim with the Respondent on a diplomatic
basis in 1974, it expressly stated to the Respondent that further local remedies did not
exist. The Respondent simply replied that Raytheon and Machlett were not entitled to damages
under ltalian law. Had the Respondent believed that further local remedies existed, it would
have and should have so stated. The failure to assert this objection estops or precludes the Respondent
from asserting the local remedies rule now.
Now having established that the FCN Treaty was violated and that the Respondent's objection
to the admissibility of the claim should be rejected, we request the Court to provide
appropriate relief. The United States seeks a declaration that the Respondent, through its acts
and omissions, violated several provisions of the FCN Treaty. It is important that the Court
pass on these issues, both to resolve the present dispute and to provide guidance for commerciai
relations between our two countries in years to come.
The United States also seeks reparation for the violations of the Treaty, which may be measured
by the total economie loss caused to Raytheon an d Machlett. W e ha ve demonstrated that
if the management of ELSI had been permitted to proceed with the orderly liquidation, they
could have realized at least 17 billion lire, the amount of assets stated in the company's books
which, as you have seen today, ìs a conservative estimate of the value of those assets. The Trustee
in bankruptcy, however, ultimately received just slightly more than 6.3 billion lire for ELSI's
assets. The planned liquidation, had it been allowed to occur, would have generated sufficient
funds to satisfy ELSI's outstanding Italian bank loans, some of which had been guaranteed by
Raytheon, and ELSI's debts to Raytheon for goods and services provided on open accounts.
It would also have provided a small return to Raytheon and Machlett on their investment in
ELSI. Because of the bankruptcy, however, Raytheon itself had to pay the guaranteed loans,
and recovered none of its investment or what was owed to Raytheon on the open accounts.
Thus, the actuallosses of Raytheon and Machlett were significantly greater than they would
have been, had they been allowed to proceed with the orderly liquidation. In addition, Raytheon
incurred substantial expenses in the bankruptcy itself, in defending against the lawsuits brought
by Italian government-controlled banks, and in pursuing its claim for redress.
The United States has provided extensive documentation and expert testimony to establish
ali of these losses. As reparation for the violations of the FCN Treaty, the United States seeks
a total of US $12,679,000 plus interest compounded annually.
Mr. President, distinguished Members of the Court, you have before you a clear case in
which treaty rights have been violated. You have the opportunity to uphold the rule of law in
the area of economie relations, an area which is essential to harmonious relations between States.
Therefore, on behalf of the Government of the United States, I respectfully request that
the Court render a decision in favour of the United States, declaring that the FCN Treaty has
been violated and awarding reparation in the full amount sought.
The formai submissions of the U nited States are as follows:
« The United States requests that the objection of the Respondent be dismissed and
submits to the Court that it is entitled to a declaration and judgment that:
1) the Respondent violated the international legai obligations which it undertook by
the Treaty of Friendship, Commerce and Navigation between the two countries, and the
Supplement thereto, and in particular, violated Articles III, V and VII of the Treaty and
Artide I of the Supplement; and
2) that, owing to these violations of the Treaty and Supplement, singly and in combination,
the United States is entitled to reparation in an amount equal to the full amount of
the damage suffered by Raytheon and Machlett as a consequence, including their losses on
investment, guaranteed loans, and open accounts, the legai expenses incurred by Raytheon
in connection with the bankruptcy, in defending against related litigation and in pursuing
its claim, and interest on such amounts computed at the United States prime rate from the
date of loss to the date of payment of the award, compounded on an annual basis; an d
ARRINGA MATHESON 353
3) that Italy accordingly should pay to the United States the amount of US $r2,67g,ooo
plus interest ».
Mr. President, this concludes the oral presentation of the United States. We thank the
Court for its consideration of our claim.
The PRESIDENT: I thank Mr. Matheson and the American delegation for the assistance
given to the Court.
Do any of the judges want to put some questions at this stage? Judge Schwebel.
Judge ScHWEBEL: Thank you, Mr. President. I should like to put a question to the CoAgent
of the United States.
It appears that the United States confines itself to allegations of violations of the Treaty
of Friendship, Commerce and Navigation and to what it maintains fl.ows from those violations
- the submissions we have just heard so indicate. Earlier there were what I understood to be
suggestions, perhaps no longer maintained, of a kind of conspiracy among certain officials of
the Italian Government and companies, notably IRI and a subsidiary of IRI, to purchase ELSI's
assets at a very depreciated price. Now the United States has pointed out that it was at the same
time the policy of officials of the Italian Government to keep ELSI operating at all costs, provided
at any rate that the costs were met by Raytheon. The United States has also pointed that
among the principal unsecured creditors of ELSI were banks controlled by IRI. Can those two
facts be reconciled with any kind of conspiracy theory, if, in fact, that theory is indeed maintained ?
Thank you.
Traduction:
Il apparait que les Etats-Unis se bornent à alléguer cles violations du Traité d'amitié, de
commerce et de navigation et qu'ils se limitent, à ce qui, selon eux, découle de ces violations,
ainsi que l'indiquent les conclusions que nous venons d'entendre. J'ai cru comprendre précédemment
qu'on laissait entendre, ce qui n'est peut etre plus le cas, qu'il y avait eu une sorte de
conspiration entre de hauts fonctionnaires italiens et cles dirigeants de sociétés, notamment
l'IRI et une filiale de l'IRI, en vue d'acheter les biens d'ELSI à un prix très abaissé. Or les
Etats-Unis ont indiqué que les autorités italiennes avaient en meme temps pour politique de
maintenir ELSI en activité, à tout prix, à condition tout au moins que Raytheon en supportat
le coO.t. Les Etats-Unis ont aussi souligné que cles banques controlées par l'IRI figuraient parmi
les principaux créanciers chirographaires d'ELSI. Ces deux faits sont-ils conciliables avec
une quelconque théorie de la conspiration, pour autant que cette théorie soit effectivement soutenue?
The PRESIDENT: Thank you, judge Schwebel. Mr. Matheson, you do not have to reply
to this question right now. I think that, perhaps, it would be useful if you could reply before
the Italian delegation begins on Monday, in order to have ali the elements to proceed. Therefore,
in the course of tomorrow and during the weekend, I expect that the American delegation
could reply to the question put by judge Schwebel.
Are there any other questions? No. Therefore, we shall continue next Monday, 20 February,
to hear the oral arguments of the Italian delegation, at ro o'clock. Thank you very much.
The Court rose at 12.35 p.m.
354 RASSEGNA DELL'AVVOCATURA DELLO STATO
ELSI - FIXED ASSETS
Land and buildings ........................................ .
Machinery and equipment .................................. .
Construction in process ............ .
Taxed reserve ............................................. .
ELSI- ACCOUNTS RECEIVABLE
Customers ................................................ .
Less: Reserve for bad debts ................................. .
Affiliates
Other ..................................................... .
Book value l
5,300.8
Book value l
2,1so.8
(So. 6)
2,070·2
Io6.o
236-2
2,412·4
Puglisi
valuation
Realisable
value
2,070-2
Io6.o
200,0
2,376·211
ARRINGA MATHESON
ELSI - ASSETS AT 31 MARCH 1968
Book value
Tangible assets ......................•.•.....................
Fixed assets ............................................... . 5,764·4
Inventories ................................................ . 6,534·6
Accounts receivable ......................................... . 2,412·4
Other assets ............................................... . 62!.0
!5,332·4
Intangible assets ....................•........................ I,72I.I
!7,053·5
ELSI- INVENTORIES OF MATERIALS AND WORK IN PROCESS
Book value ......................................•......................
Less: Taxed reserve ...................................•.................
Less: Further provision ........................••........................
ELSI - OTHER ASSETS
Book value
lnvestments ..................................... II9.2
Cash an d bank balances •••••••••••• o ••••••••••••• 21·3
Notes receivable ................................ 128.1
Accrued receivables an d prepayables •• 00 •••• •••••• 352·4
50! .8
62!.0
Mezzogiorno grants ..............................
l
355
Realizable
value
5,3oo.s
5,225·2
2,376.2
730·5
13,632.7
3,5oo.o
I7,I32·71
6,534·6
(I ,o15 .o)
5·5!9.6
(294·4)
5,225·2
Realizable
value
o.o
430·5
430·5
300.0
730·5
C 3fCR 89/5
Monday 20 February 1989, at 10 a.m.
MR. FERRARI BRAVO - MR. GAJA - MR. LIBONATI
The PRESIDENT: Please be seated. W e have to hear today the Italian delegation. Therefore
I give the floor to the Agent, Professor Ferrari Bravo.
Mr. FERRARI BRAVO: Mr. President, distinguished Members of the Court.
It is for mè a great honour and pleasure to appear before this glorious Court of Justice as
Agent for the Italian Government. This is perhaps one of the greatest aspirations of an international
lawyer.
I would like at the beginning of my statement to thank the Members of this Chamber on
behalf of the Italian Government for having consented to form a part of it.
I would like in addition to thank President Ruda, whose high sense of the sacred interests
of international justice persuaded him to accept to preside over this Chamber when, only a few
weeks before the hearing of these oral pleadings, the former President Singh passed away unexpectedly.
And I wish, finally, to endorse the words expressed at the opening of these oral pleadings
first by President Ruda and then by the Agent for the United States GoverrÌment, the Honorable
Judge Sofaer, touchingly recalling the !ife and work of President Singh, whose untimely death is
so much regretted by us ali.
Mr. President, distinguished Members of the Court.
The case you are called upon to decide arises from an Application filed by the Government
of the U nited States.
This Application represents a unilateral initiative on the part of the Government of the
United States under Artide XXVI of the Treaty of Friendship, Commerce and Navigation between
the United States of America and Italy, signed in Rome on 2 February 1948.
W e therefore have proceedings in which there is an Applicant, the Government of the United
States, and a Respondent, the Government of the Italian Republic.
These are not proceedings in which the two Parties appear jointly before the Court on the
basis of a special agreement or in any other way expressing their common will to have this particular
dispute settled by the Court. Nor would it be accurate to describe Italy's acceptance of
the jurisdiction of the Court as resulting from the Counter-Memorial, as was suggested by counsel
for the Applicant (see C 3/CR 89/3, p. 302). The jurisdiction rests on the Treaty and on a
unilateral Application by the United States Government.
Before the Government of the United States of America filed its Application, the Italian
Government merely acknowledged that the Government of the United States had expressed its
desire to bring this case before the International Court of Justice. As made clear in a press statement
issued by the United States Department of State, it was the United States Government
that:
« determined to approach the International Court of Justice with a view to submitting that
dispute to a special chamber as provided by the Court's Statute and Rules of Procedure,
subject to mutually satisfactory resolution of implementing agreements" (14 International
Legal Materials, 1985, p. 176).
Italy took note of the intention expressed by the United States Government. The claim,
therefore, remains only a United States claim, nor has any counter-claim been put forward.
ARRINGA FERRARI BRAVO 357
This is not a case in which the two Parties have jointly requested the Court to settle points of
fact or of law under dispute between them.
In order to facilitate the course of intemational justice, the Italian Government accepted
the request made by the Govemment of the United States for the dispute to be settled by aspecial
chamber and not by the full Court. Specifìc acceptance in relation to the case refers only
to the. composition. ofthe Court. This does not affect the.applicability to the present case of the
provisìons of the Statute and the Rules of Procedure which are applicable when a case is brought
before the Court by means of an unilateral application.
That the International Court of Justice has jurisdiction in the present case is not disputed.
Italy did not insist that the United Statesshould, as provided.for by Artide XXVI of the Treaty,
fìrst bring to the negotiating table ali the basic contentions relating to the infringement of Treaty
provisions.
Negotiations over the claim have been spread over a long period. They have resulted in
the daim being brought before the Court by the Applicant. Some alternative means of settlement
were discussed by the Parties, . but talks over this di d not lead to any condusion. Certainly;
the profound divergence of opinion of the Parties over the merita of this daim have made
negotiations at times .difficult. The Italian Govemment chose, as it was perfectly entitled to do,
not to respond in writing to the lengthy 1974 Claim and the endosed Memorandum of Law and
severa! annexes. Any accusations that ~c[t]he Respondent has not demonstrated good faith in
its diplomatic negotiations with the United States regarding this daim >>, as suggested by counsel
(C 3/CR 89/3, p. 308) are totally out of piace. The blame for the lack of success for the negotiations
can hardly be put on the Respondent if only one considers that the Applicant kept increasing
the amouilt of its daim. However, as the question of how negotiations were conducted
has ·no t been the subject of either the Application or the submissions, i t may be preferable to
leave it aside. This attitude corresponds to the generai need for govemments to be able to engage
in confìdential negotiations with relative freedom. I may only add that the Italian Government
could well give its own account of the history of the negotiations.
The acknowledgement of the jurisdiction of the Court with regard to the daim in accordance
with Artide XXVI ofthe 1948 Treaty does not imply a recognition that the daim is admissible.
On the contrary, in its Counter-Memorial, the Italian Government presented an objection conceming
the failure by · Raytheon and by Machlett to exhaust the available local remedies. In
order to simplify the proceedings, the Parties agreed under Artide 79, para 8, of the Rules
of Court that the objection should be heard and determined within the framework of the merita.
This objection will be discussed by counsel.
The Italian Government requests that the Court declares the application inadmissible for
non-exhaustion of local remedies ·and has alreàdy made corresponding submissions both in the
Counter-Memorial and the Rejoinder. This objection is an essential par tof the case for the
Respondent and will accordir:igly be dealt with fìrst in the course of the p!eading.
Mr, President, distinguished Members of the Court, I would like now to make a brief outline
of some key aspects concerning the merits of the dispute.
One of these relates to the way in which arguments put forward by the Parties should be
examined.
In the present proceedings the Government of the United States requested the Court to
adjudge and dedare that Italy infringed obligations under the Treaty and Supplementary Agreement
and that reparation by means of the payment of a very large sum of money should be made
as a consequence.
The case involves therefore the law of State responsibility, to which the Court has not failed
to contribute signifìcantly.
In order to establish that an intemational obligation was infringed and that there is a duty
to make reparation, severa} conditions need to be fulfìlled.
First, there must be conduct (consisting in one or more acta or omissions) in violation of
an international obligation. Secondly, such conduct must be attributable to the defendant State.
Thirdly, such conduct must have been capable of causing damage. Fourthly, there must be an
actual causai relationship between the conduct in question and the damage for which reparation
is sought. And fìfthly, and lastly, the damage must be correctly quantifìed. The existence of
358 RASSEGNA DELL'AVVOCATURA DELLO STATO
ali these elements must be ascertained; in order to obtain a favourable decision the party daiming
damages for the illegal behaviour must prove its assertions in relation to each of them.
Let us now rapidly examine the proceedings as they stand.
With regard to the first point the Government of the United States has failed to prove the
existence of any breach of an international obligation. One thing that is not under dispute, is
that on I Aprii I968 the Mayor of Palermo ordered the requisition of the ELSI plant: a plant
which the company had already decided to shut down and whose workers had been laid off
without due notice.
The requisition was later dedared to be unlawful, but only under Italian law, by the Prefect
of Palermo. As a result of legai action, taken again in Italy and again in accordance with Italian
law, damages were paid to the receiver of the ELSI bankruptcy estate to compensate for the
requisition.
The requisition of the ELSI plant was intended to last for a period of six months, but in
practice it was effective for only five weeks - that is the time that elapsed between the requisition
itself (I April I968) and the dedaration of bankruptcy (7 May I968) following a petition filed
on 25 Aprii I968 by the management of ELSI under Italian law. Notwithstanding the eloquence
of its counsel, the Government of the United States has not established that the requisition represented
a breach of any international obligation, and in particular of the I948 Treaty or the
Supplementary Agreement. The Applicant has distorted the meaning of several provisions and
suggested some interpretations which contradict both the letter and the spirit of the Treaty and
the Supplementary Agreement.
As established by Artide 3I of the Vienna Convention on the Law of Treaties of I969,
which reflects international custom on the matter, as was recognized by the Applicant (C 3/CR
89/3, p. 3 I4) treaties must be interpreted " in accordance with the ordinary meaning to be given
to the terms » contained in them, unless it can be proved that a " special meaning » in the Convention
was intended.
The Italian Government strongly objects, as a matter of principle, to the way in which counsel
for the Applicant suggested that treaties with authentic texts in different languages should be
interpreted. In the Reply (at p. I46, n. 22) the Applicant said: (( the United States agrees that
the Rules of the Vienna Convention apply to the interpretation of this Treaty » - the Vienna
Convention in generai. Now counsel for the Applicant has dropped any reference to Artide
33 of the Vienna Convention and contends that treaties should be interpreted in the language
in which they were negotiated (C 3/CR 89/3, p. 321) supposedly that is, they were negotiated in
English. This is in order to give predominance to the English version over the I talian version
of the Treaty. Should the Court approve such a position, negotiations concerning international
treaties, particularly under the auspices of the United Nations, would be seriouslay impeded.
Obviously, for practical reasons, negotiations are held in the language that is most widely understandable
by the negotiators, but this in no way affects the equal status of the authentic texts.
And, if you go back through the history of the Vienna Conference, the reason why reference
to travaux préparatoires was put on the second rank is probably just because of the situation of
today's world.
Now, it is to be recalled that both the FCN Treaty and the Supplementary Agreement had
both English and Italian authentic texts. It is a matter of concern for ali the contracting States
to a multilingual treaty that the fact that the proceedings are held in English and French should
not result in more weight being given to the English and French texts as opposed to the texts
written in other languages.
Mr. President, distinguished Members of the Court, apart from the requisition of the
ELSI plant ordered by the Mayor of Palermo, which is not prohibited under the terms of the
Treaty and the Supplementary Agreement, the Government of the United States has not proven
any relevant factual circumstance from which one can legitimately infer any internationally
unlawful conduct by the Italian authorities.
The Applicant made much of a statement which the President of the Sicilian Government
made with regard to ELSI. This statement has been distorted, as will be shown by counsel.
I challenge the Government of the United States to show that no governor of a State of the
American Union has ever, in sirnilar circumstances, expressed himself in such terms. It is quite
ARRINGA FERRARI BRAVO 359
obvious that the political leader of a regional government should be concerned with the consequences
on employment of the closing of an industriai plant that employs a large workforce!
This is part of his job. Furthermore, this kind .of activity is carried out at the politica! leve!.
Why should Mr. Carollo's words be taken any more seriously than those of the ministers that
Mr. Clare disparagingly referred to in .his testimony?
Mr. Ph:isiderit, the eritire allegatiori of unla'\Vful conduct on the pàrt of Italy rests on three
major. points:
x) tlletequisition ofthe ELSI plant but, as has been pointed out, this was unlawful oruy
under muriidpaT law, while the existence of an internationally wrongful act. has by no means
be~n proved. by. the United . States;
2) :fue W(lrds of the President of the Sicilian Region which allegedly terrorized the Raytheon
Company; and
3) the .fact that IRl, which ultimately purchased the ELSI plant at the conclusion of the
affair, is a State-owned holding company.
Mr. President, distinguished :Members of the Court, this chain of arguments is pure fantasy
and reveals a total ignorance ()f the way a mixed economy system works in Italy,and in. many
other · countries; •• In these courttries,. except in the case of extraordinary . circum~;~tances, Stateowned
compatl.iesoperate in àccordance with market principles, in the same way as private cotnparties
do; Such exceptional circumstarices arose when an IRI company had to move in in order
to save t,ooo jobs in a region that badly needed them. These I,òoo workers had been laid off
without dtiénoticéin aruthless move that Raytheon used again in Belgiuri:i in the well-known
Badger affaH: (to which the book by Blançpain, The Badger Case published in Deventer in 1977,
which may be foui:Id in the Library o:f the Peace Palace, refers). With regard to ELSI, as from
March 1968 the s;llaries of the laid off workers had to be paid out of public funds provided by
the Sicilian Region, as did those for March 1968.
Co--Agent for the Applicant, Mr. Matheson has dedicated a substantial section of his opening
pleading<under the heading « Undìsputed facts » (C 3/CR 89/1, pp. 251-253). With respect, this
presentation is a clear attempt to distort the truth of the Parties' contentions. What Mr. Matheson
presented was the Applicant's case - or the Raytheon story. Not only are most of the
factS. Iisted there controversia!, but their statement, presentation an d interpretati an also differ
widely.
One example may be sufficient to illustrate this. In the section of undisputed facts Mr.
Matheson said, at page 30:
« The state of ELSI's profitability is not disputed in this .case, noris it relevant to this
proceeding~ Regardless of the state of ELSI's profitability, the Respondent wrongfully
prevented ELSI's shareholders and creditors from realizing the full value of the company
through the orderly liquidation of its assets >> (C 3/CR 89/1).
Are these undisputed facts? Or is this not a restatement of the Applicant's case?
The Respondent ha!l clearly pointed out the fundamental importance to this case of the
fact that ELSI was no longer a going concern before the requisition took piace; the Respondent
has also described as pure fiction the idea of conducting a so-called orderly liquidation on the
lines. suggested by the Applicant.
Mr. President, there is no proof of the existence of the facts alleged to be unlawful; furthermore,
it has not been shown that they were unlawful under international law and that the
I talian State is responsible for them. The w ho le chain of facts making up the alleged internationally
wrongful act referred to above is lacking, as will be demonstrated in due course by
counsel.
No evidence has been produced to show that the requisition of the ELSI plant caused any
damage to the plant. No production line was destroyed or even damaged; The buildings did
not collapse, despite the contrary impression given by the Applicant's presentation where it
appears that on I Aprii 1968 perhaps a second earthquake occurred in Palermo concentrating ali
360 RASSEGNA DELL'AVVOCATURA DELLO STATO
its force on the ELSI plant. Moreover, there is no evidence in support of another crucial point:
that 24 days after the requisition Raytheon had no option but to file a petition for bankruptcy
on behalf of ELSI, thus foregoing the « orderly liquidation >> so dear to the Applicant but
which Raytheon had never even prepared, let alone attempted to implement.
Absolutely no evidence has been produced in support of this and there are well-founded
indications, as we shall see, that Raytheon's trueintention, in the period immediately prior to
the requisition of the Palermo plant was quite different.
These points will be dealt with in the Italia~ defence in order to show clearly that there is
not the slightest connection between the situation in Palermo on l: Aprii 1968 and the damage
Raytheon claims to have suffered.
But, while there is no proof of the causai link between the alleged facts and the consequent
alleged dam:age, there is even less proof of a link between what actually occur'red and the alleged
damage.
The argument of the Applicant rests on the assumption that ELSI was ajewel of a company.
Nothing is further from the truth.
There is no evidence whatsoever that ELSI could be viewed in this way. Indeed, it was
a worthless company and Raytheon was perfectly well aware of this.
When ELSI was purchased by IRI from the bankruptcy estate, the only value accruing to
the latter was, if anything, that of the land and buildings, the rest of the company's assets being
almost valueless. No intangibles worth speaking of existed with regard to the plant. Technology
was mainly obsolete and obtained from Raytheon at a high price.
In ali probability, once the whole matter has been brought into its correct prospective, and
one considers the use that EL TEL could make of the product lines- which had to be dismantled
- one could hardly describe the purchase at the fourth auction as a bargain.
There is thus no causallink between the actual facts and the real damage; indeed, no real
damage occurred.
Mr. President, distinguished Members of the Court, if I have pointed to several salient
aspects of the wide range of arguments which will be dealt with further by my colleagues, i t was
to draw your attention from the very outset to the importance in the present éase of the problem
of the burden of proof and . that of persuasion. · This is a crucial matter because, ·in our opinion,
the Applicant has failed to prove its claims or to give any convincing evidence of the soundness
of its argument.
In a proceeding of this kind, in which there is almost total disagreement between the Parties
over the facts, as well as over the interpretation of the relevant Rules, the question of the burden
of proof becomes a very important issue. In this connection, the Court's jurisprudence is clear.
The burden of proof regarding the fact on which a claim is based lies with the party making the
claim. This jurisprudence is embodied in a large number of precedents, including those cases
in which the Court has refused when the defendant failed to appear, to accept without adequate
evidence arguments concerning points of fact raised by the applicant durìrig the proceeding.
The Court has repeatedly maintained that even in those circumstances it is necessary, as far
as possible, to ascertain that the arguments put forward by the applicant are founded.
To save time I will simply make a generai reference to the judgment in the case concerning
Military and Paramilitary Activities in and against Nicaragua (IC] Reports. 1986, p. 14) and the
case concerning United States Diplomatic and Consular Staff in Tehran (IC] Reports 1980, p.J).
Buti t is important to recall more specifically those precedents regarding caseswhere both applicant
and respondent were present. Thus, in the Corfu Channel case (Merìts), the Court said:
« It is clear that knowledge of the minelaying cannot be imputed to the Albanian Government
by reason merely of the fact that a minefield discovered in Albanian territorial
waters caused the explosions of which the British warships were the victims. It is true, as
international practice shows, that a State on whose territory or in whose waters an act contrary
to international law has occurred, may be called upon to give an explanation. lt is
also true that that State cannot evade such a request by limiting itself to a reply that is ignorant
of the circumstances of the act and of its authors. The State may, up to a certain point,
ARRINGA FERRARI BRAVO 361
be bound to supply particulars of the use made by it of the means of information and enquiry
at its disposal. But it cannot be concluded from the mere fact of the contro l exercised
by a State over its territory and waters that that State necessarily knew, or ought to have
known, of any unlawful act perpetrated therein, nor yet that it necessarily knew, or should
have known, the authors .. This fact, by itself and apart from other circumstances, neither involves
prima facie responsibility nor shifts the burden of proof ''· (IC] Reports I949, p. x8).
Even when a matter has been submitted to the Court by special agreement between the parties
(the compromis) the Court: has nevertheless subdivided the burden of proof, relating it to the
fact that one of the parties had alleged the existence of specific circumstances. The relative
burden of proof lies with the party making the daim. This is what results from the case of Minquiers
and Ecrehos where the Court stated that:
« Having regard to the positions of the Parties, both daiming sovereignty over the territory,
and in view of the formulation of the task of the Court in Artide i, and the terms
of Artide II, the Court is of opinion that each Party has to prove its alleged title and the
fact upon which it relies "· (IC] Reports 1953, p. 52).
A similar line of thinking was followed in the Judgment on the Merits in the Temple of
Preah Vihear case when the Coui't stated that:
« Both Cambodia and Thailand base their respective daims on a series of facts and
contentions which are asserted or put forward by one Party or the other. The burden of
proof in respect of this will of course lie· on the Party asserting or putting them forward "·
(IC] Reports I962, p. I6).
Similar principles have been applied in arbitration a:wards. Reference may be made to the
Norwegian Shipowners case (x Reports of International Arbitrai Awards, p. 332) and the Heirs of
]ean Maninet case (Io Reports of International Arbitrai Awards, p. 77).
The attempts by the Applicant to shift the burden of proof are dearly unreasonable. This
applies particularly to Mr. Matheson's statement that he would « present a brief summary of
the more important facts " which the Applicant considers undisputed and that « [i]f the Respondent
disagrees with any of these facts we invite the Respondent to specify them and to identify
any documents before the Court which support its position" (C 3/CR 89/1, p. 250).
The only evidence produced by the Applicant has come from Ra:ytheon. The two witnesses
produced in Court were the very people who planned and executed the dosing of operations.
With regard to this type of evidence I would like to recall what was stated by this Court in the
case concerning Military and Paramilitary Ac#vities .in and against Nicaragua:
« In the generai practice of courts, two forms of testimony which are regarded as prima
facie of superior credibility are, first the evidence of a disinterested witness - one who is
not a party to the proceedings and stands to gain or lose nothing frorn its outcome - and
secondly so much of the evidence of a party as is against its own interest "· (IC] Reports
I986, p. 43).
I do not consider it necessary, in this introductory part of our defence, to dwell at length
on these concepts. What is important is to emphasize that if what I have said is applied to the
case in point the totallack of proof of the facts alleged in the United States arguments should
lead to the rejection of the Applicant's case.
The answer given by the United States on 17 February to a question from the bench contains
unusual and far-reaching implications for the case of the United States.
In that answer the United States has formally rejected any argument or daim '' that the acts
and omissions of the Respondent that violated the Treaty amount to a 'conspiracy ',, It has
stated that it '' has never argued and does not now argue" that there was a conspiracy. This
change in the case of the United States is quite dramatic.
As Avvocato Caramazza, Professor Bonell and Mr. Highet will point out in the next several
days, the US pleadings - indud,ing their oral arguments - are replete with suggestiona that
362 RASSEGNA DELL'AVVOCATURA DELLO STATO
there existed what, in effect, was a conspiracy among representatives of the Italian Government,
local authorities, representatives of IRI, the bankruptcy trustee, and even (by necessary implication)
the judiciary. It is not possible to resile from this position now, merely by saying so.
The United States answer of 17 February, referring to the word« conspiracy n, states that:
« That characterization is not found in any of the written or oral pleadings of the United States ''·
It adds [i]t is the Respondent that describes the US claims as based upon a diabolica! plot
hatched by the Italian public authorities ... (the Rejoinder on p. 183) "·
Now, i t is true that we have so described the United States case. It is possible to describe
the case on something far less dramatic than a« diabolica! plot ''• however, I have just to get the
essential points across and what is the essential point? I t is that, with almost no exception, the
case of the United States requires there to be a continuity of events, a causai and consequential
relationship, between one act of one Italian authority and the next.
In order to find Italy responsible as asserted in this case, the Court has to find that there
was indeed a unified pian. Whether one calls it « conspiracy n, or a « diabolica! plot n, or something
more neutra! such as « concerted action " - or even, in the language of anti-trust lawyers, « conscious
parallelism " - the point remains the same.
It is that- working backwards- the United States must connect the acquisition by ELTEL,
and the absence of bidders at the auction, to the alleged delay in review by the Prefect of
Palermo and the actions of the Italian judicial authorities, and must in turn relate those back
to the actions of the Mayor of Palermo, and then again to the statements of President Carollo
of the Sicilian Region, in order to make the claims that it is doing.
Nothing else, save a necessary and sufficient line of mandatory cause and effect, could connect
these acts together. As Mr. Highet will point out at the dose of our presentation, there is
in fact a remarkable absence of evidence in this case.
It is therefore an intellectually impossible .challenge to the United States for it to supply
proof of a chain of causation. Thus, the United States, unable to meet this challenge, has doubtless
substituted the implication and suggestion that there was concerted action for the element
that i t would otherwise have to prove: that the events followed o ne another an d were linked by
causai necessity and inexorable fate. And in order to do this, the United States must bear both
the burden of proof and the burden of persuasion.
One might have thought that the contents of the United States response of 17 February
are so startling that they should have been refl.ected in a withdrawal of ali or most of the United
States claim. The difficulty in which the United States now finds itself is indeed a painful dilemma.
Without assuming that the actions here were concerted, or conspiratorial, or consciously
parallel, one cannot conclude that there is any relationship between the act of the mayor, for
example, and the ultimate sale to EL TEL, unless one assumes further that there is an unbroken
line of causation between them.
It should be noted, of course, that no claim as such is made by the United States for many
of these other incidents or events, save that they have formed part of an assumed or implied
secret concerted pian of action by the Italian authorities.
Has the United States requested the Court for relief, for instance, based upon the conduct
of or publicity for the first bankruptcy auction, at which no one appeared? No. Or the second,
or the third? No. Has the United States specified the claim for relief based on the actual sale
to ELTEL? No.
Of course not. They are only joined together by the implied premise that there was somehow
concerted action - if you will, a large-scale and subtle conspiracy - by the Italian authorities
against Raytheon. Therefore the case of the United States begins to dissolve from the head down.
I t is in fact experiencing a << disorderly liquidation "·
One by one, the incidents complained of will « fall away n, as long as the Applicant concedes
that they are unsupported by an assertion of concerted action or conspiracy, and as long as they
are not supported either by the clear and unequivocal establishment of a chain of causation.
As Professor Capotorti and Mr. Highet will point out, the same thing happens to the Treaty
and the Supplement upon which the United States clairn is based. The provisions of those instruments
can ben discarded, one after the other, as clearly inapplicable to the case in hand, until
ARRINGA GAJA 363
we are left with only the. barest suggestion of a legai justification for a claim against my Government;
I should now like to briefly illustrate the way in which the presentation of the case for the
Respondent has been organized. First, the objection that local remedies have not been exhausted
will be examined by Professor Gaja this morning.
And also this mornìng Professor Libonati will then illustrate the fortunes and prospects
of ELST as a manufacturet in the electronìcs field; in this context hewill demonstrate that in
reality the inyestment in ELSI was a: disaster right from the start and only got wotse over the
years.
Tomorrow, Avvocato Caramazza will examine the acts of the Italian authorities which allegedly
caused the bankruptcy of ELSI and the further damage to the shareholders, such as the
lack of the concession of Mezzogiorno incentives, the failure to react to the workers' occupation
of the ELSI plant, a:nd finally the requisition. He will go into the details of its i:notivation and
exai:nine the appeal which eventually led to the requisition being held unlawful under municìpal
law.
Professor Bonell will then consider the impact of the requisition on ELSI's so-called «orderly
» liquidation and, in this context, he will illustrate in particular thatwhen Raytheon decided
on :El.-SI's << orderly » liquidation, ELSI was alteady insolvent and had been under a duty to
fileJor ba.nkruptcy, so that nocausal connection can be claimed toexist between the requisition
ltild the bankruptcy, · · ·
He will <J,lso demonstrate that IRI had no interest in the acquisition of ELSI's plant and
only did so when it becàine clear that thete was no other way to prevent the loss of I,ooo jobs
in an area of chronic unemployment; arid further that the price paid by IRI in the end for ELSI's
plant was totally reasonable given the circumstances. ·
The problems relating to the interpretation of relevant provisions of the Treaty and the
Supplementary Agreement will then be dealf with by Professor Capotorti. He will show that
the méanìng of these provisions, while they also protect investments to some extent, cannot
be stretched to a point in which the host State would not be in a position of being able to ascertain
what are its obligations in relation to property situated on its territory.
Then Professor Monaco will address some remarks on the principles relating to reparation.
Now, in view of the i:naterial contained in the audited financials of ELSI for the fiscal year
endt\d 30 September 1967, that was descrìbed by Applicant on 17 February as requested by
the Court, and particularly in the context of the testimony of Mr. Lawrence on related subjectmatters,
we would also request that Mr. Hayward, listed an an advisor to our delegation, be permitted
tò address the Court on matters raised by this testimony and these financial statements.
And finally, Mr. Highet will give a: generai summing up of the case, and will consider the
balance of the various arguments in the submissions of the Parties and, in particular, the burden
of proof. . . .
And, at the end of all this, I w!llread out the final subxnission ofthe Italian Government.
This is ali. I thank you, Mr. President an d distinguished Members of the Court for your
kind attention and, with your permission, I would like to cali now on Professor Gaja. Thank you.
Mr. PRESIDENT: Professor Gaja please. Thank you.
Professot GAJA: Mr. President and Members of the Court. A student of international
law cannot fail to feel a sense of privilege and honour in being calied upon to address the Court.
I fully share this feeling today. I shall divide my pleading into three parts. The first part will
deal with the content of the local remedies rule and its applicability in the present case. The
second patt will discuss the remedies avrulable to Raytheon and Machlett. The last one will
consider the effects of the FCN Treaty in Italy.
A. The content of the local remedies rule and its applicability in the present case.
x. The local remedies rule is hardly controversia}. As the Court stated in the Interhandel
case, << [t]he rule that local remedies must be exhausted before international proceedings may
be instituted is a well-established rule of customary internationallaw ... » (IC] Reports 1959,
364 RASSEGNA DELL'AVVOCATURA DELLO STATO
p. 27). Mr. President, with your permission, I would like to leave out the references they will
be found in the written record. In a more recent report to the Generai Assembly, the International
Law Commission noted that:
« ••• the requirement that private individuals directly affected by measures taken by an organ
of the State in which they reside and carry on their activity should exhaust the local remedies
has always been a safeguard which the countries invested in have applied against a
tendency unduly to extend obligations concerning the treatment of foreign natural and
juridical persons » (Yearbook of the International Law Commission, 1977-II, Part Two, l,
p. 49. para. 56).
A well-known definition of the local remedies rule was given by the Institute of International
Law in 1956 a t the Granada session. This definition was quoted approvingly in the Memorandum
of Law annexed by the United States Government to its 1974 claim on behalf of Raytheon
(Unnumbered Documents attached to the Counter-Memorial, Vol. l, p. 133). According to
this definition:
« when a State claims that an injury to the person or property of one of its nationals has
been committed in violation of international law, any diplomatic claim or claim before a
judicial body vested in the State making the claim by reason of such injury to one of its
nationals is irreceivable if the internai legai order of the State against which the claim is
made provides means of redress available to the injured person which appear to be effective
and sufficient so long as the normal use of these means of redress has not been exhausted »
(46 Annuaire de l'lnstitut de Droit international, 1956, p. 364).
According to the Italian Government, this is precisely what occurs in the present case:
there were means of redress available to the allegedly injured perso n; these means ha ve no t
been used, let alone exhausted; therefore the claim is irreceivable or, in another word, inadmissible.
2. The local remedies rule is certainly applicable to claims made by a contracting State on
behalf of one of its nationals under the 1948 Treaty of Friendship, Commerce and Navigation
and the 1951 Supplementary Agreement between Italy and the United States. The present
claim does not concern any direct injury allegedly caused to the United States. It is on the contrary
a case of diplomatic protection. As was stated by the international arbitrai award in the
Ambatielos case, which also concerned a claim alleging the infringement of a bilatera! Treaty of
Commerce and Navigation:
« the State against which an international action is brought for injuries suffered by private
individuals has the right to resist such an action if the persons alleged to have been injured
have not first exhausted ali the remedies available to them under the municipal law of that
State» (12 Reports of lnternational Arbitra[ Awards, p. n8 et seq).
There is nothing either in the Treaty or in the Supplementary Agreement to suggest that
the local remedies rule has been discarded with regard to claims under the Treaty and the Supplementary
Agreement.
An exclusion of the application of the rule with regard to a claim under the Treaty and the
Supplementary Agreement has been contended on behalf of the Applicant for the first time by
Mr. Murphy when he said: «In the case of this particular treaty, there is no reason to believe
that the parties intended such a rule to apply » (C 3/CR 89[3, p. 303). The arguments put forward
by Mr. Murphy, namely that « there is no express inclusion of the local remedies rule »
in the Treaty and further that:
« under Artide XXVI of the Treaty, both parties agreed that disputes between the parties
as to the interpretation or the application of the Treaty not satisfactorily adjusted by diplomacy
shall be submitted . to the Court »,
ARRINGA GA]A
have little substance. In view of judiciai and arbitrai practice it may well be said that when there
is a generai agreement covering disputes which may arise in the future, such an agreement is not
normally viewed as waiving the rule.
3· It has been further argued by the Applicant that the Itaiian Government is estopped
from invoking the local remedies rule in relation to the claim put forward by the Applicant on
behalf of Raytheon and Machlett, (for the sake of simplicity, further references will be made
only to Raytheon, as Machlett, a fully-owned subsidiary of Raytheon, held only a few shares
in ELSI and never took independent action in this case).
No explanation is offered by the United States Government as to why the Italian Government
should have taken a self-defeatist attitude implying either a waiver of any right under the
locai remedies rule or an estoppel. The search for plausible reasons would any way be pointless,
as no waiver has ever taken place, nor has there been any atti tu de o n the part of the I taiian Government
which could justify the existence of an estoppel. Not only has the Applicant failed
to provide evidence to this effect, it has also given clear indications that it expected that the
issue of whether existing remedies had been exhausted would have been one of the centrai issues
in any adjudication procedure over the claim. In the Memorandum of Law submitted by the
United States Government in 1974, five pages were devoted to this issue; no suggestion was made
at that time that there had been a waiver or an estoppel (Unnumbered Documents attached to
the Counter-Memorial, Vol. l, pp. 133-137).
Counsel for the Applicant, Mr. Murphy, has tried to elaborate on the fact that an undated
and unsigned Aide-Mémoire was delivered to the United States Embassy in Rome in 1978 and
that it did not contain an objection with regard to the non-exhaustion of locai remedies (C 3/CR
89/3, pp. 306-307). This document was referred to in a letter- which was filed by the Applicant
on 20 January 1989 together with the document- as a « confidential juridical memorandum»
(the letter was from the Secretary Generai of the Italian Ministry of Foreign Affairs to the United
States Ambassador). It clearly in no way represented Italy's final position on the case. Moreover,
it only deait with a few aspects of the claim, which was described as unmeritorious. The
question of local remedies was not discussed in the document. If this could be seen to represent
an estoppel or an implicit waiver of the application of the local remedies rule, negotiations between
States over claims would be put under an unbearable strain. If Mr. Murphy's argument
were correct, the Italian Government would have been precluded from raising any defence
against a claim which had not been referred to in the confidential juridical memorandum, nor
could the Applicant present any argument which was not invoked in the 1974 Claim or even in
confidential representations made earlier on. It is anyway a fact, which can be supported by
written evidence if the Applicant insists upon it, that the Italian Government had made it clear
to the United States Government that as a Respondent it would raise the objection of nonexhaustion
of local remedies in judicial proceedings and that no estoppel had been invoked by
the Applicant at that time.
4· When the 1974 Claim was presented, an action by Raytheon for compensation of damages
for the alleged injuries would have already been barred by the five-year limitation set by Artide
2947, paragraph I, of the ltalian Civil Code - incidentally, five years is a longer period than
that which is generally provided for in municipal systems for claims against the State or State
authorities.
Thus, the attitude taken by the Italian Government in respect of the 1974 Claim cannot in
any way affect the issue of whether local remedies have been exhausted or not. Moreover, no
authority suggests that the respondent State is under an obligation to prompt the use of available
remedies. However, Mr. Murphy contended that «a State is under an obligation to recommend
legai action against itself » (C 3/CR 89/3, p. 307). He will therefore no doubt be horrified if I suggest
that even in the hypothetical case that the ltalian Government had mistakenly asserted that
no local remedies existed, the non-exhaustion of local remedies would stili not be justified. There
is no less authority for this proposition than the following passage in the Court's judgment in
the Interhandel case:
« The Court does not consider i t necessary to dwell upon the assertion of the Swiss Government
that 'the United States itself has admitted that Interh!!ndel had exhausted the reme366
RASSEGNA DELL'AVVOCATURA DELLO STATO
dies available in the United States courts '. It is true that the representatives of the Government
of the United States expressed this opinion on several occasions, in particular in the
memorandum annexed to the Note of the Secretary of State ofu January, 1957. This
opinion was based upon a view which has been proved unfounded "· (IC] Reports 1959,
p. 27).
As is well known, the United States Supreme Court had in the meantime granted a writ of
certiorari. My point is that no relevance was then given to the attitude taken by the United States
Government with regard to the existence of remedies.
Mr. Murphy introduced another argument with regard to the application of the local remedies
rule. He said: « there is clearly no requirement in international la w that a State must
exhaust local remedies before it can seek to vindicate its own rights through declaratory relief "
(C 3/CR 89/3. p. 303). This argument is hard to grasp. Could one really say that submissions
requesting payment of aver 12 million dollars plus interest are in fact seeking declaratory relief?
For the sake of his argument, Mr. Murphy attempts to split the claim for a declaration that the
Treaty has been violated from the claim for reparation. A similar attempt had been made by
the Swiss Government in the Interhandel case, but the Court noted that « one interest, and one
alone, that of Interhandel n had « induced the Swiss Government to institute international proceedings
"• and that this interest, being the basis of the international claim, « should determine
the scope of the action brought before the Court by the Swiss Government in its alternative
form as well as in its principal form " (IC] Reports I959, p. 29). Thus, even if the attempt
to split the submissions were insisted upon, and eventually became successful, the local remedies
rule would stili be considered fully applicable.
5· The Parties agree that, in arder to measure compliance with the local remedies rule, the
Applicant's contentions on the merits are decisive. Were it necessary to establish the truth with
regard to issues of law and fact pertaining to the merits before considering whether local remedies
were exhausted or not, the local remedies rule could hardly be held as providing a bar to the
admissibility of a claim, and the objection as to the non-exhaustion of local remedies could never
be disposed of in proceedings relating to preliminary objections. As was stated by the arbitra tar in
the Finnish Shipowners case- in an award which the United States Memorandum of Law of 1974
described as «a landmark decision" (Unnumbered Documents attached to the Counter-Memorial,
Vol. I, p. 133)- « every relevant contention, whether it is well-founded or not, brought
forward by the claimant Government in the international procedure, must under the local remedies
rule have been investigated and adjudicated upon by the highest competent municipal
court >> (3 Reports of International Arbitrai Awards, pp. 1503 et seq). In other words, for the sake of
applying the local remedies rule, one must assume that the Applicant's contentions are correct:
for instance, in the present case, that- contrary to the Italian Government's argument- the
requisition of the ELSI plant made it impossible for Raytheon to liquidate ELSI's assets in a
profitable way and also that the requisition and the subsequent actions of the Italian authorities,
up to the sale of the plant, were taken by them in order to cause Raytheon detriment. From
the point of view of the application of the local remedies rule, one would have to answer the following
questions: (a) supposing these allegations were true, were there any judicial or other remedies
available in Italy for securing redress? (b) If there were any remedies, have they been
used?
B. The remedies available to Raytheon.
I. In considering whether Raytheon used the remedies which were available in Italy, one
has to acknowledge that, as one of ELSI's creditors, Raytheon could have challenged several
measures taken during the bankruptcy proceedings: for example, the lease of the plant to EL TEL.
Appeals could have been lodged to a higher court and subsequently to the Court of Cassation
against decisions by the bankruptcy court. Raytheon did take an appeal against the decision
of the bankruptcy court concerning the terms of the fourth sale, but did not take a further appeal
to the Court of Cassation against the judgment by the Court of Palermo of 20 June 1969, which
ARRINGA àAJA 361
confirmed the terms of the fourth sale. By failing to challertge some of the decisions of the bank.;
ruptcy court and by not resorting to the Court of Cassati o n in the matter of the fourtb sale, . Raytheon
di d not avail itself of tbe various opportunities available a t least to mitigate the damages
asserted to result from the bankruptcy proceedings. A similar comti:lent applies to ELSI's previous
failure to seek judicial· or admirtistJ!ative J!emedies with regard to any M ezzogiotno benefits
to wbich ELSI was allegedly entitled (referto tbe cross-examination of · Mr. Clare by Mr.
Higbet, C 3/CR 89/2. pp. 285-286).
A more radical remedy wasavailable to Raytbeon; Raytbeon could have brougbt a claim
agaihst<the Italian State under Article 2043 of tbe ItalianCivil Coge. Tbisis a judicial remedy
in whicb compensation is sougbt for wrorigful acts comti:litted · by the · Italian State or one. or
more of it officials. Tbe provision of the Civil Code bas a wide scope. I t reads as follows: cc Any
act committed either wilfully or througb fault which causes. wrongful dat11age to another person
implies tbat the wrongdoer · is under an obligation to pay compensati.ori for that darilage » (the
ltalian text is reprodti:ced in Annex 16 to the Rejoinder).
Tbe daim undetArtide 2043 could bave beenbased on the same set of facts which are alleged
in tbe present proceedings; the same amo un t of damages could ha ve been daimed. . The
Ititlian State's liability is unlimited .• Moreover, the Italian State's i:esoU:rces .would certainly be
adequate to meet any ob1ìgation to pay compensation resulting from a .judgmen,t. N eedless to
say, claims for compensation for wrongrul darilage are frequently brougbt against the Italian
State; many bave been suécessful. · . · ·
I t is a fact that Raytheon did not rriake use of tbis radical reinedy, whicb would bave provided
complete redress- if the Applicant's contentions are assumed to be correct, as is necessary
when applying the local remedies rule.
2. Professor Fazzalari, now wearing his bat of Adviser to tbe Applicant, contended that
Artide 2043 was of .no avail to Raytheon ·(C 3/CR 89/2, pp. 295-299). Tbe argument, if I understand
it correctly, partly rests on bis assumption that the Treaty cannot be invoked in Italian
courts- an incorrect assumption to whicb I shall come later. The. other.part of the argument
is that Article 2043 does not apply when an cc obligation is provided for [tbe ?] benefit of tbe wbole
community »; be gave us as an example rules for cc conducting competitive examinations for
public employment » (p. 299). Now Raytheon was engaged in a competition of a quite di:fferent
kind! On a more serious note, one can say that Raytbeon complains of measures wbich specifically
affected its own rights and interests. Violations of its rigbts as sharebolder are alleged.
This clearly brings a claim for compensation within the scope of Artide 2043. Suffice to recall
wbat was saidin the judgment of the Court of Rome in the Talenti case. The text of this judgment
was supplied by the. Applicant last week. Tbe Court sai d (in the translation supplied by
the Applicant):
ccNow, according to the principles ruling Italian juridical order, legai action for compensl'!
tion for damages as per Aquilian responsibilty - such as the action proposed by the
plaintiff - postulates as necessl'!ry assumption the performance, by the subjects bound to
pay tbe compensation, of specific intentional or unintentionaL actions that injure an interest
of the private citizen and, as such, are the ·cause of unjust damage ». (p. 3).
The Talenti cll'!im bad been made under Artide 2043. Tbe Court of Rome rejected it becl'!
use i t noted that the pll'!intiff ba d:
cc in no W~'~Y specified, in any of his pleadings, the individul'll and specific illicit acts committed
by eacb of the l'!ccused l'!uthorities, limiting bimself to generic complaints and .complaining
about equally vague persecutory actions to this detriment on part of the Italian State>>
(p. 3).
This would not have been Raytheon's case, if one assumes, as one bas to according to the
local remedies rule, that the Applicant's corttentions are correct.
Little needs to be said about Professor Fazzalari's contention: « ELSI's successful suit
based on the specific remedy of an appeal to the Prefect eliminates any other remedies »
368 RASSEGNA DELL'AVVOCATURA DELLO STATO
(C3/CR 89/2 p. 300). Professor Fazzalari argues that no interim measures of protection could have
been granted by a judicial court against the requisition (p. 301). But his argument can in no
way lead to conclude that actions for compensation are also barred. One only has to refer to
the action brought by ELSI's receiver under Artide 2043 requesting compensation from the
Italian State: as is well known, the claim was admitted and the receiver was partly successful on
the merits (see decision by the Court of Cassation of 26 Aprii 1975, Annex 82 to the Memorial).
3· The fact that the receiver brought a claim under the same Artide 2043 of the Civil Code,
for compensation against the Italian State, does not absolve Raytheon of its failure to avail itself
of the radical remedy previously described. First of ali, the receiver only complained of the
ùnlawful character of the requisition decree, which affected the ELSI plant and equipment for
six months, and claimed the related damages; he did not envisage the existence of any plot or
concerted action undertaken to Raytheon's detriment, nor could he have been expected to bring
before the Court a set of facts similar to those later alleged by the Applicant. Secondly, the
receiver could only act on behalf of ELSI in the interest of ali the creditors: any sum awarded
would bave had to bave been distributed on an equal basis, first among the secured creditors
and then among the unsecured creditors. Any right stemming from the Treaty and the Supplementary
Agreement to Raytheon's benefit could only have been invoked by the individuai
creditor concerned: by Raytheon. Moreover, if Raytheon su:ffered as the result of an alleged
plot or other wrongful act committed to the same company's detriment, it stands to reason that
compensation should accrue to Raytheon only, and not to other ELSI creditors such as the banks.
4· Raytheon's failure in making use of available remedies can in no way be justified by an
assumption that Italian courts had an attitude of bias against Raytheon. Quite to the contrary,
when Raytheon was sued by the Italian banks, which had lent money to ELSI on the basis of
Artide 2362 of the Civil Code which allows claims against a limited company's sole shareholder,
the Court of Cassation decided in Raytheon's favour, although Raytheon had more than 99 per
cent of the shares and the other shareholder was one of Raytheon's fully owned subsidiaries.
In forming these judgments the Court of Cassation took a formalistic line and went against a considerable
body of opinion (see Counter-Memorial, p. 94 et seq. and Rejoinder, p. 201). It is worth
noting that, in settling a controversial issue concerning the shareholder's liability, the Italian
Court of Cassation decided against ltalian banks, including publicly-owned banks, and in favour
of United States company, whose ltalian subsidiary had borrowed large sums from these banks
and had not paid them back. To be sure, there is nothing unusual in this attitude of the Italian
courts. However, the attitude taken by the Italian Court of Cassation when Raytheon was sued
clearly demonstrates that remedies were available to Raytheon not only in theory. Even the
allegations of a plot which were made by the Applicant Govemment, or the concerted action, do
not involve the judiciary except, to a limited extent, one bankruptcy judge.
5· lnstead of seeking redress in Italy through the use of judicial process, Raytheon put its
hopes in diplomatic intervention. This may be explained by Raytheon's comparatively easy
access to diplomatic protection. In the entire post-war period, there are no instances of diplomatic
protection being exerted by the United States Govemment against ltaly - or, for that
matter, by the Italian Government against the United States- which may in any way be likened
to the claim put forward on behalf of Raytheon.
Clearly, with regard to the prospects of diplomatic protection, the existence of local remedies
always presents itself as an obstacle, as it a:ffects the admissibility of the claim.
As early as December 1971, Professar Antonio La Pergola, who had been consulted by
Raytheon, expressed the question put to him in the following terms:
« The question posed to me is whether (given ali the happenings and circumstances
surrounding Raytheon-ELSI S.p.A. of Palermo and in the event that the United States
Government intends to make a claim against the Italian Govemment for unlawful acts
against the US national shareholders of the said company) the prerequisite of exhausting
ali available local remedies can be considered as fulfilled and an intemational claim advisable
» (Unnumbered Documents attached to the Counter-Memorial, Vol. I, p. 161).
ARRINGA GAJA 369
Given Raytheon's intention to resort to diplomatic protection, it is understandable that
Raytheon was content with the positive conclusion reached by their consultant, although in his
opinion no single argument was devoted to the issue. Ali the arguments in the 22 pages of the
Opinion ( I2 in the English translation) dealt with the diploma tic protection of shareholders:
curiously, writing in I97I, he quoted the Delagoa Bay award twice, but totally ignored the
Barcelona Traction judgment. In any case, the Opinion would appear to lend support to Raytheon's
attempt to move their claim to the internationallevel, and was thus certified by the United
States Vice-Consul in Rome on the same day- 9 December I97I - on which it had been
delivered in Bologna (see Unnumbered Documents attached to the Counter-Memorial, Vol.
l, pp. I73 and I95). The opinion was annexed to the I974 claim presented by the United States
Government on behalf of Raytheon and was later invoked in the Reply (p. 138). Mr. President,
l am coming to the third part of my pleading, that will take about IO Ininutes.
Mr. PRESIDENT: We are going to take a break now.
Mr. GAJA: Thank you Mr. President.
The Court adjourned from I I .25 to I I .40 a.m.
Mr. PRESIDENT: Please be seated. Professar Gaja please.
Mr. GAJA:
C. The Effects of the FCN Treaty of Italy.
I. In bringing a claim for compensation for damages arising from one alieged wrongful
acts of Italian authorities, the 1948 Treaty and the I95I Supplementary Agreement as interpreted
by the United States Government, would have given Raytheon an adequate basis in establishing
the wrongfulness of ali the acts causing the damages.
Ali the contentions concerning the Treaty and the Supplementary Agreement could have
been used before Italian courts. Once laws containing an implementing order (ordine di esecuzione)
of the Treaty and the Supplementary Agreement had been enacted in ltaly- and this
was clone before both texts entered into force between the contracting States - Italian courts
would have applied ali the provisions in the Treaty and the Supplementary Agreement. True,
Italian courts may hold that a Treaty provision cannot be invoked by a party to a judicial proceeding
if it is regarded as a non-self-'executing provision. However, Italian courts do not come
to such a conclusion lightly.
Whenever the Italian courts have considered one of the provisions of the I948 Treaty or
the I95I Supplementary Agreement, they have applied it. The Court of Cassation gave two
decisions on provisions of the Treaty. Their text is reproduced in Annexes I I and I2 to the
Rejoinder. The influence of these decisions as precedents both for the same Court and for lower
courts is to be acknowledged on the basis of the attitude generally taken by Italian courts. The
first decision was given as early as I96o; the text was published both in the weli-known Rivista
di Diritto Internazionale (I96I, p. 113) and in the widely read Il Foro Italiano (I96I, Part l, 304).
Both decisions are referred to in the yearly volumes Il Foro Italiano, Repertorio, where they can
be easily traced (I96I, at pp. 299I and 323; I984, at pp. 3395 and 764).
Although these two decisions do not specificaliy concern the same provisions of the Treaty
as are invoked in the present proceedings, there is no reason why Italian courts should have viewed
these provisions under a different light. Reference may be made to a more recent decision
by the Court_ of Cassation, N. 4811 of 28 July I986, Parzinger and Nowak v. Provinia Autonoma
di Bolzano (the text was published in Rivista di Diritto Internazionale Privato e Processuale, I987,
p. 788 et seq.; it will be supplied together with an English translation to the Registrar and the
Agent for the Applicant). This decision applies Artide VI of the Treaty of Freindship, Commerce
and Navigation of 2I November I957 between ltaly and the Federai Republic of Germany,
which provides for adequate compensation in the case of expropriation, with wording that
370 RASSEGNA DELL'AVVOCATURA DELLO STATÒ
largely corresponds to that of Artide V of tbe I948 Treaty. Tbe Court gave, on tbe basis of tbe
Treaty, a Iarger compensation tban tbat was due to ordinary municipal rules.
Tbe attitude of Italian courts, wbicb is generally in favour of tbe self-executing cbaracter
of treaty provisions, was recalled in the Rejoinder, a t pp. I 83-I 8 5. I t may be added tbat I talian
courts strive to give effect to treaty provisions even wben tbey are not considered to be selfexecuting.
Reference may be made bere to wbat was written by Mr. Waelbroeck in bis book
Traités internationaux et juridictions internes dans les pays du Marché commun (I969, p. I87). He
said:
«A certains points de vue, on peut meme considérer que la tbéorie italienne de l'ordre
d'exécution assure une efficacité plus complète aux traités, et notamment à leurs dispositions
«non self-executing "• que certains systèmes prétendument monistes qui limitent l'applicabilité
interne aux seules dispositions stipulant directement au profit et à la cbarge des
citoyens, en vertu de l'ordre d'exécution, le juge italien est renvoyé à l'ensemble du texte
de l'accorci, et non aux seules dispositions directement applicables; il doit considérer comme
émises dans l'ordre interne toutes les normes nécessaires à l'exécution du traité dans la
mes.ue où celvi-ci impose des obligations à l'Etat "·
Tbus, it may well be tbat a daim concerning compensation for wrongful damage caused
by State autborities does not in fact depend on tbe question wbetber tbe Treaty provisions, from
wbicb tbe existence of an injury is drawn, are or are not self-executive.
No question of reciprocity is raised by Italian courts wben they decide wbetber a treaty
provision may be invoked by a party to judicial proceeding. Tbe decision N. 48II of I986 by
tbe Court of Cassation, wbicb was quoted earlier, expressly rules out tbe relevance of tbe absence
of reciprocity for tbe said purpose. In any case United States courts, wben tbey bave considered
some of tbe provisions in tbe I948 Treaty, decided tbat tbese provisions are self-executing.
Reference may be made bere to tbe decisions in tbe Matter of Colella and in tbe Matter of
!annone, publisbed in tbe collection American International Law Cases, Vol. Io, p. I95 et seq.
and Vol. I4, p. 449 et seq., respectively. A more generai statement to tbe effect tbat tbe Treaty of
Friendsbip, Commerce and Navigation treaties are « self-executing treaties >> may be found in
a decision by tbe United States Court of Appeals for tbe Fiftb Circuit, wbicb was more fully
quoted in tbe Counter-Memorial, p. Ioo, n. 6.
2. Professar Fazzalari attempted to destroy tbe value of tbe two decisions referred to by tbe
Respondent in wbicb tbe Italian Supreme Court applied tbe Treaty. His only argument appears
to be tbat tbe Treaty provisions wbicb were applied contain a most-favoured-nation dause
(C 3/CR 89/2, p. 297). It is difficult to see wby tbis element, to wbicb no importance was
given by tbe Supreme Court, sbould affect tbe status of Treaty provisions as self-executing
provisions. In no way did tbe Court of Cassation require, as Professar Fazzalari would bave it,
« additional legislation incorporating tbe Treaty into Italian law with greater specificity" (p. 295).
Reference could any way be made to a furtber decision by the Court of Cassation wbicb
applied Artide VI of tbe Supplementary Agreement - a provision tbat does not contain a mostfavoured-
nation dause. Tbe decision was giyen on 27 February I970 in Louis Dreyfus Corporation
v. Oriana Società di navigazione and was publisbed in 6 Rivista di Diritto Internazionale
Privato e Processuale, p. 394· f!t seq. (I970).
Unable to find any judicial decision in favour of tbeir contention, Professar Fazzalari (C
p. 298) and later Mr. Murpby (C 3/CR 89/3, p. 310) attributed great weigbt to an opinion
given by one of Rome's State attorneys in tbe Talenti case. Altbougb Professar Fazzalari
spoke of « an expropriation of property in violation of Artide V of tbe FCN Treaty" (p. 298):
tbe State attorney contended tbat no expropriation bad taken piace and that no specific
measures were alleged to bave been taken against Mr. Talenti's property, as be only complained
of town planning measures concerning the areas of Rome in wbicb bis properties were located.
Tbe State attorney argued tbat the Treaty did not confer any rigbts in tbis regard. In tbe passage
wbicb was quoted by Professar Fazzalari and wbicb is not quite intelligible in tbe translation
supplied by tbe Applicant, tbe State attorney argued tbat the legai protection granted by Italian
law against town planning measures was not in fact enbanced by tbe Treaty.
ARRINGA GAJA 371
There is no argument, either in the State attorney's opinion or in the Court of Rome's judgment,
to the effect that, had there been an additional protection under the Treaty, this could
not have been invoked by the interested party before the Court. The Court of Rome simply
rejected the claim as totally unmeritorious.
Had there been, as contended on behalf of the Applicant, an argument against the selfexecuting
character of Treaty provisions in the State attorney's opinion, one would then have to
take into consideration that the opinion of State attorneys, including the one in the Talenti case are
the résttlt · of the personal work of the individuai State attorney an d are never published. True,
State attorneys have sometimes argued .before Italian courts that provisions of treaties other than
the FCN Treaty are not self-executing. However, as examples in the Rejoinder (pp. 216-2r7)
show, ltalian courts have not followed this line and have taken the opposite view, i.e., that provìsions
in the GATT and in the Peace Treaty with Italy are self-executing.
From the point of view of internationallaw, municipal courts are State authorities no less
than State attorneys are. Moreover, it would be difficult to deny that when one considers whether
the provision of a treaty may be invoked before a court, i t is the attitude of the courts that matters.
As one would say it in French: M. de La Palice en aurait dit autant.
3· Mr. President and Members of the Court, the attitude of national courts in favour of
recognizing the self-executing character of treaty provisions deserves encouragement as a matter
of policy. For private parties the difference between self-executing provisions and non-selfexecuting
provisions is often fundamental. In the first case, private parties may invoke rights
and iriterests before national courts and thus secure on their own initiative the enjoyment of the
full protection granted them by the treaty - irrespective of the presence or absence of willingness
o n the part of the national State to espouse a diplomatic claim o n their behalf. When, on
the contrary, a treaty provision is not self-executing, treaty obligations cannot be enforced, as
a rule, through national courts. lnevitably, the respect of international obligations, as between
States, becomes less certain.
Negotiations between States do not necessarily lead to the complete fulfilment of treaty
obligations. The result may be more limited than what is required, but it may well also go beyond
it, depending more on the circumstances that lead the contracting States to a settlement
than on the merits. There is no doubt that it is in the interest of the complete application of
treaty provisions which are there to protect private parties, that those provisions should be considered,,
as far as possible, self-executing.
D. Conclusion.
When local remedies have not been exhausted, a claim put forward on behalf of the noncomplying
national must be declared inadrnissible.
lnadmissibility does not necessarily imply that the claim may no longer be espoused. For
example, in the Interhandel case, when a writ of certiorari was granted to the Swiss company,
local remedies appeared to be stili available. The inadmissibility of the claim was intended to
affect the olaim only until a final decision had been handed down by the United States courts.
On the contrary, in the Finnish Shipowners case and in the Ambatielos case, the inadmissibility
was permanent, as the opportunities offered by the relevant municipal system, which had
not been used, were no longer available. This is an unavoidable result of the application of the
local remedies rule, which is not designed simply to provide a temporary bar to premature international
claims. As the Court stated in the Interhandel case, the purpose of the rule is rather
that << the State where the violation occurred should have an opportunity to redress i t by its own
means, within the framework of its own domestic legai system » (IC] Reports 1959, p. 27).
In civil matters, that opportunity depends on the party which has allegedly been injured
bending a claim to domestic courts. If the party does not put forward any claim, the State is in
no position to redress the injury by its own means, within the framework of its own domestic
legai system. It is then reasonable that the inadimissibility should not be temporary,
372 RASSEGNA DELL'AVVOCATURA DELLO STATO
This is what has occurred in the present case. Judicial remedies existed but were not resorted
to; the provisions in the I948 Treaty and in the Supplementary Agreement which are invoked
by the Applicant Government were never brought to the attention of an Italian court by the party
whose rights and interests were allegedly affected. Those remedies were available over a span
of fìve years, giving ample opportunity for their use. However, they were ignored. As a result,
the claim put forward by the United States Government is inadmissible, and not only temporarily.
Negotiations over the claim may continue, but the claim cannot be put forward in law.
Mr. President and Members of the Court, this concludes my pleading. Thank you for your
attention.
The PRESIDENT: Thank you very much. I call upon Professor Libonati.
Professor LIBONATI: Mr. President and distinguished Members of the Court. It is for me
a great honour and privilege to appear for the fìrst time before this highest of tribunals.
I. Preamble.
My pleading concentrates on several facts, and also many fìgures, on which there is strong
disagreement between the Parties, and which were in no way proven by the Applicant. This
contradicts Mr. Matheson's statement that « the vast majority of facts relevant to this case are not
in dispute» (C 3/CR 89/I, p. 250).
The matters on which I shall be concentrating my attention are those on which the United
States Government dwelled upon to the greatest extent:
- was ELSI, or was ELSI not, a going concern at the end of March I968?
- were ELSI's assets, or were they not, of suffi.cient value to cover the company's debts?
- is there any justifìcation in the theory by which ELSI could sell its assets at their book
value in an orderly liquidation if the Mayor of Palermo's requisition order had not taken place?
2. ELSI's permanent economie and financial crisis.
In May I967, almost a year before ELSI was declared bankrupt, the company's management
prepared a Project for the Financing and Reorganization of the Company, which was then
passed to the ESPI (Ente Siciliano per la Produzione Industriale) on May 31 of the same year;
the Project forms Annex 22 of the US Memorial submitted by the United States Government.
In the « Conclusions and Requested Action », put forward from page 40 onwards of the Project,
the following conditions are identifìed in order to avoid the crisis looming ahead of the
company:
(a) additional capitai of the order of 6 billion lire (the company's capitai at that time was
4 billion lire). As already specifìed at page I of the Project, in the opinion of ELSI's management
the investment of 6 billion lire ought to be made by the Sicilian Regional Government;
(b) new products- not only from Raytheon but also from Italian Government sources;
in particular orders «by direct Government assistance » for 3 billion lire (p. 37 of the Project);
(c) fìnancial help, available for transport costs, capitai investment and training (p. 40 of
the Project).
The necessity of such interventions was due to ELSI's chronic inability to adopt a competitive
structure, and its equally chronic ability to generate only losses.
As early as far-off I950 in fact- I shall not repeat all the technical details reported in the
Project; I shall try to summarize - ELSI's production lines were not sufficient to enable the
company to compete on the market. « It was to add », one may read in the Project, « other products
>> (p. 4).
The successive interventions - by La Centrale (an Italian company with its head office
in Milan) for 70 per cent and Raytheon for 30 per cent - did not improve the situation. ELSI
ARRINGA LIBONATI 373
continued stubbornly to make only losses. Again in the aforementioned Project we read that
(a)<< the technical and production ... costs were high"; (b) <<the creation of a wide and stable market
was very costly, both directly and indirectly »; (c)<< Both in Italy and abroad ali major customers
... were reluctant to grant (to ELSI) constructive confìdence as long as ELSI appeared like
a small company with no real technical strength behind it" (see p. 6 of the Project).
Soon afterwards, faced with a greater intervention by Raytheon, the Sicilian company realized
that (see p. 9 of the Project) (a) products for military usage, if technically interesting, <<cannot
constitute a correct exclusive operating basis "• and (b)« the ptoducts for the consumer market
... , such as cathode ray tubes and semiconductors for radio and TV, etc., ... cannot <<be taken
as a basis of ... ·ah industriai operation >>; moreover, they had to suffer << the heavy costs incurred
to deliver the product to the customer's factory >>.
After all, in the words of the company's American management the undertaking was not
and never had been competitive on the market, so that ELSI · could not continue as i t always had
clone up until that point, to accumulate losses. And the proposed reorganization, in the opinion
of the American experts, required not only a massive injection of capitai by the Italian State to
the extent of 6 billion lire, but (a) that << the Government subsidies will be available to cover the
additional transport costs, not only for incoming materia! but for the export of completed goods
to other countries >> (see p. 25 of the Project), and (b) that in the search for new products, these
had to come << from Government-owned agencies in Italy n, with the desired Government procurement
order amountirtg to some s,ooo million lire (see pp. 6 and 37 of the Project).
3· ELSI's collapse of 1967-1968.
In short, a desperate situation which saw ELSI by now completely out of the market.
The fact is that right from the start ELSI could not have been anything other than an uneconomie
enterprise. ·
The bulk of the production - cathode ray tubes and semiconductors - in order to be profìtable
would have to have been situated in the immediate vicinity of the suppliers of the raw
materials (particularly the glass tubes, which on the contrary - as far as we learn from Mr.
Ravalico, most senior person responsible for the manufacturing group belonging to SIT-Siemens
[ see Doc. 14 attached to the Rejoinder J -carne all the way from Russia) and of the customers
for the fìnished product, and there are no television manufacturers in Sicily.
ELSI's products therefore- as we learn from O.J. Scott (The Story of Raytheon, New York,
1974, p. 364) - cost from the very outset IO per cent more than competing products. They
were unsaleable right from the . start, other than with a great deal of luck.
As if that wasn't enough, there were products being manufactured using clearly outmoded
methods. Engineer Busacca, who was responsible at ELSI for the planning of the microwave
tube sector up until his dismissal on 29 March 1968, tells us for example (Annex 44 to the CounterMemorial)
that:
« in the semi-conductor line - the machinery was unserviceable and idle, because it had
been designed for· germanium technology, which had been obsolescent for many years n;
« in the X-ray tube line - the machinery w~s very old and the processing was carried out
at great risk to the operators >>.
Furthermore:
- the workforce exceeded the requirements; only by increasing production - as we learn
from the Raytheon management Project - or by changing production - as Mr. Clare has
declared before the Court- could the structure thereby createci ever hope to become profìtable;
- the management was lacking; Raytheon, the new totalitarian shareholder, kept the technicians
who had previously been with the previous owners - Professor Calosi and Engineer
Profumo- who were only dismissed in 1967, when it was too late, and when ali the President
of Raytheon could do was to le t off steam with Calosi, telling him: « Y ou have ma de a terrible
mess of things >> (Scott, p. 365);
374 RASSEGNA DELL'AVVOCATURA DELLO STATO
ELSI was undercapitalized, with bank debts of over 13 billion lire, giving rise to an average
interest charge of 1 billion lire per annum- as Mr. Clare has admitted in his testimonywithout
counting the interests on medium term loans, therefore with an intolerable financial
burden from the very start, and completely lethal for an undertaking which produced losses at
the rate of the Sicilian company.
And there is stili more.
ELSI always made only losses - 902 million in 1963, 331 million in 1964, 48 million in
1965, 859 million at 30 September 1966, 2,681 million at 30 September 1967, rising to 3,750
million at 31 March 1968 for new losses of 1,069 million lire in the half year (Annex 13, Schedule
Br to the US Memoria!) - and was therefore in a permanent financial crisis.
ELSI was however stili a worthwhile lemon, there to be squeezed by the American parent
company. As can be read in the technical consultancy document of Dr. Giuseppe Mercadante,
the expert appointed by the Tribuna! of Palermo to draft a technical report on ELSI's prebankruptcy
management for the accounting periods from 1964 to 1968, "among the various costs
which have raised some perplexity in the survey, we note the huge disbursements incurred under
the item Assistance to Raytheon company » (in spite at the fact that ELSI was incurring losses);
disbursements that must be added- as we again learn from Dr. Mercandante- to the royalties
paid to the American company, on top of reimbursements for travel and accomodation out of
ali proportions, etc. (around 340 million in 1968 alone) [see Technical Report of Mr. Mercadante,
Counter-Memorial, Annex 36, pp. 16-19 of the Italian text, pp. 14-15 of the English
translation]. Andali this to maintain a deficient production, given- and I quote again from Dr.
Mercadante's Technical Report (p. 14)- «returned goods, return by customer, the faulty goods»
that affiicted ELSI's profit and loss account.
Thus onto the uneconomic production costs were added conspicuous outlays to the advantage
of the parent company, which, if explaining Raytheon's insistence in maintaining the Italian
subsidiary for its own profit, also impose, under a merely technical business profile, an even
more negative consideration of the Sicilian enterprise.
4· The lack of cash and the end of ELSJ's operations.
Let us talk a little about the figures.
The consistency of ELSI's accounting periods showing losses is in itself appalling.
As if that was not enough, 902 million in 1963, 331 miliion in 1964, 48 million in 1965,
859 million at 30 September 1966, 2,681 million at 30 September 1967, rising to 3,750 million
at 31 March 1968 (forgive me if I repeat these incredible sums). In March 1967 Raytheon had
to cover losses by pouring in over 4 billion lire.
The deficit at 30 September 1967 - as we read in the report of Coopers & Lybrand (p.
9) - "exceeded the total of the paid-up capitai stock, capitai reserve and stockholders subscription
account by an amount of 881.3 million»; and under Articles 2447 and 2448 ofthe Italian
Civil Code- as Coopers & Lybrand emphasized in their note 10-the directors were obliged
" to convene a stockholders' meeting forthwith to take measures either to cover the losses by
providing new capitai or to put the company into liquidation ».
The directors of ELSI did not do so. Months passed. And by March 1968 further losses
of over r.o68 billion lire had been produced. The losses amounted thus to 3·7 billion lire. But
these figures - being those which appear from the available documents - are stili lacking.
There are certainly non-existent credits in ELSI's 1967 accounts; for example for over 246
million lire with a certain Noya Alfred Enacktemer of Quickborn, West Germany (see p. 20
of Dr. Mercadante's Technical Report, Annex 36 to the Counter-Memorial).
There is certainly an overvaluation of the stock of between 1,500 and 2,ooo million lire
(see p. 20 of Dr. Mercadante's Technical Report, Annex 36 to the Counter-Memorial).
There is certainly a fictit;ous increase in sales, with values that were left illegaliy as assets
under the heading Clients with Credits Due (see p. 20 of the Technical Report by Mr. Mercadante).
There are certainly accomodation papers for 1,200 million lire (see p. 38 of the Technical
Report by Mr. Mercadante).
ARRINGA LJBONATi 375
The actual amount of ELSI's losses at the start of 1968 was therefore - to put it briefly
- overwhelming. Raytheon's management was however completely aware of the situation, and
this is sufficiently evident from the fact that on 21 February 1968, Mr. Adams, Mr. Clare, Mr.
Hillyer and Mr. Profumo met with the Honourable Carollo, and on that occasion «Adams stressed
that ELSI cannot survive without immediate cash help, which Raytheon cannot provide ».
8 March 1968 was considered by the management of the American company to be the last
date of ELSI's survival, to the extent that « this date of 8 March was stressed repeatedly as the
absolute limit for a shutdown due to financial crisis » (l quote from the handwritten minutes of
the meeting, annexed as N. 19 to the Rejoinder, p. 6).
Mr. Clare even indicated a precise « time chart ». In his opinion there would have been
(see Annex 19 to the Rejoinder): « on 26 to 29 February- inevitable bank crisis; on 8 Marchwe
run out of money and shut the plant ».
This forecast did not prove to be exaggerated.
On 31 March 1968 ELSI's cash amounted to a total of 21 million lire (see the provisional
balance sheet attached sub A to Annex 30 to the US Memoria!); but facing the company were
283 million in short-term debts with suppliers, 12 billion in debts with the banks, 1.2 billion
in accommodation papers which required to be honoured on maturity, 8oo million lire with
Banca Nazionale del Lavoro maturing on 18 Aprii for long-term loans (see Unnumbered Documents
annexed to the Counter-Memorial, p. 179), and 100 million lire which, on average, was
the monthly requirement to pay the workforce (if not an even larger sum).
Thus, at the end of March, ELSI could not even pay its workforce, and the same is probably
true of the telephone, electricity, etc. Furthermore, a few days later, another mine would have
exploded, the impossibility of meeting loan repayments falling due, with the consequential dishonouring
of issued bills. From here we have the decision to dose down, since the financial help
requested did not arrive.
« The business situation of the company has deteriorateci to a point too criticai to be ignored,
ELSI's President observed on 16 March 1968 (see p. 444 of the Unnumbered Documents submitted
by ltaly). Thus, the Board decided that cessation of production will be effected immediately,
while cessation of trading and dismissal of employees will be effected on 29 March 1968.
In actual fact, on 29 March 1968, at the wish of its directors, ELSI, overwhelmed by the
losses resulting from its inability to produce profitably, and by the hopeless financial crisis that
naturally followed, ceased to be a going concern and became a dead and obsolete plant, fit -
in order not to produce further losses, since it never knew how to do anything else - only for
sale on a break-up basis, almost at « scrap » value.
5· ELSI was not «a going concern ».
These indisputable and proven facts, which result from documents, are important, as far
as we are concerned, in two contexts.
In the context of substance, it has been demonstrated that ELSI was not a going concern
that was distroyed by the requisition ordered by the Mayor of Palermo; the losses of ELSI began
a long time before the order of the Mayor, and even M. de La Palice would admit that
29 March 1968, the day of the closure of ELSI's plant, precedes I Aprii 1968, the day of the requisition.
In the context of form, it has further been shown that as far as concerns the economie and
financial disaster which arose, and the decision taken by ELSI's directors, Italian law did not
permit any sort of liquidation other than the bankruptcy procedure.
The very nature of ceasing to be a going concern naturally brings with it a depreciation in
the business undertaking, which in this case, as we have already seen, used obsolete production
lines to produce goods which were unable to find a market. In such cases, the plant and machinery
can only be sold as scrap, since they are unable to produce profitably. In addition, in EL-
81's case, the plant had been formally closed at the wish of the directors and the shareholders,
so that absolutely nothing of any sort of business worth could be offered, the goodwill - if there
ever was any in a company which only ever produced losses (and we shall come back to this point
later) - having been reduced to zero by the management's decision.
376 RASSEGNA DELL'AVVOCATURA DELLO STATO
Now, in terms of ltalian law- Artide 5 of Royal Decree of 6 March 1942- << the entrepreneur
who finds himself in a state of insolvency is declared bankrupt "• and « the state of insolvency
is manifested by defaults or other external facts which would demonstrate that the
debtor is no longer in a position to satisfy his own obligations in a regular manner "·
In this case it is the debtor himself who admitted to no longer being in a position to satisfy
his own obligations in a regular manner. In these circumstances, as Professar Jaeger points out
in his statement, « the Board of directors of ELSI should have filed a petition in bankruptcy, or
at least, request to the Palermo Tribuna! to be admitted to the procedure of judiciary settlement
(concordato preventivo)" (Rejoinder, Annex 32).
Professar Bonell will return shortly to the particulars of Italian law, and that of other civil
law countries, in the area of bankruptcy. Here we need merely note that the « orderly liquidation "
under the control of the management is thus a convenient hypothesis which is now bandied
about for reasons of convenience. The reality is completely di:fferent. Perhaps in September
1967 - as suggested by Coopers & Lybrand - there could have been place for a liquidation.
But at March 1968, with six months of added losses, 1,069 million lire in six months, being
« out of money >> as admitted by its directors, ELSI was insolvent before the requisition took
place and should have been declared bankrupt.
The fact that it was no longer a going concern, the mounting losses and the obsolescence
of the plant and equipment, made it impossible in ltalian law, as in the law of many other civil
law systems, to conduct the liquidation other than through the control of a receiver in bankruptcy
nominated by the Tribuna!. It thus follows that the first theory of the United States Government
- that the Italian authorities prevented an orderly liquidation of ELSI - is completely unrealistic.
6. The impossibility of negotiations for settlement.
Mr. President, distinguished Members of the Court. All that I have said up to now is entirely
confirmed by the testimonies of Mr. Adams and Mr. Clare, and in the statements of Professar
Bonelli.
Professar Bonelli underlined - and I believe that everyone would agree with him - that
when a company is insolvent, it can avoid bankruptcy if the shareholders put up new capitai,
or if it reaches an agreement with its creditors. The first alternative obviously cannot be taken
into consideration in this case, since we have clearly seen that Raytheon did not want, or was
unable to continue covering ELSI's losses. The second alternative requires- according to the
scheme described by Professar Bonelli - a compromise of some of the major unsecured debts,
especially with the large creditors, or a « concordato stragiudiziale "• which means a settlement
with all creditors.
Now, in order to enter into an agreement, especially with all of the creditors, you require
long and often tiring negotiations, which must logically begin before the company finds itself
« out of money "· The failure to pay a small supplier or the employees wages is sufficient to upset
the balance and destroy the whole scheme. Exasperated employees or irritated suppliers
have every reason for going to the judge and asking for the bankruptcy of the non-paying debtor.
However, in ELSI's case, Mr. Adams and Mr. Clare have confirmed that the idea of the
liquidation was deliberately kept quiet. Mr. Clare has even admitted that « plans for an orderly
liquidation were not in place " when, at the end of March, the management decided to go into
lìquidation (C 3/CR 89/2, p. 288). It thus clearly follows that no negotiations with the creditors
had been begun up to the point where ELSI was « out of money " and, at that point, there was
no longer time for negotiations, since ELSI - as Mr. Clare has confirmed - could not even
pay « the first payroll in Aprii " (in fact it did not even pay March's wages, as we shall see later).
ELSI thus found itself insolvent, and materially prevented by the lack of time from looking
for alternatives. lt is a typical example of bad management, but this is not our problem. What
is now relevant is that the directors, if they had stuck to the law, should have gone to the Tribuna!
and presented a petition for bankruptcy, as the Respondent has stated on several occasions.
ARRINGA LIBONATI 377
Mr. President, distingl.lished Members of the Court, I do not think that I need go any fur~
ther on this point, since the argument is confirmed in the passages of the texts cited by the Ap~
plicant and in the Applicant's defense.
7· The dismissal oj the zvorkers.
A, further comment on Mr. Clare's. statements.
As has already been mentioned, the workforce of ELSI exceeded the requirements.
Mr. Clare further specified that the search for new products - those which according to
the Programme for Reorganization were to be ensured by the Italian State - was required
« because ELSI could not fire 200 people )), <<W e got rid of two people off the television line))
- lVIr. Clare remembers - « we had a strike for about three weeks on the line )),
I t is not pleasant to hear one speak- in 1989 - of workers as objects which one can «fire )),
But this is not what brings us back to the question. The fact is, as far as we can see in the in
the US 1974 Claim (pp. 20-21), that in June 1967 ELSI had already announced the dismissal
of 300 employees; but the Sicilian Region carne to ELSI's help, and in the end 168 workers were
sent home, their wages being paid by the Region.
Thus, changes in the scale ofELSI's operations were possible, despite what Mr. Clare has
sai d.
I t is just that it was not possible in 1968, asi t had not been possible in 1967, to resolve the
company's problems, since ELSI's products would stili never have found a piace in the market,
and ELSI would have remained insolvent.
8. The incongruence of the calculations based on the hypothesis of an orderly liquidation.
The insolvency of ELSI in March 1968 in itself closes the discussion on the « orderly liquidation))
which was supposedly prevented by the Mayor of Palermo's requisition order. If
ELSI was insolvent, its bankruptcy was inevitable; if the bankruptcy was inevitable, the hypothesis
of an orderly liquidation could not and cannot be put forward.
The Applicant now indeed clings strongly to the idea that in an orderly liquidation ELSI
could have realized the book value of the assets. The reasons for its taking this stand are obvious:
1) If one keeps in mind, for instance, the more reasonable (but nevertheless stili utopian)
quick-sale value, we have the admission tout court of ELSI's insolvency, since the proceeds at
this value would have been sufficient to pay only so per cent of the debts with the banks; and
we all know that anyone who approaches a bank proposing to repay only so per cent faces most
certainly an execution o n his personal belongings a few days later.
But if one has recourse to the book value, ELSI appears to balance its accounts.
2) Furthermore the Applicant has been forced to use book value by the fact that there was
no proof of an open market for the ELSI business. No proof has been o:ffered supporting the
fact that there were potential buyers in the wings forali or part of the ELSI business (see Mr.
Adams' testimony: C 3/CR 89/2, p. 271) any more then there were buyers for the various products
made by the different sections of ELSI's business. The sale of a business, just like the sale of
a piece of electronic equipment, requires a certain depth in the market. It requires a willing
buyer. Without such a market there can be no sale of an enterprise as an entire business or as
separa:te product lines; The business becomes a collectiort of assets to be realized piecemeal,
and at greatly reduced prices.
The book value has been presented to us however as a sensible and reliable calculation.
Mr. President, i t is no t true.
I do feel it necessary, before continuing with my submission, to apologize to the Court if
I must dwell on matters which belong more to a commerciai arbitration between Raytheon and
the Sicilian Region, than to a case before this highest of Courts. But I am forced to in order to
378 RASSEGNA DELL'AVVOCATURA DELLO STATO
reply to the singular approach taken by the Applicant, who has moved the discussion into most
peculiar areas.
As I have said, it is just not true that the book value approach is a fair and reasonable one.
The book value shows the cost of purchase or of the production of the assets, reduced by
depreciation due to their obsolescence. Mr. Lawrence has provided expert testimony on the
evaluation of ELSI's assets according to these principles.
Even if we accept Mr. Lawrence's statement, the figures stili do not balance. But before
speaking of figliet, it would seem necessary, and useful, to stop for a moment and use our
common sense. The opposition in such an important case as the one now before the Court cannot
come out with hypothesis that has no basis in reality.
a) First, Mr. Lawrence has confirmed that his valuation is based on the premise that ELSI
was a going concern (see C 3/CR 89/4, p. 343). But ELSI was nota going concern. It was an
insolvent company, an economie and financial disaster, put into liquidation because it had run
out of money, and was not even able to pay the wages of its employees (in fact, ELSI's workers'
wages for the momh of March w ere paid by the Sicilian Regio n : see Regional La w N. I 2, of
I3 May I968, Document 37 attached to the Counter-Memorial). Incidentally, Mr. Adams in
his testimony did not seem to remember this fact (see C 3/CR 89/2, p. 269).
Now, if ELSI was not a going concern, the book value becomes a totally incongruous point
of reference. The going concern basis presupposes the continuation of the existing business in
some form or another. That is to say, either as a complete business, or as business merged into
another business, or as product lines assumed by other persons or businesses. Earning streams
are deemed to continue.
When the company goes into liquidation, and above all when the company has continually
produced losses and is insolvent, the principle of the book value cannot be used. The concept
of going concern implies that the threat of liquidation is not hanging over the business; that
the business can meet its liabilities as they fall due.
For example, Statement on Auditing Standards N. 59 of the American Institute of Certified
Public Accountants puts among the conditions and events which may lead an auditor to
question an entity's ability to continue as a going concern for a reasonable period of time:
- recurring operating losses;
- working capitai deficiencies;
- negative cash flows from operating activities;
- adverse key financial ratios;
- need to seek new sources of financing;
and this was exactly the situation that ELSI was m.
Since ELSI was no longer a going concern, the Applicant should therefore have taken a
completely different approach. But it did not do so. And it did not do so because the consideration
of the sale of a no-longer-going concern, as a whole or divided up, would have given completely
different results which would certainly have been far less to the liking of Raytheon. It
would have destroyed the idea of an orderly liquidation and it would have painted a picture of
the true situation: that is, that ELSI was a disaster from both points of view, financial and economie.
b) What we have just heard is totally confirmed if we go into further detail.
c) Let us start with the « Fixed Assets >>.
The first heading - land and buildings - expresses the acquisition cost of land and the
construction cost of the buildings.
But the buildings in question were, to a large extent, industriai sheds in which ELSI
carried out its industriai activities and not city apartrnents which enjoy a natural increase in price.
They lost all value once the industriai activity of ELSI was detached.
Moreover, three affidavits - Mr. Ravalico, Document N. I4 to the Rejoinder; Mr.
Cavalli, Document N. I to the Rejoinder; Mr. Cammarata, Document N. I3 to the Rejoinder-
show that the buildings were badly designed and badly constructed from the beginAJUUNGA
LIBONATI 379
ning. And l:tow th,en could. tlrte figures .. wl:tich ~ke UJ:) the book value be considered consistent
with an offer of sale, by a compMy in liquidation, of such assets ?
d) Let US· move on to theuMachinery and Equipment >>.
Mr. Clare recalled that « the television tube line - that could be sold as an ìndependent
business because it was a separate entity >l .(C 3/CR 89/21,. p. 279),. Md which in itself made up
'' b,alf. ofthe pb:nt >>.(p. z8x).-, pt:o(iuced. black-and-white. tubes; But in Italy in 1968 colour television
was already just. arouncl the corner; . ELSI produced 23,.-inch tubes, completely unsaleable
by.this time (as we know from Mr. Ravalico.'s affidavit). l t was thus necessary to .find a
purchaser willing to invest in a useless plant, with a remaining Iife of only a few years. Moreover,
the.se were years.in which all television,..prod.ucers would have tried to use up their own
existing supplies and would certainly not bave been running to ELSI to purchase their products.
'l'l'lese, in adc.lition, CO\Jld not compete on the market because oftheir price. Mr. Clare has
ut}d~i:lir:IJ;Jg t1latth,e transport còstsw:ere very high Md tha~ only the receipt of concessions, which
wéte p~t in a1,1y éase .c.tue - as witl be explaìned later by Mr. Caramazza - would bave enabled
acceptable cò~t Ievels to be reached. .
And there is even more:
·.· << The ptoduétibn Iines >> subm.its • Mr; Ravalico in his affidavit·« were • ali old, broken
down and obsolete .• The semiconductor H~~ (the most bankrupt),the X-ray tube line~ the
· microwave oven line•i etc., whlch had · beeti of inefficient production capacity ab origìne,
were ail writteti off atonce as scrap; I t was n<>t that they were obsolescent as aresult of
. havirtg• • been shut down pending the bankruptcy • proceedings. They were obsolescent due
to prior industriai and technical reasons >>. (Doc. 14 annexed to the Rejoinder, p. 8 of the
English translation).
The obsolescence and poor state of repair of ELSI's machinery and equipment is, by the
way, confirmed by the figures.
As an entity with fully working machinery and equipment, it could have produced articles
that could have found a piace inthe market. Even if ithad not made a profit, it would at least
have ended up without makìng a loss. ELSI, ori the other harid, not orilymade losses in 1967,
but-'-'- and to the extent of the figures that we have already heard- in 1966, in 1965, in 1964
and in 1963. To even suppose that someorie would be interested in payirig book value for this
plant an d · equipment is complete madness.
e) Let us now dealwith the «inventories» .. Half of the total plant- we are told by Mr. Clare
- Was made up of the television tube line whiéh, however, produced tubes for black and white
televisions which - as. said above - no lon~er had a market at that time.
The stock certainly did not contain products used for inilitary supply contracts, since these
are prod.uced according to . specific orders and arenot put into stock; Thus the major part of
the ·stock could rio t ha ve been made up of 11nything other than unsaleable items.
« The stocks were not able to cover even the cost of managing them », remembers Mr. Ravalico.
·in his . affidavit.. << The stocks were full of unsaleable picture tu bes, a bo ve. ali, an d old,
wholly.utmsuable,.ll1lJ.terillls fuat :were for the producti()n lines that were going to be sold o:ff as
scrap )), {DoC.l4 imnexedto th,eJ{ejoinder, pp. 9-IO ofthe English translation).
Nulla quaestio, therefore,.as to W:hat was the book value. But rather who on earth would have
been willing to pay the book value for such useless stocl{ ?
f) A few words on the « Accounts Receivable >),
As it is well known,. client debts receivable are calculated at the probable amount of realization,
under the deduction of an amount for bad debts whiéh it is believed will not be paid. The
« Reserve for bad debts >> in ELSI's and Mr. Lawrence's calculations amounts to 8o.6 million
lire.
Such a low reserve, equal to 3·7 per cent of the total debt figure, is irrational in principle.
But there is one fact which enables us to come at once to a conclusion. Mr. Lawrence has
contested the evaluation criteria used by Mr. Mercadante. Mr. Lawrence cannot, however,
contest the facts ascertained by Mr. Mercadante.
380 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. Mercadante observes (see his Technical Report attached as Document N. 36 to the
Counter-Memorial, p. 20 of the English translation) that the amount of foreign accounts receivable
at the date of 31 March 1968, included customers who had not received or had not even
paid for the regularly invoiced goods.
For instance, Mr. Mercadante states that the goods dispatched to a certain Noya Alfred
Enacktemer of Quickborn, West Germany, were returned and remained at the Customs. The
extent of this debt, by someone who would obviously never pay, amounted to over 246 million
lire. Therefore, only one case of bad debt was equivalent to three times the reserve of bad debts
considered by Mr. Lawrence.
And in these circumstances who would trust the soundness of the book value of the accounts
receivable ?
f) In Mr. Lawrence's reports the figure of 300 million lire for JJ/Iezzogiorno grants appears.
At point 46 of its statement, it is said that « ELSI's outstanding claims to grants under the Mezzogiorno
legislation were expected to be metto the extent of 300 ». << Nothing was included in
the balance shet (Mr. Lawrence remembers) pending agreement with the administering authority,
but it seems reasonable to bring this amount into consideration as a further recoverable asset ».
Now, as Mr. Caramazza will explain later, ELSI had no right whatsoever to grants under
the Mezzogiorno legislation, and had not even made an application for them. Thus to speak of
a book value of 300 million for claims under the Mezzogiorno legislation is simply ridiculous.
Even though the amount is relatively small, the circumstances of its inclusion are indicative of
how sincere the Applicant's approach is, and how seriously the book value thesis presented by
the Applicant must be considered.
9· The «negative goodwill » in ELSI.
Mr. Lawrence stated (see C 3/CR 89/4, p. 341) that in his opinion «there was a good prospect
that a purchaser of any or all of [ELSI's] businesses would have been prepared to pay a substantial
premium over the value of the tangible assets for the benefit of [the] goodwill >>.
Values attributed to a business which exceed the book value of its constituent net assets
are referred to as « goodwill ». In ELSI's case, one has to think of the goodwill related to outof-
market products, or to lines of production which produces losses for years. The market
sometimes is surprising. But honesdy, it is more surprising to hear that fora business that, even
in the words of its managers, could not go on, somebody was expected to pay a substantial premium.
The United Kingdom definition of goodwill speaks also of negative goodwill: the amount
found when the value of the business is lower than the aggregate value of its net assets.
Perhaps the Applicant should have spoken, instead, of such a negative goodwill. But also
to open a discussion on negative goodwill, you need a business. And as we have seen, ELSI
was not a business at all. I t was only a set-up capable of stubbornly producing losses, an enterprise
that nobody wanted (first of all Raytheon which, unable to find a purchaser, tried in every
possible way to off load the disastrous concern on to the Italian public authorities). Again, the
insistence of the Applicant that « goodwill >> must be considered in this case, instead of « negative
goodwill >> -or even « ill will >> - is an absurdity. What goodwill could possibly remain after
Mr. Clare « fired >> 8oo workers over the weekend?
Now, I would like to raise two last points.
a) We have been told that the book value as presented by the Applicant is a conservative
estimation. Mr. Lawrence has assumed that the value of ELSI's assets at 31 March 1968 was
17,132·7 billion lire.
Almost the same figure, 17,053, appears in Schedule BI, entitled « ELSI's balance sheets
per books », of Mr. Schene's affidavit and shown to you last week. But we must now point out
to the Court that these values are wrong.
Following production of the Coopers & Lybrand audited report for the year 30 September
1967, we now even note that the Company's own auditors did not agree with the book value of
.·· .. .. .... . .. .· . .. ..... ... -
the cotx1pany .~s set. fotth in·. Mr. Schene's affidavit. T o ~ssist ;; 8q1J~, :: ~ould point out
that the total assets as · at 30 Sep.tember 1967, appearing in Scheduli§; Bi ()f Mr. Schene~s aftìdavi:t;
an1,òunts to l7 ,956. ln the audited balance sheet produced to the Court last Tht~rsday,. #le unadjvsted
pook figures also atx:U,)unt to 17,956. liOWever, the balance sheet Ìnch:tcied am(lng the 30
Septell;lber 1967 financials p:repa:red by Coope:rs & Lybrand indicate, under the heading entitled
« Coropatrfs tJ.djt~stments >>, a teduction of 3,o62, and the revised · total assets thus aritounts to
iRf&l,~lll•'~1~~ir~t~~~
·. b~ Th; ~~~li~àri1: · h~s '{>;t!~~rit~d th~ bo~k valtit! tM~isi Ùt oider td sustain its th~Òry of an
or®tll' Jiqvj9.#i~n., ·
~~~~t!:~;~~f~~~J:~~l~A~1d,~
.·. • ffo~ on eli!tth• dici E:C$1 itm~gi~~ t}lat it co1.:1ld prQceed with an ordetly .liqui;d:atiQn. when. i t
co\1;14. ~()t eyen payi~s: workefs• a;lld w}len it sent th.e 4~~issa;l .le~s: on E:dday ~t 1\:farch 1968•
····J·~~~~-~ with tl;t~ $uppQrt ot · the · d()cuments . deposited before the . Court: · · / : > ·
~~~~~;F,.11L~~m~:t~i'~~~~~r~1~cr~~
st:rially (i31)l v:trlumidt. ;i ts. p·.l· .a..n..t. . ·a. ·n··d· e.· q.. u·•· i.p· ...m ·.·. en· t··.·· ·w·.. ere no·t at ali. . ·d esir·a b·l e,·· · b·e. in· g.· ob· soiescé1·l .·t . .a· nd indu-
• {4) th~theoptio:t}'ofanworclerlyliquidationllwllS notopen.to ELSI; sinceits accounts
showéd .. itsdear ~nal;>ili~ t6 pa1itS: <lebts;.• ·••··· ····•
· · (5) · that ELSI's b~nkruptcy was nota consequence of the MayotQf Palermo's>fequisition
order, since ELSI was. already insolvent before this;
{6) that ELSI's plant was not closed as a result of the requisition, since it had been closed
down- with cessation of production and dismissal of the workers- at the decision .of the directo:
rs before the :requisition took place;
(7) that an evalutation of ELSI's assets on. a book value basis is totally out of the question.
Mf. President, this conclijdes triy staterilent on ELSI's econoriùc ahd ffuancitil s.ituation in
March 1'968. Than:k: yoti fiir yotir attèntion. · · · · · .· · · · · · · · · · · · · · · .· · · · ·
#.·. •· t.. .' f}le PR!llliPEN'T: l'hM yo.~ vecy much. Professo~: .L .ibonati, W e .w i~( cgNiJ:lqe J()IP:()!J.:()W at Q1PlQçk, .? ..· · .·<······•·.·.····· <····· .···•· .· . .· .· .............. · .. ·.· .. ·.. . ·.·····.·.·.·.·.. .. .. .
Thi Còui-if.ose at l~.ss p;#L
25
C 3jCR 89j6
Tuesday 21 February 1989, at IO a. m.
Mr. CARAMAZZA - Mr. BoNELL
The PRESIDENT: Please be seated. Before giving the floor to the Italian Delegation, I ha ve
to recall the provision of the Rules of Court regarding reference during the oral proceedings to
new documents. The matter has already arisen when the counsel for the United States referred
(in argument) to an opinion of the Attorney-General of Rome that was in the CR 89/2, pp. 298
and JOI,
At yesterday's hearing, counsel for Italy referred to a Treaty of Friendship, Commerce and
Navigation between the Italian Republic and the Federai Republic of Germany, and to a decision
of the Italian Court of Cassation dated 28 July 1986. These documents had not been produced
before the Chamber in accordance with Artide 43 of the Statute and Artide 56 of the
Rules of Court. They cannot be regarded as forming « part of a publication readily available »
within the meaning of paragraph 4 of that Artide of the Rules; the Treaty with Germany, is
not published in, for example, the United Nations Treaty Series. No objection was taken at the
time by the United States Agent, and the Agent of Italy has now supplied a copy of the documents
to the Registrar, with a translation into English of the Court of Cassation decision and
of an extract from the Treaty. The Registrar has in turn transmitted a copy to the Agent of the
United States.
Unless the Agent of the United States wishes to make any objection, the Chamber will
treat these documents as regularly before it. I would however request both Parties to respect
the requirements of Artide 56 of the Rules of Court and not to refer to documents which have
not been duly produced.
Mr. MATHESON: Mr. President I just wish to confirm that we have no objection.
Mr. PRESIDENT: Oh, you have no objection. Thank you very much. Now I understand that
the first speaker of the Italian Delegation this morning will be Mr. Caramazza. Therefore I
give the floor to Mr. Caramazza.
Mr. CARAMAZZA:
I. - Préambule.
Monsieur le Président, Messieurs les juges, c'est un très grand honneur de plaider au nom
du gouvernment italien devant certe Cour qui représente la plus haute instance de justice dans
la communauté internationale.
Parmi les nombreux sujets de discussion de ce cas, celui qui m'a été assigné selon le pian de
travail du Collège de défense italien concerne certains actes et comportements des autorités de
mon pays qui auraient été la cause de la faillite de l'ELSI et qui auraient causé des préjudices à
ses actionnaires.
Ces actes et comportements sont )es suivants :
- en premier lieu, le défaut d'octroi à l'ELSI des avantages prévus par les lois spéciales pour
le sud de l'Italie, le Mezzogiorno;
- en deuxième lieu, la non-intervention de la force publique pour empecher l'occupation
de l'usine de Palerme par les travailleurs ou pour la libérer par la sui te;
- troisièmement, la réquisition de cette meme usine par le maire de Palerme; et enfin
- le retard mis par le préfet de la meme ville à accueillir le recours hiérarchique formé par
l'ELSI contre l'ordonnance de réquisition.
ARRINGA CARAMAZZA 383
La défense du gouvernment italien entend démontrer que le comportement des autorités
italiennes a été pleinement légitime ou, à tout le moins - là où Ies autorités italiennes elles-mèmes
ont admis l'existence d'un vice de légalité - que ce comportement n'a nullement contribué à
causer les conséquences alléguées par le demandeur et, en tout cas, qu'il n'était pas propre à
justifier des accusations quant. à so n caractère arbitraire ou • discrìminatoire.
Mais avant d'examiner séparément ces quatre doléances, permettez-moi de faire une brève
allusion d'ordre général à l'un des nombreux aspects singuliers de cette affaire, une affaire que
le .demandeur,. contrairement à l'habitude, construit au fil des années de manière à former des
accusations de plus en plus graves, formulées en termes de plus en plus virulents.
Je me réfère notamment à la différence surprenante qu'il y a entre le << Claim» de 1974 et
les allégations actuelles exposées dans le Mémoire, dans la Réplique et dans les plaidoiries. Je
fais référence à l'augmentation singulière des dommages-intérèts qui étaient établis en 1974 sur
la base du « quick-sale value », alors qu'ils sont évalués aujourd'hui en fonction d'une « book
value» bien plus élevée (voir Duplique, [p. 183,] n. 3). Mais une autre observation est d'ailleurs
nécessaire en ce qui concerne plus particulièrement Ies comportements qui sont iìnputés aux
autorités italiennes.
Dans le «Claim>> de 1974, ces comportements étaient dénoncés d'une façon, dirais-je, neutre
et, selòn le délllandeur, ils avaient causé dans leur ensemble un préjudice aux actionnaires de
l'ELSI dont le gouvernement italien aurait diì répondre parce que c'était à lui que devaient ètre
imputahles tous les comportements ptéjudiciables (voir Unnumbered documents soumis por
l'Italie, p. r.:...155, particulièrement p. 1o5-ro8).
Dans le présent différend, le demandeur prétend, par contre, que tous les comportements
des autorités ital:ìennes étaien.t le tésultat d'une entente réalisée à tous les niveaux officiels concernés
pour permettre à l'IRI de racheter à bas prix un « joyau technologique >> au détriìnent des
actionnaires titulaires du paquet d'actions de I'ELSI.
II est bien évident que ce changement de perspective est extrèmement grave et radica!:
dans le cadre de l'illicéité, il suppose un dol et non pas une faute; au niveau du droit interne,
il détermine le passage d'une responsabilité civile à une responsabilité pénale; et sur le pian de
l'image, il transforme un gouvernement « défaillant >> · en un gouvernement « délinquant », prèt
à exploiter les pouvoirs de ses.organes pour cornmettre de véritables vols au détriìnent d'étrangers.
. La défense du gouvernment italien prend. acte avec grande satisfaction de la déclaration
d'après laquelle la défense des Etats.,-Unis prétend n'avoir jamais entendu accuser les autorités
italiennes d'avoir ourdi un complot crimine!, « a conspiracy », comme cela semblait pourtant
résulter des défenses, aussi bien écrites qu'orales. Sans cette précision, la défense du gouvernement
italien aurait diì protester le plus énergiquement possible contre un tel exposé des faits
qui aurait représenté une offense gratuite, dépourvue de tout élément de preuve. Et il faut d'ailleurs
relever que si l'hypothèse d'une entente criminelle, d'une « conspiracy », a disparu, la thèse
du gouvernement américain, comme M. Ferrari Bravo l'a déjà souligné, se base toujours sur
une connivence entre les autorités .italiennes q\li auraient commis les faits en question.
Les défenses écrites et Ies plaidoiries américaines sont formelles sur ce point: je me bornerai
à citer M. Gardner qui, dans son discours .du 15 février (C 3/CR 89/3, p. 315), disait:
« Through the ensuing bankruptcy process the Respondent's plan to take over ELSI through
its own State-owned conglomerate was brought to fruition ».
Quant aux autres orateurs, je dirai qu'aussi bien M. Matheson et M. Murphy ont dit la
mème chose d'une façon plus ou moins explicite: (Matheson, C 3/CR 89/1, pp. 251-252, 254,
264 et 265-266; Murphy, C 3/CR 89/3, p. 304; Gardner, C3/CR 89/3, pp. 313, 315 et 321;
Matheson, C 3/CR 89/4, pp. 350-351).
Que la thèse d'une entente préalable persiste dans l'esprit de la partie demanderesse est
d'ailleurs évident: c'est seulement dans la mesure où l'on affirme que toutes les actions qu'on
reproche aux autorités italiennes reposent sur une entente, qu'on peut soutenir le bien-fondé
des prétentions de la partie demanderesse. A défaut, il n'y aurait qu'une série d'événements
malencontreux qui ònt fait subir des pertes à une entreprise commerciale tout juste comme l'aurait
fait une baisse ou une hausse de l'or, du dollar, ou du pétrole.
384 RASSEGNA DELL'AVVOCATURA DELLO STATO
On peut citer à ce sujet la Mixed Claims Commission qui, dans la Dix case entre les
Etats-Unis et le Vénézuela a affirmé: «lnternational as well as municipal law denies compensation
for remote consequences in the absen3e of evidence of deliberate intention to injure ».
(Reports of International Arbitrai Awards, Vol. IX, p. 121).
Tout en accueillant la déclaration faite par M. Matheson dans sa lettre du 17 février dernier,
je dois clone insister sur le fait que, entre 1974 et 1987, il y a eu un changement de perspective.
Ce changement influe aussi d'une manière radicale sur le problème de l'épuisement des
recours internes.
2. - Le non-octroi des avantages et des encouragements aux investissements prévus pour le Sud de
l'ltalie.
Le requérant se plaint de les avoir demandés en vain. Il se plaint d'avoir demandé en vain
les encouragements prévus pour les entreprises situées dans le Mezzogiorno par les lois l'exception
promulguées en vue de favoriser le développement industrie! du Sud, notamment les facilités
sur les tarifs des transports et la réserve de 30 p. cent sur les fournitures destinées aux administrations
publiques (cfr. Mémoire, p. 8 et Réplique, p. 128).
Cette allégation de la Partie demanderesse, comme d'ailleurs la plupart de ses allégations,
est trop générale, vague, non pertinente et de toute manière la prétention qui en découle serait
irrecevable et dépourvue de fondement.
La défense du gouvernement italien entend, bien évidemment, rendre compte de toutes
ces qualifìcations négatives en soulignant ce qui suit.
2. I. - La doléance est trop générale, vague et non pertinente.
Les avantages et les facilités en discussion sont réglementés dans un Etat de droit tel que
l'Italie par la loi et sont reconnus sur la base de demandes formelles adressées aux autorités administratives
compétentes qui doivent en constater le fondement.
Dans la présente affaire, il ne résulte pas que l'ELSI ait présenté aucune demande formelle,
ni qu'elle ait engagé aucune procédure à ce sujet.
La documentation présentée par le demandeur à ce propos est très significative: il en ressort
seulement que la direction de l'ELSI a soulevé à plusieurs reprises, à titre informel, au cours
des entretiens avec diverses autorités italiennes, le problème des avantages et des facilités, et ce
d'une manière tout à fait approximative.
Dans son affidavit du 17 avril 1987 (cfr. Mémoire, Annexe 9, para. 15), M. Adams (Président
de Raytheon) a affirmé: « nous croyions (sic!) que les incitations à l'investissement fortement
publicisées offertes par le gouvernment italien réduiraient les coiìts et les difficultés du
marché ». Son témoignage, rendu devant la Cour, a confìrmé cette affirmation (C 3/CR 89/2,
p. 275). M. Adams, à ce sujet, a précisé qu'il n'avait pas d'idées plus précises sur la question
parce que le soin d'établir des détails était la dìche des fonctionnaires qui travaillaient sur piace,
comme M. Clare.
Arthur Schene, Vice-président de Raytheon, dans son affidavit de la meme date (cfr.
Mémoire, Annexe 13, para. 12), se réfère à « l'impossibilité d'obtenir les avantages qui étaient
supposés (sic!) revenir aux entreprises en activité dans le Sud de l'ltalie ».
Et enfìn, M. Clare (nouveau Président de l'ELSI) qui, chargé de l'affaire sur piace, était
dans la meilleure situation pour se faire des idées précises, souligne dans son affidavit du IO
janvier 1987 (cfr. Mémoire, Annexe 15, para. 19, 28 et 29), le fait que Ies représentants de l'ELSI
avaient demandé Iesdits avantages dans toutes leurs discussions, dans toutes leurs rencontres
avec diverses autorités italiennes et, dit encore M. Clare: « l'ELSI n'a jamais reçu de facilités
dans les transports, ni de commande de la part du gouvernment suivant la règle des 30 p. cent ».
Au contraire, « le ministre de la Santé a adressé aux autorités médicales périphériques une circulaire
dans laquelle il était précisé que la loi des 30 p. cent n'était pas applicable aux fournitures
de tubes à rayons X» (cfr. Mémoire, Annexe 15, para. 41).
ARRINGA CARAMAZZA 385
M. Clare toujours, dans sa lettre du 28 février 1968 adressée à M. Carollo (Unnumbered
documents soumis par l'Italie, Vol. I, p. 427-430), a également affirmé que l'ELSI avait besoin
d'« un associé qui nous aide (sic!) à obtenir les avantages revenant aux sociétés du Sud de l'Italie
>>. Il exprimait ainsi un avis très singulier mais partagé de toute évidence par les autres représentants
de la société et on peut là faire référence à un autre affidavit, celui de M. Scopelliti
(un autre cadre de Raytheon et conseiller financier de l'ELSI) (cfr. Mémoire, Annexe 17, para.
20), dans lequel celui-ci exprime sa conviction qu'il aurait été possible d'obtenir lesdits avantages
et les facilités avec I'aide d'un associé italien.
Il y a clone la preuve par les documenta foumis par la partie demanderesse, et cette preuve
est confirmée par le témoignage de M. Clare, qu'aucune demande formelle n'a jamais été présentée.
Il est évident que des instances verbales vagues, de nature générale, présentées au cours
d'entretiens et de discussions avec les autorités les plus diverses relèvent dudomaine des relations
publiques, relèvent du domaine des contacts préliminaires, mais ne sauraient jamais représenter
le fondement d'une demande en justice.
Permettez-moi, Monsieur le Président, d'ajouter ici qu'il est étonnant que la direction qualifiée
d'entreprises d'une si grande envergure ait abordé avec un tel manque d'informations, d'une
manière si superficielle, un problème d'une telle importance pour le budget de l'entreprise en
difficulté et qu'elle l'ait fait en se basant sur de vagues « oui-dire », des opinions personnelles,
des conversations de couloir et sur l'aide d'amis << influents ».
Si, comme il semble ressortir de ces réflexions, tel est le style d'action des responsables des
sociétés concernées, on ne saurait ètre surpris des résultats obtenus et qui ont été illustrés hier
par M. Libonati.
Nous avons d'ailleurs tous entendu les déclarations de M. Clare lors de son contre-interrogatoire
(C 3/CR 89/2, p. 285) quand il a expliqué de quelles sources il avait tiré la conclusion
qu'ELSI avait droit aux facilités; de quelle facon ces facilités avaient été demandées et
quelle avait été la réaction de l'ELSI au défaut d'obtention de ces facilités.
Permettez-moi de dire, Monsieur le Président, Messieurs les juges, que les idées du management
Raytheon-ELSI en général et de M. Clare en particulier sont à. cet égard complètement
fausses.
Pour savoir si on a droit ou non à une facilité fiscale ou tarifaire dans un Etat de droit, on
ne s'adresse ni aux autorités politiques ni aux autorités religieuses, on s'adresse à un conseiller
juridique ou à un avocat. Et si l'avis de ce dernier a été positif et si les facilités sont refusées sur
demande formelle, on ne recourt pas au Cabinet des ministres mais aux tribunaux. Il y en avait
à Berlin au temps de Frédéric II le Grand, je vous assure qu'il y en a en Italie de nos jours.
2.2. Irrecevabilité de la prétention.
Qui plus est, en dépit de l'absence de demandes formelles, il y a eu des prises de position
négatives très nettes de la part des autorités italiennes, telle que la circulaire du ministre de la
Santé qu'on a déjà mentionée, ou les affirmations du ministre de l'Industrie dans son discours qui
a été souvent cité per la partie demanderesse (cfr. Mémoire, Annexe 46, p. 3); le ministre de
l'Industrie a expliqué devant la Chambre cles députés que les avantages prévus pour le Mezzogiorno
ne concernaient que les produits finis et ne pouvaient pas etre accordés aux composants
et que, par conséquent, l'ELSI n'avait pas droit à ces avantages.
Si Raytheon, ELSI, et leurs directions respectives étaient tellement convaincues que, malgré
l'avis contraire des autorités italiennes, les avantages et les facilités demandées leur revenaient
de droit, pourquoi n'ont-elles pas agi formellement dans ce sens devant les autorités judiciaires
compétentes? Les avantages et les facilités sont octroyés- ou ne le sont pas- d'après
la loi et non pas selon le bon plaisir ou la bienveillance des autorités gouvernementales: le refus
ou le non-octroi de ces avantages peuvent ètre dénoncés devant les autorités judiciaires.
L'absence de ce recours en justice, comme le disait hier le professeur Gaja, relève aussi du
non-épuisement des recours internes qui entra1ne l'irrecevabilité de la prétention actuelle.
386 RASSEGNA DELL'AVVOCATURA DELLO STATO
2.3. - L'absence de fondement de la prétention.
Mame dans la meilleure des hypothèses, la prétention serait de toute manière sans fondement
car, étant donné le genre de production réalisée par l'ELSI, celle-ci ne pouvait jouir
à aucun titre des avantages et des facilités demandés.
Comme le ministre de l'Industrie l'avait dit, la condition préalable pour l'application de la
loi des 30 p. cent et de celle sur la réduction des tarifs de transport était qu'il s'agisse de produits
finis, c'est-à-dire de produits qui n'aient pas besoin d'activités supplémentaires de montage ou
d'assemblage. Je devrais maintenant me livrer à une analyse des articles de loi d'où découle cette
conséquence, mais puisque la Partie demanderesse n'a pas insisté sur ce point, avec la permission
de la Cour, je me passerai de cet examen analytique qui figurera d'ailleurs sous forme de note
dans les comptes-rendus (1).
Il suffira ici de souligner que, puisque l'ELSI ne vendait pas de produits finis, la législation
invoquée ne lui était pas applicable.
Le gouvernement italien n'a clone causé aucun préjudice à l'ELSI: c'est plutl>t l'ELSI
qui exigeait du gouvernment italien l'octroi d'avangages relevant de l'assistance.
Et d'ailleurs, la direction était pleinement consciente de cela, à tel point que dans le fameux
Projet de redressement du mois de mai 1967 (cfr. Mémoire, Annexe 22), les avantages et les facilités
devant faire l'objet de la demande concernaient non pas l'ancienne gamme de produits mais,
alternativement, soit des « produits nouveaux » auxquels les dispositions de faveur auraient été
légitimement applicables (cfr. Mémoire, Annexe 22, p. 39), soit une «interprétation favorable de
la !oi» (cfr. Mémoire, Annexe 22, p. 41)- ce qui équivalait à une demande inqùalifiable de favoritisme.
Autrement dit, la direction de Raytheon-ELSI savait parfaitement que l'ELSI, vu la
situation décrite plus haut, n'avait droit à aucun des avantages prévus pour le Sud de l'Italie.
A ce point là, laissez-moi dire, Monsieur le Président et Messieurs les juges de la Cour,
qu'il est vraiment étonnant que, dans cette phase orale, la Partie demanderesse non seulement
insiste encore sur la question des facilités, mais, bien plus, transforme cette sorte de r~ve les
yeux ouverts, en une réalité financière. En fait, nous avons entendu M. Lawrence estimer à 300
millions de lires la valeur des facilités qu'ELSI aurait dO. obtenir et, surtout, nous l'avons entendu
inclure cette somme dans la valeur comptable de la société. La chose est tellement énorme
que je vous demande la permission de citer la page du compte-rendu; c'est le compte rendu du
du 16 février 1989 (C 3/CR 89/4, texte anglais, p. 340). Bien, Monsieur le Président, je crois
qu'évaluer un billet de la loterie nationale à la valeur du premier prix aurait plus de logique.
Nous savons maintenant quel compte tenir d'une valeur comptable estimée avec la rigueur ...
scientifique que nous avons pu apprécier.
3· - La non-intervention de la force publique.
Le demandeur prétend que les travailleurs ont occupé l'usine après la réquisition, avec le
consentement tacite cles autorités localès - qui ne se seraient nullement efforcées de prévenir
ou de faire cesser cette occupation, ou encore de protéger de toute manière les biens de l'entreprise
(cfr. Mémoire, pp. 53-55).
(l) La partie adverse se plaint, en effet, de la non-application à son égard de l'article premier de la loi N. 835
du 6 octobre 1950, qui sanctionnait l'obligation pour !es administrations de l'Etat de réserver aux établissements
industriels situés dans le Sud de l'ltalie !es<< fournitures • de matériel prévues par le décret-loi N. 40 du r8 février
1947. En particulier, aux termes de l'article r6 de la loi N. 717 du 26 juin 1965, en vigueur à l'époque où !es faits
se sont produits, !es administrations de l'Etat auraient du réserver 30 p. cent de leurs « fournitures • aux entreprises
en activité dans le Sud de l'ltalie.
Dans le système juridique italien, le contrat de fourniture est un contrat par lequel une parti e ( dans la pré.
sente affaire, l'administration publique) achète d'une manière continue des biens et des services à une autre partie
pour sa propre utilité et (dans le cas de l'administration publique) pour s'acquitter de ses devoirs de fonction. Ceci
signifie que le matériel en question pouvait ~tre acheté dans la mesure où il était utilisable dans l'immédiat sans
recourir à des activités supplémentaires de montage ou de transformation. Cette caractéristique n' existait évidem·
ment pas en l'espèce, vu que le matériel produit par l'ELSI, constitué de simples composants et non pas de produits
finis, s'avérait dépourvu de toute utilité immédiate pour l'administration.
En ce qui concerne toujours !es facilités prévues par notre système juridique pour les entreprises en activité
dans le Sud de l'ltalie, la partie adverse a dénoncé aussi la non-application à la société ELSI d'autres normes qui
ARRINGA CARAMAZZA 387
Ceci constituerait un manquement à la protection que les autorités italiennes auraient du
fournir « après la date de la réquisition et tout au moins jusqu'à l'introduction de l'instance en
faillite » (cfr. Mémoire, p. 54, n. Io).
Ni le Mémoire, ni la Réplique, ne mentionnent expressément les normes de droit interne
prétendument enfreintes par les autorités italiennes et rien n'a été ajouté à ce sujet dans les
plaidoiries.
Toutefois, la citation de certains articles du Code pénal italien (cfr. Mémoire, Annexe 95),
articles qui étaient déjà cités dans le <<Claim>> de 1974 qui au contraire s'attardait sur ce point
(Unnumbered documents soumis par l'Italie, Vol. I, p. 98-99; Vol. Il, p. 253 et seq.), laisse
entendre que, d'après le demandeur, les autorités italiennes n'auraient pas empeché la perpétration
ou la continuation de faits illicites et n'auraient pas poursuivi les coupables. Les faits illicites
en question seraient ceux prévus par toute une série d'articles du Code pénal italien, à savoir les
articles 509, 633, 634, 614. Je ne vais pas ennuyer la Cour en les lisant ni tout entiers ni seulement
leurs titres mais je résumerai en disant que s'il s'agit d'une série de délits que M. Gardner
a qualifiée dans sa plaidoirie d'une façon univoque, en utilisant le terme anglais de « trespass ».
La défense du gouvernment italien entend démontrer que les allégations de la Partie adverse
sont. erronées en fait et dépourvues de fondement sous l'angle du droit interne.
3.I. Date initiale et rzature de l'occupation par les travailleurs.
Contrairement à ce qu'il est dit par la Partie demanderesse qui se fonde sur l'affidavit de
M. Merluzzo (cfr. Mémoire, Annexe 2I), dont la véracité doit ètre contestée, l'occupation par les
travaille-ars a commencé avant la réquisition, et précisément le 13 mars I968. Cette circonstance
a été établie irrévocablement par le jugement du tribuna} de Palerme N. 670 du 1 avril I97J,
confirmé en appel et en cassation. Ce jugement affirme que ladite circonstance est prouvée « par
la documentation produite par l'administration défenderesse et dont la correspondance avec la
réalité historique n'a pas été contestée par le demandeur» (cfr. Mémoire, Annexe 8o, p. 7-8; Annexes
81-82).
Il est donc presque superftu de confronter la valeur respective de deux preuves si différentes:
d'une part, la décision d'un juge indépendant et impartial, prise sur les lieux, peu de temps après
les faits, sur la base de preuves certaines (décision d'ailleurs confirmée par de nombreux autres
documents, tels que les affidavits de Bevilacqua et de Ravalli). D'autre part, il s'agit de l'affidavit
d'un ancien employé de Raytheon-ELSI, fait vingt ans après les faits sur la base de souvenirs
personnels qui n'étaient plus tellement frais, dont on a toute raison de croire qu'ils sont partiaux.
Il y a lieu de préciser en outre que l'occupation était symbolique, parce qu'elle a été menée
dans un esprit de collaboration et qu'elle n'a nullement entravé ni la production réduite de l'époque,
qui a été maintenue, ni la procédure de faillite. Cela aussi est prouvé par:
a) la décision du tribuna! déjà mentionnée qui a exclu qu'aucun préjudice n'ait été causé
par les travailleurs (cfr. Mémoire, Annexe 8o, p. 11);
b) les affidavits de MM. Bevilacqua et Maggio (Duplique, Annexes 2-3) qui non seulement
confirment que l'occupation a commencé bien avant la réquisition, mais indiquent aussi qu'elle
prévoient des réductions spéciales sur les tarifs de transport du matériel utilisé ou produit par l' entreprise en ques·
tion.
Toutefois, ces normes n'étaient pas non plus applicables au cas d'espèce, pour les mèmes raisons déjà exposées.
L'artide 15 de la loi N. 717 du 26 juin 1965 et les décrets ministériels d'application, tous deux adoptés en date
du 29 mars 1967, prévoyaient l'octroi de facilités s'il s'agissait:
a) de matières premières ou produits semi-ouvrés destinés à ètre utilisés pour la production;
b) de matériaux de construction, outillage ou tout matériel nécessaire pour la reconstruction, la transc
formation, l' extension et la modernisation d' établissements industriels;
c) du transport des produits finis en dehors des territoires du Sud de l'ltalie.
L'ELSI invoquait plus précis·ément l'octroi des facilités visées au point c) parce que, comme il est également
affirmé dans le Mémoire, l' encombrement et le poids des produits rendaient l es tarifs de transport très élevés.
Toutefois, comme il résulte du libellé de la norme, son application était subordonnée à une seule conmentaidition
décisive: à savoir que les produits devaient ètre finis, sans qu'il y ai t lieu de recourir à des activités supplémentaires
de montage ou d'assemblage; ce qui n'était pas le cas pour l'ELSI.
RASSEGNA DELL'AVVOCATURA DELLO STATO
était « ordonnée » et « menée dans un esprit de collaboration », comme le démontre également
le fait qu'une partie de l'activité a été poursuivie « régulièrement aux termes cles contrats en cours >>
(je cite textuellement le deuxième affidavit ci-dessus).
Mais il y a quelque chose de plus qui prouve ce que je viens de dire et c'est une source qui
nous vient directement de l'ELSI. La défense du Gouvernement italien s'est souvent ou presque
toujours référée aux pièces produites par la Partie adverse pour démontrer ses affirmations: dans
ce cas également, fidèle à sa ligne de conduite, elle souhaite évoquer l'une de ces pièces.
Il s'agit en l'espèce du recours hiérarchique formé par l'ELSI contre l'ordonnance de réquisition,
clone d'un document signé par le responsable de l'ELSI et par son avocat d'où il résulte
que l'occupation de l'usine fut antérieure à la réquisition et que, de toute manière, elle fut
symbolique, pacifìque et menée dans un esprit de collaboration.
Je ne veux pas ennuyer la Cour avec de longues citations textuelles et je me bornerai clone
à lire deux ou trois phrases de ces documents en renvoyant, pour ce qui est du passage entier,
aux procès-verbaux dans lesquels tout le contenu du texte écrit figure sous forme de note.
Voilà clone ce qu'écrivait ELSI dans son recours hiérarchique:
« la vérité est que ... le jour mème où les licenciements ont été notifìés, une délégation du
personnel s'est rendue à l'usine pour conférer avec certains dirigeants et est ensuite restée
toute la journée dans l'enceinte de l'établissement. Les jours suivants, un petit groupe de
travailleurs a erré dans l'enceinte de l'usine sans toutefois provoquer aucun incident » (2).
Ce sont les déclarations d'ELSI ex ore tuo: te judico. Je dirai que cette description idyllique
du climat qui régnàit à l'ELSI fait plutOt penser au salon de la marquise de Sévigné qu'à une
lutte syndicale dans une entreprise industrielle, et je me demande quel besoin y aurait-il eu
d'invoquer l'intervention de la force publique. Mais revenons-en aux faits.
3.2. Devoirs des officiers et des agents de police.
Il faut préciser qu'il est évident qu'aucun élément d'un fait illicite poursuivable d'office
ne pouvait ètre relevé dans ces conditions-là. Aucune plainte d'ailleurs n'avait été déposée par
l'ELSI et jamais l'ELSI n'a demandé l'intervention de la force publique.
Pour prouver ma thèse avec la précision voulue, aucun cles articles du Code pénal cités par
l'adversaire n'est applicable, et je vais devoir examiner l'un après l'autre tous les faits illicites
mentionnés. Dans cette optique, je dois prier la Cour de ne tenir compte, à titre de référence,
que cles textes de loi italien ne joints au « Claim » (Unnumbered documents soumis par l'Italie,
Vol. Il, p. 253 et seq.), parce que les textes de la loi pénale italienne joints au Mémoire sont
imprécis, quelques uns par défaut car, il y a cles alinéas qui ont été coupés, et d'autres par excès,
parce que qu'il y a cles commentaires ou cles notes qui ont été rajoutés au texte comme s'ils
faisaient partie de l'artide du Code pénal. En cas d'examen, il faudra clone se référer aux textes de
la loi pénale italienne qui sont en annexe au « Claim » et non à ceux au Mémoire annexes.
Je crains toutefois qu'une telle analyse de chaque disposition de loi ne s'avère ennuyeuse
et puisque, par ailleurs, mes adversaires n'ont pas insisté sur ce point dans leurs plaidoiries, je
( 2) Le passage dans son intégralité est le suivant:
« L'ordonnance du maire, afin de justifier la mesure grave prise à l'égard du requérant, affirme que la fermeture
de l'usine et l'envoi des lettres de licenciement ont provoqué la" réaction des travailleurs et des organisations
syndicales, qui s'est traduite par des grèves sectorielles et générales ".
Cette affirmation ne correspond pas entièrement à la vérité. Il n'y a pas eu de grèves sectorielles ou générales,
ni de violences contre !es personnes ou !es choses, ni une occupation de l'usine par suite des licenciements.
La vérité est que le 30 mars 1968, c'est-à--dire le jour ml\me où !es licenciements ont été notifiés, une délégation
du personnel s'est rendue à l'usine pour conférer avec certains dirigeants et est ensuite restée toute la journée
dans l'enceinte de l'établissement.
Les jours suivants, un petit groupe de travailleurs a erré dans l'enceinte de l'usine sans toutefois provoquer aucun
accident.
Il est don c tout à fait évident que !es épisodes susmentionnés ne constituent pas l' état de nécessité grave requis
parla loi en tant que condition et titre nécessaires pour prendre une ordonnance de réquisition ~.(Cfr. Mémoire,
Annexe 36, p. u-12).
ARRINGA CARAMAZZA 389
me bornerai, avec l'autorisation de la Cour, à renvoyer, pour ladite analyse, au texte écrit cles
plaidoiries déposées au Greffe, où l'analyse de tous les articles du Code pénal italien est conduite
dans une note. Oralement, je voudrais résumer le problème en disant qu'aucune des hypothèses
délictuelles évoquées n'est réalisée dans le cas d'espèce, à défaut d'éléments matériels ou d'éléments
psychologiques, ou encore parce que l'hypothèse concerne des faits illicites poursuivables
sur plainte (c'est cela le point le plus important) tel par exemple la violation de domicile qui
còrrespond plus précisément, je crois, au « trespass" de la Common Law. Et aucune plaine n'a été
déposée par l'ELSI à ce sujet (3).
En définitive, et pour conclure sur ce point, l'occupation de l'usine par les travailleurs a été:
a) pacifique;
b) sjrmbolique (un petit groupe);
c) acceptée ou du moins tolérée par l'ELSI qui n'a jamais demandé l'intervention de la
force publique et n'a nullement porté plainte à ce sujet;
d) menée dans un esprit de collaboration;
e) elle n'a jamais causé aucun préjudice, aucun dommage à l'entreprise.
En ce qui concerne ladite occupation, aucun manquement au devoir de protection ne peut
clone ètre imputé aux autorités italiennes. ·
4· L' ordonnance de réquisition.
Comme il est bien connu de cette Cour, la défense du gouvernment italien a réservé une
plaèe importante à c.e sujet dans les défenses écrites et n'a nullement l'intention d'ennuyer Monsieur
le Président et Messieurs les juges en répétant ce qui a été déjà exposé.
Le but poursuivi consiste à donner un apercu aussi vaste et aussi précis que possible de la
pratique suivie pendant la période concernée par les autorités italiennes dans des affaires du
genre de celle qui est actuellementexaminée par la Cour. Ceci pour démontrer que, bien que
l'ordonnance de réquisition ait été il1égale, et a donc été annulée, elle n'était cependant ni arbitraire,
ni discriminatoire, ni propre. à causer aucun préjudice à l'ELSI et à ses actionnaires.
L'année 1968 a représenté, comin.e on le sait, le point culminant d'une période d'agitation
longue et profonde, une période vécue par toutes les sociétés occidentales. Cette agitation a
(3) « Article 508- Invasion et occupation arbitraires· d'exploitations agricoles ou industrielles. Sabotage.- Quiconque
envahit ou occupe, dans le seul but d'empecher ou de troubler l'exécutiori régulière des travaux, l'exploitation
agricole ou ìndustrielle d'autrui (c.p. 614, 633, 634), ou bien dispose de l'équipement, des stocks, des appa•
reils ou de l'outillage d'autrui destinés à la production agricole ou industrielle, est punì d'une réclusion jusqu'à
trois ans et d'une amende minimum de deux cent mille lires (x).
Quiconque endommage les blìtiments affectés à l'exploitation agricole ou industrielle, ou tout autre bien parmi
ceux indiqués dans la disposition précédente, est passible d'une réclusion de six mois à quatre ans et d'une amende
minimum d'un million de lires (2), lorsque le fait ne constitue pas un délit plus grave (c.p. 5xo-5x2, 635) (3) ».
Cette norme ne peut évidemment pas etre appliquée ici car elle prévoit un dol spécifique - à savoir « le seui
but d'empecher ou de troubler l'exécution régulière des travaux qui n'existe pas dans le cas d'espèce. De plus, l'intention
des occupants était au contraire de. maintenir l'usine en activité et de pursuivre ainsi le travail.
«Artide 633 - lnvasion de terrains ou de btitiments. - Quiconque envahìt. (c.p. 637) arbitraìrement les terrains
ou les blìtiments d'autrui, tant publics que privés, afin de les occuper ou d'en tirer un profit quelconque, est punì,
par plainte de la personne lésée (c.p. x2o, 639 bis), d'une réclusion jusqu'à deux ans ou d'une amende de deux
cent mille lires à deux millions (x) (2).
Les peines. sont appliquées conjointement et l' on procède d' office, si le fait est commis par plus de cinq personnes,
dont une manifestement armée, ou bien par plus de dix personnes, meme sans armes (c.p. 1x2 (x) n. x; 585
(2 et 3), 634, 649) ».
Cette norme aussi est inapplicable dans notre cas car l'adverbe « arbitrairement • indique une hypothèse particulière
d'illicéité, en ce sens que l'auteur doit etre conscient du caractère antijuridique de son action. Ce qui est
exclu par définition pour quelqu'un qui souhaite garder son emploi.
Il aurait fallu de toute manière que la personne lésée porte plainte parce que l' occupation n' était certainement
pas armée et que la description de la situation faite per l'ELSI elle-meme, qui parle d'un <• petit groupe », laisse
supposer que le nombre d'occupants était bien inférieur à dix.
« Article 634 - Trouble avec violence de la possession de biens immobiliers » - Quiconque, en dehors des cas indiqués
dans l'artide précédent trouble par des violences contre des personnes (c.p. 58x [2] our par des menaces
390 RASSEGNA DELL'AVVOCATURA DELLO STATO
commencé quelques années auparavant et s'est terminée quelques années après. Et nous ne nous
en souvenons que trop bien, car il s'agissait d'une situation de type pré-révolutionnaire, diffuse
dans le temps et dans l'espace.
Il s'est sans doute agi là d'une grande crise de transformation entre deux époques: la crise
du passage de la société industrielle à la société postindustrielle, de l'Etat du bien~tre à l'Etat
post-moderne.
Et une cles valeurs modèles de cette para-révolution, du moins en Italie, a été le maintien
des niveaux d'emploi et la sauvegarde des postes de travail: c'était là une prémisse que les autorités
ne pouvaient pas ignorer lorsqu'elles devaient prendre des mesures.
La révolution qui avait déterminé le passage de l'Etat absolu à l'Etat libéral avait mis l'accent
sur la valeur statique de la propriété, alors que la révolution sociale, qui a substitué le « Welfare
State» à l'Etat libéral, avait mis l'accent sur sa valeur dynamique, dans le cadre de la gestion de
l'entreprise. Cette dernière para-révolution a mis au premier plan la valeur institutionnelle de
l'entreprise, considérée ou non, ou non seulement, comme un ensemble productif, mais comme
une communauté de travail, en privilégiant l'aspect travailliste par rapport à l'aspect commerciai
et à l'aspect privé qui prévalaient respectivement auparavant.
Ce n'est clone pas un hasard si, pendant ces années, l'usage de l'instrument de la réquisition
contre la fermeture d'établissements industriels et le licenciement des ouvriers, en visant à conserver
les niveaux d'emploi et à sauvegarder l'ordre public économique, a été l'ordonnance de
réquisition. L'ordonnance de réquisition a clone éveillé l'intérèt de tous les maires italiens.
Et ce n'est pas non plus un hasard si la doctrine la plus attentive a admis l'existence du pouvoir
de réquisition et si la jurisprudence l'a reconnu au maire en cas d'urgence exceptionnelle.
Il importe peu, aux fìns de la présente affaire, que la jurisprudence ait conclu à ce sujet que
la mesure de la réquisition n'était pas apte, concrètement, à conserver les postes de travail. Ce
que le gouvernement italien souhaitait démontrer par une analyse critique de tous les précédents
jurisprudentiels conduite dans la défense écrite c'était que, à l'époque, n'importe quel maire
italien, quelle que fut l'usine menacée de fermeture et quels que fussent ses propriétaires, nationaux
ou étrangers, aurait agi exactement comme l'a fait le maire de Palerme le I avril 1968.
Comme il a été démontré, de Florence à Pise, de Chieti à Gènes, à Sondrio, à Brindisi, à
Cinisello Balsamo, à Casalmaggiore, à Rieti, tout le long de la botte, les maires italiens, au cours
de la décennie I96S-I97S, réquisitionnaient tous les établissements menacés de fermeture indépendamment
de l'industrie concernée (mécanique, textile, papier, sucre) et indépendamment
du propriétaire, individu ou société anonyme, italien ou étranger.
Dans ces conditions, on ne saurait vraiment qualifier l'ordonnance de réquisition de« discrirninatoire
». Ni d'ailleu rs d'« arbitraire ».
Sans envahir pour autant les domaines qui sont du ressort des autres membres du collège,
je voudrais exposer brièvement deux considérations qui excluent ladite qualification d'« arbitraire
».
(c.p. 6u) la possession pacifique de biens immobiliers par autrui (c.p. 812 [I et 2)), est puni d'une réclusion jusqu'à
deux ans et d'une amende de deux cent mille à six cent mille Jires (I) (2).
Le fait est considéré comme étant accompli avec violence ou avec des menaces lorsqu'il est commis par plus
de dix personnes (c.p. II2 [I] n. I)&. .
L'existence d'un tel délit est exclue par les résultats des décisions du tribuna! et de la cour d'appel de Palerme
dans lesquelles il est affirmé qu'il n'y a eu ni violence, ni menace (ce dont l'ELSI convient d'ailleurs, comme
on l'a vu, dans son recours au préfet).
« Artici e 6I4 - Violation de domicile - Quiconque s'introduit dans l'habitation d'autrui ou dans tout autre l'eu
de domicile privé, ou dans Jeurs dépendances, contre la volonté expresse ou tacite de celui qui est en droit de l'évincer,
ou bien qui s'y introduit clandestinement ou par ruse, est puni d'une réclusion jusqu'à trois ans (c.p. 6IS [I].
Cette m8me peine est prévue pour quiconque reste dans les lieux susdits contre la volonté expresse de celui
qui est en droit de l'évincer, ou bien y reste clandestinement ou par ruse (2). Ce délit est punissable par plainte de
la personne Jésée (c.p. I2o).
La peine va d'un à cinq ans (3), et l'on procède d'office si le fait est commis avec violence sur des choses (c.p.
392 [2]) ou contre des personnes (c.p. 58 I [2]), ou bien si le coupable est manifestement armé ».
Ce délit n'entre pas non plus en ligne de compte car on ne peut déduire aucune volonté expresse ou tacite
de l'ELSI contre l'occupation. Au contraire, l'absence de réaction fait penser à un consentement éventuel de sa part.
Quoi qu'il en soit, vu que la circonstance aggravante visée au dernier alinéa ne saurait 8tre prise en considération
dans ce cas, il s'agitencore une fois d'un délit poursuivable sur plainte et, comme on le sait, aucune plainte
n'a été déposée à ce sujet.
ARRINGA CARAMAZZA 391
La première .a trait à une expérience américaine, celle de la Pewee Coal Company (Duplique,
p. 177 et seq.), citée aussi dans .la plaidoirie orale de M. Gardner, et qui prouve que,
en cas d'urgence sociale, la réquisition temporaire d'installations industrielles constitue une sorte
de réaction physiologique de notre type de société organisée pour protéger, comme l'a précisé
la Cour suprème des Etats-Unis,.la sécurité et le bien-,.ètre publics. Il peut s'avérer que la décisio.
n soit annulée parla suite mais .le fait est que ce type d'ordonnance est pris dans ces circonstances.
Le comportement du maire de Palerme n'a donc pas représenté un abus déraisonnable,
comme le prétend la Partie adverse; il a par contre été parfaitement conforme à la pratique courante
.de n'importe quel pays occidental industriel en temps de crise.
La deuxième considération se réfère aux raisons qui ont amené le préfet à annuler l'ordonnance
du maire et; d'une manière plus genérale, aux principes sanctionnés par la jurisprudence
administrative italienne en la matière.
En dépit du fait que, dans le recours de l'ELSI, on contestait sous de nombreux aspects
l'existence mème du pouvoir du maire de prendre l'ordonnance de réquisition attaquée, le préfet
en a reconnu l'existence (et toute la jurisprudence se range dans cette direction. Le maire a un
pouvoir, en cas exceptionnels,. d'adopter l'ordonnance .de réquisition aux termes de l'artide
7 de la loi du 23 mars 1865, annexe E et de l'article 69 .du Règlement des collectivités locales en
Sicile (voir à ce sujet les dédsions citées dans le Contre-mémoire et la Duplique; on peut ajouter
la décision du Conseil de justice administrative de la région de Sicile, N. 155 du 27 juin 1978
publiée . dans Il Consiglio di S(l,to, 1978, I, 1289).
Le préfet a toutefois nié que ce pouvoir ait été exercé correctement car il a dit que le but
poursuivi- c'est-à-dire la gestion de l'entreprise- n'avait pas été atteint. Là est le coeur de la
décision d'annulation du préfet.
Le préfet de Palerme, en accueillant le recours hiérarchique de l'ELSI, a donc a:ffirmé,
par un pronosticfait a posteriori, l'existence de l'usage incorrect d'un pouvoir qui était en tant
que tel reconnu.
Il semble donc évident que cela exclut tout caractère arbitraire de l'ordonnance car on ne
peut parler d'<< arbitraire » que lorsqu'un acte administratif constitue un abus, parce qu'il a été
pris en l'absence absolue d'un pouvoir, et non pas lorsqu'un pouvoir, dont personne ne met en
doute l'existence, a été simplement détourné.
Il est enfin impossible de reconnaitre l'existence d'un lien de causalité entre la réquisition
et la faillite.
Ce point a été traité · hler pat M. Libonati; il sera traité, après moi, par M. Bonell et il est
donc · superflu que je m'y attarde. Permettez-moi seulement de rappeler que le problème de
l'existence d'un lien de causalité entre la réquisition et la faillite a été posé au juge itaiien par le
syndic de faillite de l'ELSI qui a demandé, comme o:n le sait, la condamnation du ministère de
l'Intérieur à la réparation des préjudices causés par l'ordonnance de réquisition de l'usine.
Le Tribuna! de Palerme, dans la décision que l'on a déjà citée, a précisé:
« Il découle des conditions décrites ci-dessus que le rattachement de la faillite de la société
à la survenance de la réquisition est dépourvu de fondement, camme l'a soutenu à juste titre l'adminìstration
défimderesse, vu que la situation économique de Raytheon-ELSI était déjà gravement
compromise depuis des années par déclaration expresse de ses dirigeants »,
Et la Cour d'appel, pour sa part, a déclaré que:
«La drcostance certaine de l'insolvabilité de la societé, a une époque immédiatement
anterieure à l'intervention du maire, suffit à exclure tout lien de causalité entre l'ordonnance
de réquisition et la fat'llite de la société, dont ledit état d'insolvabilité est une cause déterminante
et suffisante >> (Art. 5 de la loi en matière de faillite).
Les deux décisions ont été, comme vous le savez, confirmées par la Cour suprème de cassation
(Cfr. Mémoire, Annexe. 82).
Or, la défense du gouvernment italien estime que la décision cles juges du fond de Palerme,
soumise à l'examen de cette illustre Cour- bien que rendue à la demande du syndic de faillite
et non pas de Raytheon - rev8t une valeur incontestable pour deux raisons.
392 RASSEGNA DELL'AVVOCATURA DELLO STATO
La première est que le juge national du fond a pour tache en premier li eu d' évaluer les faits
sur la base des preuves. Et ceci sur les lieux et dans un délai relativement bref après les événements
en discussion. Il se trouve donc dans les meilleures conditions pour une reconstitution fìdèle
des faits, vu qu'il est l'autorité la plus compétente d'un point de vue professionnel et qu'il dispose
de tout le matériel probatoire nécessaire. Il s'ensuit que la reconstitution des faits effectués par
le juge national du fond peut difficilement etre contestée après une période aussi longue, sur
la base de simpies conjectures et sur la base de souvenirs des protagonistes des faits en question
- qui sont loin d'etre impartiaux.
La deuxième raison est qu'il faut exclure tout soupçon de partialité du juge italien, meme
au niveau subconscient, et qui aurait eu un effet défavorable pour les actionnaires étrangers.
Cela parce que, dans le procès devant les juges de Palertne, les parties plaidantes étaient,
d'une part, le ministère italien de l'Intérieur et, de l'autre, non pas les sociétés américaines mais
la jaillite de l'ELSI, c'est-à-dire la faillite d'une société italienne, une société donc ayant des
créanciers essentiellement italiens (n'oublions pas qu'en Italie, comme M. Bonell va l'illustrer
par la suite, la mise en faillite vise surtout à protéger les créanciers).
Quiconque a un minimum de connaissances de la pratique judiciaire italienne sait que la
magistrature ne fait preuve d'aucune indulgence à l'égard du pouvoir exécutif: elle connait des
affaires de ce dernier avec une rigueur infl.exible, alors qu'elle témoigne d'une certaine ouverture
- pour des raisons évidentes d'équité - à l'égard des faillites pour lesquelles la victoire, dans
un cas important, équivaut souvent à une possibilité de récupération, surtout pour la masse des
petits créanciers chirographaires qui sont des personnes normalement économiquement faibles,
donc sans défense, que le juge désire défendre ex officio.
C'était exactement le cas de l'affaire ELSI, où le jeu des instances en équité aurait pu
éventuellement faire pencher la balance, pour les juges de Palerme, du coté du failli et de ses
petits créanciers italiens et non pas du coté du ministère de l'Intérieur à l'égard duquelles juges
ne nourrissaient - et ne nourrissent - aucun sentiment particulier de sympathie.
5· La décision «tardive" du préfet.
A l'époque des faits, l'ordonnancement juridique italien prévoyait, en tant que première
voie de recours offerte à l'administré contre les actes administratifs, le recours hiérarchique à
l'autorité supérieure. Cette voie de recours avait un caractère nécessaire car ce n'était qu'après
l'épuisement de la voie hiérarchique que l'intéressé était autorisé à s'adresser aujuge administratif.
Une norme considérée d'ordre général, à savoir l'artide 5 du Recueil des lois municipales et
provincia/es (documents joints au Contre-mémoire, N. 20), prévoyait que, si le recours n'était
pas décidé dans un délai de cent vingt jours suivant la date de sa présentation, le réclamant
pouvait solliciter cette décision par une instance notifìée à l'autorité supérieure requise. Soixante
jours après cette notifìcation, le recours devait etre considéré comme étant défìnitivement rejeté.
La norme était libellée de toute évidence pour permettre au citoyen d'exercer les autres
voies de recours, à savoir le recours au juge administratif, meme en cas d'inertie de l'autorité
hiérarchiquement supérieure. Mais cette norme avait aussi une signifìcation implicite, mais tout
aussi claire, à savoir l'évaluation d'un spatium deliberandi de cent vingt jours accordé à l'autorité
supérieure en tant que « temps normal de réponse » au recours hiérarchique.
La déclaration du ministre de l'Intérieur que la défense du gouvernement italien a produite
(documents joints au Contre-mémoire, N. 30), explique en outre que, dans la pratique courante,
ce << temps de réponse » au recours hiérarchique était en moyenne d'un an. Peut-etre cela ne
répond-il pas au critère de justice idéale dans le meilleur des mondes possibles dont revait Candide,
mais c'était la réalité de l'époque, et il n'y a donc eu aucun retard important, d'un point
de vue objectif et général, dans la décision du préfet qui a été prise, comme on le sait, seize mois
après.
Je n'entends certes pas démentir par là l'avocat de l'ELSI, Me Bisconti, qui affirme dans
son affidavit que le temps de réponse pour les recours hiérarchiques particulièrement urgents
etait de l'ordre d'un mois, voire meme dans certains cas d'un jour. Je ne veux pas non plus mettre
en doute les dires de M. Matheson qui, dans sa plaidoirie, a traité ce sujet, en parlant d'un
« temps de réponse " de trois, quatre, ou cinq jours. Mais bien surl Il est évident que de telles
ARRINGA CARAMAZZA 393
décisions, imm.édiates ont été parfois prises! Mais quand, Monsieur le Président, Messieurs de
la Cour ? Ces décisions. immédiates ont .été prises seulement lorsque l'urgence particulière de la
question avait 4.té signalée et motivée d'une manière. adéquate.
La .. ptatique, il est bien évidertt, est la suivante: puisque la loi accorde un délai de cent vingt
jours .à ·l' autorité sup.éJ;ieure pour. statuer sur .le recours, le bureau de l' autorité qui reçoit le recours
procède à une première instruction sommaire pour voir s'il y a une instap.ce d'urgence.
S'.il n'Y .a PllS: cette instance d'ur~jrence ou si la décision n'est pas sollicitée par d'autres voies, le
burejlU q1li pl,"épare ~érec()urs. se borne à :fucer une échéance uhérieure pour l'étude et le. traitetnent
et passe à 1l1l autre documeJ1,t qui· est . peut..,-ètre. plus urgent.
· Or il yalieu d'oh.server.à ce sujet que le•recours hiérarchique de l'ELSI, extrèmement long,
extJ;~mement compiexe, qui comprend jusqu'à seize pages d'arguments juridiques savants, eh
bien; ce recours ne c0tl,tientpt:isune seule phrase, pas un seul.mot requérant une décision d'urgence
et, ençcn·e . moins, ~yjdei:nm~nt, ql.loi que ce so i t sur les motìfs de cette urgence mystérieuse que
le préfet aurait dd deviner, .· . . .·. . . ·. . . . . . . .· . . . .
··Le Directeur général d~ la société, M. GUidi, qui a présenté le recours assisté par l'avocat
de la société, Me Bisconti, a donc rédigé un long document, subdivisé en cinq moyens de recours,
maisjLn'a pas jugé bon de dire un seuJmot poudndiquer .queJa société qu'il représentait avait
ce besoin pressant d'une décision irnmédiate. . . . . . .· .
· Ilnf;) résl.llted'ailteurs pas -:-;-.eda Partie adverse neJ'ajamais aftìrmé- que cette urgence
ait été exposée a1l pr~!et de Palerme par une lettre, un télégramme, un coup de téléphone.
Voyons! Ce «management » q:uì .Parlai t t()\lS les jours avec les ministres et l es préside.nts de régions
n'avait. sitrement pas. de diffi:culté .a sigrialer. au préfet de Palerme l'urgep.ce. du recours. Alors,
je crois que nous devriol)S clire avec les Romains vigilanti!Jus jura succurunt, non vigilantibus jura
iìon succurnmt. Pour obteriir quelque chose il fa:1lt tout d'abord. de demander. . .
Mais qUi plus est, l'()rdoi:uiance de réquisitiori date, Monsieur le Président, du r avril
1968, alors que le recourshiérarchique date. du 19 avril· 1968!
Commentpeut'"'"Pn prétendie à une décision immédiate alors qu'on a soi-mème attendu
x8 jours pour présenter le recours 1 Et que l'on ne parle pas d'autres mesures immédiates adoptées
par l'ELSI car,. avlillt le recouts, l'ELSI s'était botnée à envoyer un télégramme de protestation,
le 9. avril i968, télégratnme qui ne voulait a:bsolument rien dire, et à présenter
aù maire, le r I avril 1968, ùhe deniahde de révocation de l'ordonnance. Ce ne sont pas des << mesures
» adoptées, mais· des initiatives, totalement inutiles du point de vue juridique, et bonnes
seulement à gagner du temps.
Mais les surprises, quand ort lit la << time-table » de ces événements, continuerit. La présentation
de la requète de mise en faillite de l'ELSI date du :a6 avril 1968: elle ne suit donc le
recours hiérarchique que d'une semaine!
·Ceci signifie que le préfet ·de Palerme a sans d()ute pris connaissance de la requète de mise
en faillite (qui, daris la situa:tion; est devenue éviden1n1ent d'emblée tin fait notoire) avant mème
que du recoUrs hiérarchique car, faute de toute indication soulignant son urgence, il est probable
(ou presque sitr, dirais-je) que sort service du contentieux n'avait pas encore analysé en détaille
recours en question.
Et c'est à ce moment-là que le préfet de Palertne a mitrl, à juste tìtre, lac()nviction que l'ELSI
n'était absolument pali intéressée à la décisìon dti recours et il ne l'a donc examiné que lorsque,
une année après, le 9 juillet 1969, le syndic de faillite a eriga:gé la procédure ptévue pàr l'lirticle
5 du Recueil des lois municipales et provinéiales en vue d'obtenir une décision susceptible d'ètre
utìlisée par la suite dans le procès en dommages-intérèts devant le tribunal de Palerme;
A la suite de cette mise en demeure, et dans les délais prévus par la l()i, soit quarante-trois
jours après, le préfet a statué sur le recours de la manière que nous connaissons. Permettez-moi
de vous lire un passage de l'affidavit de M. Ravalli (docuinents jomts à la Réplique, N. 9) qui était
à l'époque le préfet de Palerme. Il parle de l'ordonnance de réquisition et il dit:
<< En général, les dispositions de ce genre sont attaquées immédiatement par l'entreprise
titulaire du complexe réquisitionné en présentant un recours hiérarchique au préfet. Ce
que, à ma. grande surprise, les administrateurs de Raytheon-ELSI n'ont fait que 19 jours
après.
394 RASSEGNA DELL'AVVOCATURA DELLO STATO
De plus, à ma connaissance, l'activité de production de l'usine avait déjà cessé depuis
longtemps et le problème qui tracassait les administrateurs était plutòt d'obtenir de l'Etat
des aides suffisantes pour surmonter la grave crise économique dans laquelle l'entreprise
se trouvait depuis longtemps. Dans ce but, la société Raytheon-Elsi avait, mème après
l'ordonnance de réquisition, pris des contacts avec les autorités tant locales (Région et municipalité)
que centrales.
En me basant sur ce qui a été dit plus haut, j'ai eu le sentiment que le recours contre
la réquisition, de mème que la requète de mise en faillite présentée immédiatement après
au Tribuna! de Palerme, représentaient plutòt des manoeuvres tactiques visant à influencer
les autorités réticentes à accueillir les demandes d'aides sus-mentionées.
Ceci est confirmé par le fait que ni la société, ni le syndic de faillite, après la déclaration
de faillite, n'ont jugé bon, aux fins de l'annulation de l'ordonnace du maire, d'introduire la
procédure de sommation visée à l'artide 5 du Recueil de lois du 3 mars 1934 avant le 9
juillet 1969; de sorte que la décision d'illégalité n'a pu ètre adoptée que le 22 aoiìt 1969,
à savoir bien des mois après que la réquisition eut cessé de produre ses effets ».
En conclusion, permettez-moi de dire que, si les administrateurs de l'ELSI avaient voulu
éviter à tout prix une décision immédiate du préfet, ils n'auraient pas agi autrement. Ils ont
présenté un recours tardivement (après dix-huit jours); ils n'ont signalé aucune urgence au
préfet, ni dans le corps du recours, ni d'aucune autre manière et, immédiatement après avoir
présenté le recours, ils ont présenté une requète de mise en faillite.
La vérité est que mème une décision très rapide du préfet n'aurait pas évité la faillite de
l'ELSI, surtout en considération de ce que la requète présentée à ce sujet avait révélé au tribuna!
un état d'insolvabilité extrèmement grave. Ceci de toute manière ne pouvait donner lieu qu'à
une déclaration de faillite, comme le mettront en évidence par la suite mes éminents collègues
de la défense, vu la nature « officieuse ,, de la procédure en question.
Quel retard peut-on clone reprocher au préfet de Palerme? Peut-on soutenir que, si la décision
avait été prise entre le 20 et le 25 avril (elle ne pouvait pas ètre prise avant, elle aurait été
inutile après), l'ELSI n'aurait pas présenté sa requète de mise en faillite?
Cette thèse semble risible parce qu'il est évident qu'une situation désespérée de déconfiture,
telle que celle où se trouvait l'ELSI, ne pouvait ètre résolue simplement en obtenant la libre
disponibilité d'un établissement non actif et de moindre valeur et aussi parce que la requète
de mise en faillite était un acte qui aurait dO. ètre pris depuis des mois, comme l'a dit M. Libonati,
et comme le dira M. Bonell; enfin parce que la faillite elle-mème aurait pu ètre déclarée (et
aurait diì ètre déclarée) d'office.
Admettons toutefois, hypothèse absurde, qu'il y ait eu une relation entre le moment dela
décision du préfet et la faillite. Je voudrais alors qu'on m'explique pour quelle raison le préfet
aurait diì statuer tambour battant sur un recours dont le délai de décision prévu par la loi est de
cent-vingt jours et dont non seulement aucun des intéressés ne lui avait signalé l'urgence, mais
encore dont le retard avec lequel ils l'avaient présenté révélait clairement un bienjaible interét de leur
part. Cela aurait été de la part du préfet vraiment un excès de zèle que M. de Talleyrand n'aurait
pas appouvé! Il est clone évident que, dans une telle situation, on ne saurait accuser le préfet d'avoir
pris une décision tardive et le gouvernement italien d'avoir dénié la justice aux intéressés.
Une dernière considération, Monsieur le Président, Messieurs de la Cour, si vous me le
permettez.
6. Autre considération sur l'épuisement des recours internes.
Je voudrais quelque peu aborder le sujet de l'épuisement des recours internes. Ce sujet a
déjà été traité par M. Gaja, surtout en ce qui concerne les normes du Traité: il serait clone présomptueux
de ma part d'ajouter quoi que ce soit sur ce point.
Permettez-moi seulement de faire une brève allusion aux voies de recours pouvant ètre
exercées aux termes des normes générales de droit interne italien applicables aux cas d'espèce
ARRINGA CARAMAZZA 395
selon le nouvel exposé des faits: ce nouvel exposé si différent de celui du « Claim ,, initial qu'on
a déjà vu.
Comme je l'ai précisé, dans le« Claim ,, initial, la dénonciation des comportements des autorités
italiennes était faite dans un contexte purement neutre, sans aucune allégation d'un dessein
unique - imputable aux autorités italiennes elles-m~mes.
Dans ce cadre, le problème de l'épuisement des recours internes aux termes du droit italien
général pouvait ~tre résumé comme suit:
« l'actionnaire a-t-il le droit de demander des dommages-intér~ts à l'autorité publique qui
a réquisitionné les biens de la société en causant despré judices directs à la société, et des
préjudices indirects à l'actionnaire en question ,, ?
Voilà quelle était la question en droit général selon le cadre proposé par le« Claim ,, de 1974.
Et en ces termes-là, la question a été posée par Raytheon aux experts juridiques qu'elle a
consultés. Ces experts, comme on le sait, ont exdu dans leurs avis l'hypothèse que les actionnaires
- vu la nature indirecte du préjudice subi- aient le droit d'exercer une action en indexnnité
contre l'Etat italien aux termes des règles générales. Et nous sommes parfaitement d'accord avec
ces avis, sous réserve, évidemment, cles inexactitudes signalées dans les défenses écrites et, bien
entendu, sans que soit touché le problème des droits qui dérivent directement du Traité et dont
M. Gaja au parlé. Mais cette questiori. et les avis que les experts consultés par Raytheon à l'époque
ont donné se réfèrent à une hypothèse tout à fait différente de celle qui est aujourd'hui présentée
par la Partie demanderesse.
Effectivement, comme nous l'avons vu dans le Mémoire, dans la Réplique et dans les plaidoiries,
le maire de Palerme, le préfet de Palerme, ainsi que d'autres officiers publics italiens
sont accusés d'avoir abusé de leurs pouvoirs pour nuire à Raytheon, en tant qu'actionnaires de
l'ELSI, et pour favoriser l'IRI, en permettant à cette dernière de racheter à bas prix un joyau
technologique.
D'après cet exposé différent cles faits, qui demeure inchangé dans sa substance en dépit
de la dédaration de M. Matheson, les actionnaires auraient subi non seulement un préjudice
indirect découlant du préjudice direct causé à la société, mais aussi une atteinte immédiate, personnelle
et directe à leurs droits d'actionnaires, puisqu'ils auraient été victimes en tant que tels,
en tant qu'actionnaires, d'une entente entre les fonctionnaires publics (voir à ce sujet surtout
la plaidoirie de M. Gardner, C/3 CR 89/3, p. 325). Ils auraient donc pu invoquer - indépendamment
de leur nationalité, m~me s'ils étaient des italiens, et indépendamment de tout
traité d'amitié -l'artide 2043 du Code civil italien qui dit que « Tout fait dolosif ou fautif
causant un préjudice injuste à autrui oblige celui qui l'a commis aux dommages-intér~ts », et
demander, en vertu de cet artide, la condamnation du ministère de l'Intérieur aux dommagesintér~
ts (à condition évidemment de prouver leurs accusations).
Qui plus est, si les autorités italiennes avaient agi de la sorte, comme l'affirme le demandeur,
les titulaires des services respectifs, m~me si l'entente n'était pas en elle-m~me un délit,
m~me si l'entente n'était pas en elle-m~me une<< conspiracy », auraient commis des faits illicites
en se rendant coupables personnellement tout du moins du délit d'abus innomé de fonction,
prévu par l'artide 323 du code pénal italien, qui dit:
« Tout officier public (c.p. 357) qui, en abusant des pouvoirs inhérents à sa fonction,
commet, pour porter préjudice à quelqu'un ou pour lui assurer des avantages, un fait non
prévu en tant que fait illicite par une disposition de loi particulière (c.p. 6o5-6o6), est puni
d'une rédusion jusqu'à deux ans ou d'une amende de cent mille à deux millions de lires
(c.c. 2637) ,, (Documents joints à la Réplique, Annexe 17).
Il ressort très dairement de ce libellé que l'hypothèse visée par la norme englobe parfaitement
le comportement des autorités italiennes dénoncé par la Partie demanderesse; en outre,
l'artide 185 du Code pénal italien prévoit que
« tout fait illìcite ayant causé un préjudice patrimonial ou non patrimonial oblige le coupable
et les personnes qui, aux termes des lois civiles, doivent répondre du fait qu'il a commis, à
réparer le préjudice causé ,, (Documents joints à la Réplique, N. 23).
396 RASSEGNA DELL'AVVOCATURA DELLO STATO
Dans la présente affaire, la personne qui aurait dù répondre du fait commis par les coupables
était évidemment l'Etat (en la personne d'un de ses ministres), cela va de soi et cela découle aussi
de l'artide 28 de la Constitution italienne. Monsieur le Président, l'artide 28 n'est pas parmi les
documents qui ont été produits, je m'en tiens clone à ce que vous avez dit au commencement de
la séance et m'abstiens de le citer.
En définitive et pour conclure sur ce point, Raytheon aurait pu présenter des dénonciations
pénales et exercer une action civile dans la procédure pénale suivante en se constituant partie
civile contre les personnes physiques accusées et contre le ministère de l'lntérieur, responsable
civil dans ce meme procès, ou bien se borner à exercer directement une action civile en dommages-
intérets contre le ministère de l'Intérieur, comme d'ailleurs d'autres sujets américains
l'ont fait dans des circonstances analogues.
C'est le coUège de défense américain qui a eu l'amabilité d'évoquer un de ces cas dans
cette meme phase orale et je voudrais y faire référence. II s'agissait dans ce cas d'un ressortissant
américain qui a demandé d'importans dommages-intérets à plusieurs ministères italiens en
s'adressant au Tribuna! de Rome.
Ce ressortissant américain avait dénoncé un comportement arbitraire et discriminatoire de
l'Etat italien contre lui et contre des sociétés de capitaux dont il était actionnaire ou l'intéressé
de façon directe ou indirecte. Il avait invoqué la violation de l'artide 2043 du Code civil italien
et la violation du traité ACN. Voici un cas clone très proche.
Le Tribunal de Rome, tout en déboutant le demandeur sur le fond, faute de précision de la
demande et faute de preuves, a admis en principe la recevabilité d'une telle demande.
Meme si l'affaire est maintenant l'objet d'un recours en appel, il semble utile de le citer,
car le Tribunal de Rome a affirmé d'une facon implicite mais très claire - la pièce a été produite
par la Partie demanderesse - que si des faits spécifiques avaient été affirmés et prouvés, le demandeur
aurait gagné le procès.
Il est clone évident que si la plainte qui nous concerne avait été portée par Raytheon à un
juge italien, elle aurait été jugée recevable sur la base d'indications spécifiques de comportements
illicites et fautifs de la part des autorités italiennes. Si, en plus, Raytheon avait pu prouver la
vérité de ses dires, les dommages-intérets demandés lui auraient été accordés.
Puisque Raytheon et Machlett n'ont jamais introduit cette action en dommages-intérets,
ils n'ont pas satisfait, pour ce qui concerne ce point, à la condition de l'épuisement des voies internes
et il est presque superflu d'ajouter que les observations développées tout à l'heure représentent
une contestation supplémentaire de l'exception d'estoppel formulée parla Partie adverse
(Réplique, p. 139), puisque le Mémoire de 1987 représente un quid novi par rapport au" Claim »
de 1974.
Une dernière considération pour répondre à une observation de M. Fazzalari selon lequel
une telle action en justice aurait été impossible en raison du manque de preuve accompagnant
des accusations aussi graves contre les autorités italiennes. Formuler de telles accusations, a dit
M. Fazzalari, sans pouvoir les prouver- car évidemment la preuve de l'entente est impossibleaurait
été dangereux pour les administrateurs d'ELSI d'un point de vue pénal (C 3/CR 89/2,
p. 299).
On aurait envie de se demander, avec une pointe d'amertume, pourquoi ce que l'on ne doit
pas faire devant un juge national - à savoir lancer des accusations si graves sans en avoir les
preuves - devrait etre permis devant la supreme instance internationale de justice.
Mais il me suffit de constater que M. Fazzalari estime impossible de prouver que le maire
de Palerme, en réquisitionnant l'ELSI, a agi dans des buts différents de ceux qui ont été expliqués
dans l'ordonnance et, plus généralement, que M. Fazzalari estime impossible de prouver
une entente entre les autorités italiennes qui auraient permis à l'IRI de racheter à bas prix les
installations d'ELSI. Impossible de la prouver, Monsieur le Président, Messieurs les juges, parce
que cette entente n'a jamais existé.
AnRINGA BONELL 397
7. Conclusions.
ConÙneje l'aì précisé au début de ma plaidoide,la tacbe qui m'ayait été assignée au sein
(;lu collège d,e <léfense ital1en consistait à :Vous parler: ·
x) des avantages prévus parla législation en faveur du Sud;
z) de' l'intervention de la force publique ou du rnanque d'intervention;
j)de la réquisition de l'usine;
4) du retard du préfet de Palerme dans la décisìon du recours hiérarchique.
J'éspèté avoir démontré que le coinportement des autorités italiennes a été légitime ou,
à tout le moins, là où une illégalité a été commise et reconnue par les autorités italiennes, qu'1l
n'a nullement contribué à causer les conséquences alléguées parla Partie demanderesse et que,
en tout cas, il n'étaitpas propre à justifier des accusations quant à son caractère arbitraire ou
discriminato ire. · · · · · · · · · ·
Monsieur le Présidént, Messieurs les:juges .. Je vous remércie pour. votre attention.
'fbe PRESIDENT: Merci Monsìeur,je crois que nous allons écouter M. Bonell après un inter-
:Vallé de dix à quinze inintites. · · · ·
Tbe (;()urt adjourned from I 1.20 a.ll\ to II·35·
Tbe PRESIDÈNT:' Please be ·seated. ··r give tbe·floor to Professar Bonell.
Mr. ~ONELL: Mr. President, distinguisbed Members of tbe Court.
I consider it to be a great bonour to appear before you on bebalf of tbe ltalian Government.
As.a comparative lawyer, I norma,lly bave to· deal witb tbe differences between tbe various national
jurisdictions. To be now in front of you, supreme international judges, wbose task is to. apply,
among other things, principles of law generally recognized all over tbe world is a unique experience
foJ; me.
x. The impact of the requisition on the prospect of ELSI's « orderly » liquidation.
Mr. President, distinguisbed Members of the Court. According to tbe Applicant,. by the
end of 1967,, ELSI was a respected.manufacturer in tbe electronics field, witb a modern, fullyequipped
plant, • a reputation for sopbisticated quality. products, and a significant volume of sales
and export earnings. · · · · · ·
· lt was. only because tbe company failled to provide the return on . Raytheon's investment
tbat Raytheon itself at a certain point decided to liquidate tbe company and settle all outstanding
debts from the proceeds of tbe sale.
Still· in the Qpinion of the Applicant, if sucb an '' orderly liquidation ,, . could not be carri ed
out; tbe sole reason fur this was tbe requisition of ELSI's. plant by tbe Mayor. of Palermo. Tbe
requisition is said to bave prevented Raytheon from selling the plant and forced it in less tban
one month to file for bankruptcy witb ali tbe consequences following on from that (see Memoria!,
pp. 3, 14-15); Reply, pp. u8-129 et seq.).
As to tbe presentation of ELSI as a successful manufacturer of sophisticated products, my
colleague Professar Libonati bas already demonstrated tbat in reality Raytheon's investinent in
tbe Sicilian company was a disaster rigbt from tbe start and only got worse over the years.
Even tbe last-minute attempts by the new ELSI management to reorganize tbe company
-last week described by both Mr. Adams and Mr. Clare asso promising- did not result in
anytbing else tban an increase in the losses to a total of 3•75 billion lire by Marcb 1968.
For bis part, Avvocato Caramazza bas just now sbown that tbe requisition was in no way
arbitrary or discriminatory.
26
398 RASSEGNA DELL'AVVOCATURA DELLO STATO
Now, it is up to me to illustrate that:
1) when deciding to dose ELSI, Raytheon was no longer able to proceed with an «orderly
» liquidation, since this would have required the company's ability to satisfy ali its outstanding
debts. To the contrary Raytheon itself foresaw the payment of no more than 30 to so
per cent to the unsecured creditors;
2) when Raytheon decided on ELSI's « orderly » liquidation, the company was in fact
already insolvent, and Raytheon was under a legal duty either to formally ask for a composition
with ali its creditors or to file for bankruptcy;
3) the fact that Raytheon, notwithstanding this duty, waited until after the requisition
to file for bankruptcy, cannot now be used to establish any sort of causai connection between
the requisition .and bankruptcy.
(a) ELSI's inability to proceed with an << orderly » liquidation due to its insolvency.
The decision to liquidate ELSI was formally taken on 16 March 1968.
According to the Applicant, Raytheon took this decision with a view to beginning an « orderly
», or as it is elsewhere referred to, « voluntary » liquidation of the company, in order to
minimize its losses.
This is far from the truth.
The decision to liquidate ELSI was by no means a free choice. It was a matter of absolute
necessity, as was perfectly clear to, and admitted by ELSI's management itself, at the time.
In fact, on 7 March 1968 Raytheon formally notified ELSI that despite the company's urgent
need of additional capitai, it was no longer willing to subscribe to any further stock which
might be issued by the company orto guarantee any additionalloans which might be made by
others to ELSI.
This is stated in a letter from Mr. Adams, Raytheon's President, to Mr. Clare, ELSI's new
President (cfr. Exhibit III-13 to the 1974 Claim), and confirmed by both of them in their oral
testimonies before you last week.
ELSI, thus, knew perfectly well that it could no longer count on Raytheonfor even the slightest
help, and since its coffers had dried up a long time earlier, the only way to meet its obligations
and immediate commitments was to start selling off its assets.
This had been bluntly anticipateci, after ali, by Mr. Clare himself, at the famous meeting
on 20 February 1968 with the President of the Sicilian Regional Government, Mr. Carollo.
An d no o ne other than Mr. Adams himself confirmed before us las t week that in fact the
time-chart drawn up on that occasion by Mr. Clare was correct, that is to say, that on 8 March
the money put into ELSI was expected to run out and that as from this date the company had
to be sold off.
Further conclusive evidence that the liquidation decided on by ELSI's management in
March 1968 could not have been an« orderly » one, is given by the company's disastrous balance
sheet at that time.
The outstanding debts were some 16 billion lire- isn't that an astonishing figure, by the
way, if one considers that the company's share capitai totalled a mere 4 billion lire?- of these
16 billion lire, around 4 billion were due to the preferred creditors and II billion to unsecured
creditors.
The Applicant would like us now to believe that ali these creditors could have been satisfied
in full in view of the fact that the « book value » of the company's assets amounted to some
17 billion lire.
My colleague Professor Libonati has demonstrated the total unsoundness of such a proposition.
You will therefore forgive me if I simply disregard it for the present purpose.
What remains is the company's own liquidation plan.
Yet, even supposing that everything had gone as foreseen in this plan, namely that the sale
of the assets had raised some IO billion lire, after deducting the preferred creditors, the remainder
would only have been sufficient to pay 30 to so per cent of the unsecured debts!
ARRINGA BONELL 399
This being so, it is patently evident that what is now presented as an « orderly » or « voluntary
» liquidation, decided on in order to avoid further losses, was in reality a desperate attempt
on the part of an insolvent company to avoid bankruptcy and to force the creditors into an amicable
settlement.
Raytheon knew perfectly well that, in order to succeed in its pian, it had to obtain the approvai
of ali the creditors. If only one creditor had demanded to be paid immediately and in
full, bankruptcy would have been unavoidable. And this was why the liquidation: pian provided
for. the .full payment not only of the . preferred creditors, but also of the mass of small creditors:
the idea was- as candidly admitted by Mr. Clare in his testimony last week « to get rid of ali
of those [small creditors] ... and not have one of [them] coming along, [and] put us into bankruptcy
.•. ,, (cfr. C 3/CR 89/2, pp. 286).
The risk that sooner or later · such a small disruptive creditor might in fact appear an d destroy
the illusory .dream of an orderly liquidation, must ha ve represented a sort of nightmare
for Raytheon.
Despite its previous declaration that it would never pay ELSI an extra lire, it immediately
arranged the transfer of rso million lire to silence the more unruly small creditors. This we
are told by Mr. Scopelliti, a senior official of the company (cfr. his Affidavit annexed to the Memoria!
of .the Applicant).
On their part, the large creditors, made up of six banks with outstanding claims of some 9
billion lire, were asked to accept a payment of only 30 to so per cent.
According to the Applicant, Raytheon reasonably anticipateci that the banks would settle
their claims at this reduced leve!, as this would guarantee « prompt and substantial payment, as
compared with receiving little or nothing in bankruptcy »(cfr. Memoria!, p. r I ;but the same view
is repeated in the Reply, p. 130).
I shall discuss later whether ELSI's management was right or wrong in anticipating the
banks' willingness to renounce more than half of their outstanding claims.
What I want to bring to your attention at this point, Mr. Presidelìt and distinguished Members
of the Court, is the following: by openly admitting that, once the decision was taken to
liquidate ELSI, the banks had every reason to be satisfied with a mere 30 toso per cent payment,
the only alternative being the cotnpany's bankruptcy with the prospect of receiving little or nothing
out of it, the Applicant itself has in effect abandoned the fiction of ELSI as a going concern
and had acknowledged that the company was insolvent already prior to the requisition!
(b) ELSI's duty to file for bankruptcy long before the requisition took place.
Maybe one of the reasons why the Applicant insists that prior to the requisition ELSI was
entitled to proceed with an« orderly » liquidation liesinthe fact that- unconsciously perhapsthe
Applicant argues in terms of the bankruptcy law of the United States.
This is confirmed by some of the passages of the oral testimony of both Mr. Adams and Mr.
Clare last week. I refer in particular to their statements (to be fo•.md in C 3/CR 89/1, p. 26r
and C 3/CR 89/2, p. 279, respectively, which clearly show that Raytheon at that time considered
bankruptcy, and what they called an orderly liquidation, as two functionally equivalent solutions,
between which the company was entirely free to choose.
This can be understood to a certain extent if one thinks in terms of the bankruptcy law of
the United States.
As is well known, the main characteristic of that law has always been that of being « debtororiented
». In other words, in the United States, bankruptcy is basically a means for the debtor,
whether insolvent or not, to discharge his previous debts and to resume his activity on a fresh
footing.
This so-called « fresh start doctrine » has been expressed in very clear terms by the United
States Supreme Court in the case Local Loan Co. v. Hunt, where it is stated:
« One of the primary purposes of the Bankruptcy Act is to relieve the honest debtor
from the weight of oppressive indebtedness and permit him to start afresh ... » (292 US 234,
244).
400 RASSEGNA DELL'AVVOCATURA DELLO STATO
As a consequence, a debtor may file for bankruptcy, even if he is solvent (« voluntary case ":
Sec. 3.01 Bankruptcy Act), whereas in cases of insolvency the creditors may file a bankruptcy
petition against the debtor (« involuntary case": Sec. J.OJ Bankruptcy Act) but there is no obligation
for the debtor to file for bankruptcy himself.
The situation is quite the reverse in ltaly as it is also in many, and almost ali other countries,
at least those of civil law tradition, such as France, Germany, Spain, etc.
Here bankruptcy continues to be a sort of sanction which befalis the insolvent debtor.
And even if the creditors have lost their originai right to have him imprisoned, there remains
the obligation on the debtor to file for bankruptcy himself as soon as he becomes insolvent.
Even more important: bankruptcy is seen as a means of protecting primarily the interèsts
of the creditors by rendering innocuous those who are unable to correctly administer their assets
and ensuring a prompt and equitable satisfaction from the proceeds of the sale of the debtor's
assets. As a result, .bankruptcy, in these countries, may be initiated on the initiative of the Court,
and the non-observation of the duty of the insolvent debtor to file for his own bankruptcy may
even lead to the imposition of a criminal sanction. For citation of literature on this subject,
I may refer to my written text where I quote some of the most recent comparative law studies
on the subject (cf. J.H. DALHUISEN, Composition in Bankruptcy -A Comparative Study of the
Laws of the EEG Countries, England and the USA, Leyden, 1968, pp. 95 et seq.; D.A. ALLAN
and U. DROBNIG, Secured Credit in Commercia[ Insolvencies- A Comparative Analysis, in Rabels
Zeitscrift, Vol. 44 (1980), pp. 615 et seq.; A. FLESSNER, Sanierung und Reorganisierung, Tubingen,
1982, pp. 173 et seq.).
This being so, there can be no doubt at ali that ELSI -a company which was operating
in ltaly according to Italian law - was under a duty to file for bankruptcy long before the requisition
took piace and certainly at the time when Raytheon decided to proceed with the so-calied
« orderly " liquidation.
As a matter of fact, the insolvency of. ELSI at that time cannot be denied. In terms of
Artide s, paragraph 2, of the Italian Bankruptcy Law, insolvency is manifested by defaults or
any other fact which demonstrate that the debtor is no longer in a position to fulfil his obligations
in a regular manner.
This was clearly the situation in which ELSI found itself. Nothing demonstrates this better
than Raytheon's own admission, to be found in its 1974 Claim, where it is stated:
« At the end of the month of March 1968, the situation relating to ELSI was as foliows:
... ELSI had run out of money and had no prospect of receiving funds except from the sale
of assets ... Substantial payments were due from ELSI, the maturities of which had not been
extended" (cfr. pp. 35-36).
According to the Applicant, these imminent payments could easily have been met with the
proceeds of the sale of ELSI's assets.
Yet as a matter of fact, a company which, in order to meet its financial obligations as they
become due, is bound to start seliing off its assets, is an insolvent company!
In the desperate attempt to demonstrate the contrary the Applicant relies upon the opinion
of Professor Franco Bonelii. I have studied it very carefully, but with ali due respect to my colleague
of the University of Genoa, his conclusions are totaliy irrelevant.
First of ali, in order to exclude the idea of ELSI's insolvency and demonstrate its ability
to satisfy ali its creditors, he simply bases himself on the affirmations to this effect contained in
the Applicant's Memorial. He openly admits that he himself did not have the chance of checking
ELSI's accounts (cfr. C 3/CR 89/2, p. 292).
Secondly, the different kinds of settlement with ali or part of the creditors, indicated by him
as alternatives to bankruptcy, by no means affect the duty of the insolvent debtor to file for
bankruptcy. In fact, they all presuppose- how couldn't they- the willingness on the part of
the creditors to voluntarily accept a pro rata payment. Without such an agreement, the debtor
remains under the duty to file for bankruptcy.
There was, only one possibility for ELSI to avoid the duty of filing for bankruptcy and that
would have been to formaliy request to be admitted- it is a privilege according to Italian lawARRINGA
BONELL 401
to the procedure of judicial settlement (concordato preventivo) according to Articles I6o et seq.
of the Italian Bankruptcy Act.
Now, I can imagine the reasons why ELSl did not take such an initiative either. By law,
the debtor must show the court that he has been keeping his accounts in order and that he is able
to satisfy ali his unsecured creditors with at least 40 per cent of their claims. I am afraid that
for ELSI it would have been extremely difficult to meet both requirements at the time.
Y et, this is no t an excuse for Raytheon having instead adopted the charade of the so-cali ed
« orderly » liquidation, and waited for the provident order of requisition by the Mayor of Palermo
before fìnally fìling for bankruptcy.
As in many other legai systems, under Italian law, such a negligent delay on the part of an
insolvent debtor may amount to the criminal offence of so-called « bancarotta semplice », bringing
with it the sanction of up to two years imprisonment of its directors (cfr. Art. 217, N. 4, of the
Italian Bankruptcy Act).
And while we are on the subject, the acceptance by ELSI of further' credit from Raytheon
in order to silence some of the small creditors comes very dose to yet another crime, that is to
say, that of the so~called abusive recourse to credit <<ricorso abusivo al credito», for which Artide
2I8 of the same Bankruptcy Act again provides for up to two years imprisonment. Not to mention
the fact that as from January 1968 we were told that ELSI's accounts were no longer kept
properly - an omission which too constitutes a criminal offence according to the Bankruptcy
Act.
But just to complete the picture, even assuming for the sake of argument ELSI was operating
in Delaware, the home state of Raytheon, rather than in Italy, the situation would have been
very much the same.
First of ali, there is no doubt that at least as from March I968 ELSI was insolvent even in
terms of the United States Bankruptcy Law. Indeed, Section 19 of the Bankruptcy Act, prior
to the I 979 reform, reads as follows : << A person shall be deemed insolvent ... whenever the aggregate
of his property ... shall not at a fair valuation be sufficient in amount to pay his debts ».
And we have seen that ELSI had itself, right from the beginning, announced its inability
to pay the larger unsecured creditors more than 30 to so per cent from the proceeds of the sale
of its assets.
Yet the company would also have have been insolvent under the new criterion introduced
with the I979 reform, according to which insolvency consists in the debtor generally not paying
his debts as they become due (Sec. 303 [h]). In this respect it is sufficient to recall once more
the crude, but accurate, analysis of the company's actual fìnancial health made early in March
by Mr. Clare.
It is true that, under United States law, ELSI would not have been obliged to file for bankruptcy,
notwithstanding its insolvency.
The company would have been free to choose between a voluntary bankruptcy petition under
Chapter 7 or a voluntary petition for reorganization under Chapter I I. In the fìrst case its assets
would have been liquidated immediately, while in the second case ELSI would have been able
to continue its activity in the hope of convincing its creditors to accept or, failing to get their
approvai, to have the judge impose upon them the << pian of rehabilitation » providing for the so
per cent payment of creditors or even less.
This at least is the theory.
In practice, it is anything but certain that United States banks, placed in the same situation
as the Italian banks vis-à-vis ELSI, would have waited patiently as long as the latter did, instead
of fìling an involuntary bankruptcy petition as they were entitled to do.
Moreover, in a reorganization procedure, the confìrmation of an advantageous pian of rehabilitation
depends to a large extent on the actual capacity for recovery of the insolvent company.
ELSI could hardly be said to meet that requirement. Or did not ELSI's management itself,
in its own reorganization pian of I 967, conclude that without heavy fìnancial assistance on the
part of the Italian Government the company no longer had any future?
Perhaps when deciding to liquidate ELSI Raytheon's legai advisors had in mind a special
device provided for by the law of the State of Delaware for insolvent corporations,
402 RASSEGNA DELL'AVVOCATURA DELLO STATO
I referto Section 291 of the Generai Corporation Law of that State, which gives the right
not only to the creditors, but also to the individuai shareholders to ask for the liquidation, as it
is calied, of the company in order to have their property rights adequately protected.
There is however a significant difference between such a procedure and the so-called « orderly
n liquidation of ELSI as decided by Raytheon. Under Section 291 and following of the
Delaware Corporation Law, the requested liquidation of the company implies the appointment
by the Court of a receiver who takes over ali the assets, thus depriving the company of their free
disposal, while Raytheon attempted to liquidate the insolvent company without any judicial
supervision!
(c) No causal connection between the requisition and ELSI's bankruptcy.
Mr. President, distinguished Members of the Court, after what has been said so far it should
not take me very long to demonstrate the complete unsoundness of the proposition of the Applicant,
according to which it was the requisition of ELSI's plant which forced the company to file
for bankruptcy three weeks later.
First, the action of the Mayor of Palermo had no effect on the company's duty to file for
bankruptcy, sin ce the company was aiready insolvent.
In addition, it is untrue that the requisition, by preventing ELSI from liquidating its assets,
made it impossible for the company to reach an amicable settlement with its large unsecured
creditors.
There is no evidence whatsoever that, prior to the requisition, the banks were willing to
accept the proposal of a 30 to so per cent payment. After ali, where was this proposal ? Did not
Mr. Clare himself teli us Iast week that when ELSI formally took the decision to proceed with
the liquidation, there was not yet any definite plan of how this should be carried out? (C 3/CR
89/2 p. 289).
Nor did the banks change their minds afterwards. On the contrary, once the order of the
Mayor became known, the banks did not react at ali. They never fiied for ELSI's bankruptcy,
as would have been their right.
It clearly foliows that the requisition had no effect on the banks attitude vis-à-vis ELSI :
to a certain extent i t even contributed - why not - in encouraging them to wait in the hope that
sooner or later the company would be saved.
Finaliy, there is the argument that the requisition deprived ELSI of its assets.
Mr. President, in this respect it is important, first of ali, to recali that an insolvent debtor
is in any case precluded from freely disposing of its assets. This is because of the absolute prohibition
- provided for by the bankruptcy law of ali countries and in most of them even carrying
criminal sanctions - of making preferential payments to individuai creditors. In other words,
it was not the requisition that froze ELSI's plant: the company's assets were already frozen by
its insolvency!
The Applicant has further failed to produce even the slightest evidence that there were
firms in Italy, or abroad, that would have been willing to buy the whole plant or part of it, but
were in fact prevented from doing so because of the supervening requisition.
N or can one object that the time between the decision to liquidate the company and its
requisition was too short to aliow potential purchasers to formulate sufficiently definite òffers.
The company was virtualiy already in liquidation from the beginning of the year, its offices having
been already transferred to a provisionary seat in Milan, quite far away from Palermo, and its
premises occupied by the workers since the beginning of March.
If it was not possible to seli ali or part of the assets at the price set in the company's « liquidation
pian n, this was certainly not the fault of the requisition which took piace on I Aprii 1968,
but was entirely due to the fact that even before that date, and independently from the Mayor's
intervention, nobody was willing to buy these assets at these prices from a company in such an
economie an d financial mess!
ARRINGA BONELL 403
To sum up:
(a) already before the requisition, it was no longer possible for ELSI to dispose freely
of its assets, both from a &trictly legai an d from a factual viewpoint;
(b) neither beforenor after the requisition did ELSI's major creditors request its bankruptcy:
it was Raytheon itself which, after montht:~ of play-acting, iinmediately after the requisition,
suddenly felt obliged · to file for bankruptcy.
In these cì:rcumstances, Mr. President, there can be little doubt that in reality it was not
the requisition of the Mayor of Palermo which caused ELSI's bankruptcy. The requisition
merely became a pretext which Raytheon has used as a scapegoat for ELSI's already existing
insolvency.
II. The bankruptcy proceedings and IRI's role in the acquisition of ELSI's plant.
Mr. President, distinguished Members of the Court, according to the Applicant in its Memoria!
(p. 41):
« Having requisitioned the plant .and caused ELSI's bankruptcy, the Government of
Italy discouraged private bidders, boycotted the auctions itself, and worked out special
arrangements for a piecemeal take-over directly with the bankruptcy authorities ».
And this with the object « to secure ELSI's facilities for IRI, on the terms and at the belowmarket
price which IRI desired ».
With your permission, I shall try to demonstrate that once again the Applicant's allegations
are totally unfounded.
As a matter of fact, they lack any specific evidence, and, what is even worse and more important,
they rely . wholly on two totally erroneous assumptions, namely:
1) that IRl actually had an interest in the acquisition of ELSI's plant; and
2) that the price paid by IRI at the end was materially less than that which could have
been reasonably expected to be paid by any other purchaser under the same circumstances.
(a) IRI never had any interest in acquiring ELSI and did so very rel'lf,ctantly only when it became
apparent that no one else was willing to buy the hopelessly obsolete and loss-making plant.
As Mr. Clare said: cc I suppose the only people who, right from the beginning were very
blank-faced a:bout it ali was IRI » (C 3/CR 89/2, p. 278).
The irony of the situation is that the first one to urge IRI to intervene in ELSI was Raytheon
itself; As early as Spring 1967 Raytheon, having become aware of the serious crisis affecting
its Italian · subsidiary, immediately carne up with the idea of loading off ELSI onto IRI.
The request was rejected by IRI, fora very simple reason. According to the reorganization
plan drawn up at that time by the new ELSI management, the company was expected to expand
mainly in the telecommunications sector, i.e. a sector in which severa! IRI companies were
already operating. Why then should IRI have. had the slightest interest in pouring money into
an insolvent company which, even in the case of recovery, would just have provided an unnecessary
duplication of its production ?
Last week, in reply to a similar question put to him by our colleague Mr. Highet, Mr. Adams,
significantly enough, referred to the fact that cc IRI was not unused to loss operations » (cfr. C
3/CR 89/2, p. 272).
Mr. Adams is right. In particular in the years immediately after the end of the war there
have been instances where IRI was forced to take over the burden of unprofitable companies,
in order to protect generai interests such as the maintenance of the production of vital materials
or the safeguarding of employment. ·
404 RASSEGNA DELL'AVVOCATURA DELLO STATO
As a rule, however, IRI - a public enterprise with a distinct legal personality - enjoys
full managerial freedom and, by law, must act in accordance with the principle of profitability.
I may refer back to my written text, Mr. President, for the citation of literature on
this subject: see on this point, among other, Corte di Cassazione 14 December 1985, N. 6328, in
Diritto fallimentare 1986, II, p. 214; F. ROVERSI-MJNACo, Gli enti di gestione, Milano 1967, pp.
164 et seq.; M. T. CIRENEI, le imprese pubbliche, Milano 1983, pp. 227 et seq.; F. GALGAN.J,
La società per azioni, Padova 1988, pp. 455 et seq.).
The extent to which IRI in fact sticks to these principles has only just recently been clearly
confirmed in the choice of a foreign partner for STET, IRI's operating company in the telecommunications
sector. Indeed, if after a careful examination of several prospective partners, the
United States company AT & T has been selected to the exclusion of a number of other important
European groups like Siemens or Ericsson, this is because IRI-STET based their choice entirely
on purely economie considerations. And this is only one example. Maybe Professor Libonati
could tell us about other recent cases where IRI has behave in exactly the same manner faced
with important strategie choices.
In ELSI's case, the Italian Government, for a long time did not interfere at all with IRI's
decision to stand back.
The situation changed after ELSI's decision to cease its activity.
ELSI's desperate financial straits clearly indicated that only a large-scale intervention could
avoid collapse with the consequent loss of more than x,ooo jobs. Since the Sicilian Region had
immediately laid down as a condition that any further financial help on its part would be dependent
on IRI participation in the rescue operation, the Centrai Government now felt obliged to
do its best in order to convince IRI to step in.
Surely, if the Italian Government had really intended to have IRI buy up the ELSI plant
cheaply, the easiest way to do so would have been to reject Raytheon's desperate request for
funds and to leave ELSI to go into bankruptcy.
Instead the Government's behaviour was quite the opposite. It immediately declared itself
ready to come to ELSI's aid and to seek a solution acceptable to all concerned.
Mr. President, isn't this a strange attitude for someone trying to take property for the benefit
of IRI?
Nor could it be claimed that the first step in this direction was the requisition of the plant,
which is alleged to have caused ELSI's bankruptcy and all the ensuing events.
First of all, because, as already demonstrated, it was not the requisition which caused ELSI's
bankruptcy, since the company had already been insolvent for a long time.
Secondly, the requisition was obviously just an emergency measure taken for the purpose
of avoiding possible disorders due to the dismissal of ELSI's employees by the company's management
on the previous day. When the requisition was ordered, all the parties concerned
considered it little more than a temporary measure.
Its immediate effect was just to calm the workers, since it gave them the assurance that
their dismissals were no longer effective and that their wages would continue to be paid by the
Region. This was important for them.
At the same time, negotiations for the public rescue of ELSI went ahead without interruption
even afterwards, and ELSI itself- as we have just heard from Avvocato Caramazza- let
19 days go by before lodging an appeal against the Mayor's order.
How little the requisition worried ELSI's management at that time has now been confirmed
- perhaps not intentionally but certainly very clearly- by Mr. Clare himself. After having
described all the preparations for the company's liquidation made from the beginning of March
onwards, he added, as if this were the most natural thing in the world:
« Later on when the plant had been seized, I handed over to Oppenheim, who was another
Raytheon Vice-President, and he was going to run ... the activity of the orderly liquidation.
I was ... moving off to look at the other nine or IO companies in Raytheon Europe,
all of whom needed some attention » (C 3/CR 89/2, p. 279).
ARRINGA BONELL 405
No sign, as you can see, of desperation; on the contrary, confìdence that ELSI's orderly
liquidation would basically go on, notwithstanding the temporary measure of requisition.
I do not want to bore you with a repetition of ali the more than generous proposals for a
solution put forward by the Italian authorities, both before and after the requisitio:il.
I would just like to mention two of them, which in my view àte · particularly. signifìcant in
showing the different attitudes of the two Parties concerned.
On 29 Marcii 1968, i.e. after Raytheon's decision to liquidate ELSI, but stili before the
requisition, the Italian authorities begged Raytheon to reopen the plant and not to send the
dismissalletters as announced. In return the Government would pay wages arid shou:ldermost
of the operating losses, until such time as a public company could open·negotiations with ELSI
for the purchase or leaseof its assets. Raytheon refused (cf. minutes of a meeting of 29 March
1968 between Carbone, Clare, Oppenheim and Scopelliti, Annex 15, Exhibit G, to the Memoria!),
The same proposal was renewed to Raytheon one month later -'- one month liiter '-'- but
Raytheon againrefused. This time its acceptance would have entailed the immediate tevocation
of the requisition or der - which the Mayor of Palermo ha d in ~he meantime issued - · as well
as the pledge of the I talian authorities that, once productive activity would ha ve be~Jil tesumed,
by means of a special management company to be set up together with the Sicilian Regìoi:i an,d
IRI - ali governmental proposals - once this would have happened « everybody, including the
Region and IRI, shall be ready to help Raytheon and in the meantime to liquidate ELSI thtough
a useful sale in the shortest possible time" (cf. memorandum of 20 Aprii 1968 from the President
of the Sicilian Region, Annex 38 of the Memoria!; see also the minutes of the meeting in
Palermo on 19-20 Aprii 1968, Annex 37 to the Memorial).
In an attempt to justify the undue intransigence of Raytheon, the Applicant now clàims
that by means of this proposal, « After having requisitioned ELSI's plant ... ItaHan authorities
pressured Raytheon to reopen ELSI at Raytheon's own ... expense » (cfr. Memoria!, p. 13).
Nothing, Mr. President, is further from the truth! The establishment of the new operation
company would have required not the paying-up of any new capitai on the part of Raytheon,
but merely Raytheon's willingness to cover 40 per cent- 40 per cent! - of the probable operating
losses, while the remaining 6o per cent would be covered by the Region and IRI.
Thus, one thing is certain. The impossibility of reaching an agreement between ali the interested
parties was not the fault of the Italian authorities, but of Raytheon. Raytheon was perfectly
aware. that the Italian authorities would do everything possible to avoid ELSI's activities
ceasing overnight, leaving more than 8oo employees jobless. Taking advantage of this fact, it
continued to act as if the ELSI disaster was none of its business, and as if it was the duty of the
Italian authorities to save the company and to satisfy the creditors!
And this, Mr. President, is the company which now complains that in ltaly a private investor
is not permitted to run his business without constant interference on the part of the State!
The Applicant complains of an endless series of meetings between Raytheon's top management
and ItaUan politicians, both in Palermo and in Rome, during which the latter - the
Italian side - did nothing but go from sweet promises to hard-line threats.
First question: w ho approached whom for funds ? Furthermore, how do politicians ali over
the world react when faced with the dilemma of either having to pump public money into a private
enterprise or losing I ,ooo jobs in an area of high unemployment ?
Seen within this context, even the much-quoted memorandum of 20 Aprii 1968 by the President
of the Sicilian Region, Mr. Carollo, loses much of its importance. Indeed, when he stated
that:
« Nobody in Italy shall purchase, that is ... IRI shall not purchase ... the Region shall
not purchase, private enterprises shall not purchase ... the Region and IRI and anybody
else who has any possibility to infl.uence the market will refuse ... to favour any sale while
the plant is closed ».
he pronounced, perhaps somewhat undiplomatically, something quite obvious: namely, that as
President of the Sicilian Region he could not view favourably the closure of ELSI's plant, and
>n[
the
?ur41}
8 RASSEGNA DELL'AVVOCATURA DELLO STATO
Details of.the:prices setin the varìous auctions and the way in which the final figures were
arrived at, can be found in our Counter-Memorial (p. 91) .
• What l do want to stress here an d no w is that the price paid by EL TEL at the bankruptcy
auction was . perfectly reasonàble.
,;\nd it is • ~;ettaixlly interesting to note that in its r 97 4 Claim Raytheon itself openly admitted
that ~he prì<:e paìd by ELTEL was only 300, or at the most soo, million lire less than what i t
anti.çipatedinjts oWn Iiquidation pian (cf. Claim, p. 66). A modest difference-'- l dare sayconsid
«irig that EL TEL was purchasing a t a fourth bankruptcy auction, after three auctions
had been unattended! • ·
· Much less tìnderstandable - to put it lightly - is the fact that the Applieant now claims
that EL TEL shciuld have paid a much higher so-ca:lled << free market price )), By doing so, the
Applicant completely ignores that (a) ELTEL was not purchasing a going concern on the market,
but the remains of a bankrupt company at a barikruptcy auction; and (b) not even under
these circumstances was someone else willing to buy.
And these ·are hardly minor points, would you no t agree ?
Mr. President, distin:guished Members · of the Court, I bave thus completed my statement
and I tharik you very much for your attention.
. The PRESIDENT: Thapk you, Professor Bonell. Judge Schwebel would Iike to put a question
to the Italian Counsel. ·
Judge ScHWEBEL: Thank you, Mr. President. If I understood Italy's distinguished Counsel
correctly, he stated that a major purpose of the requisitìon was to eriable Itàlian governmental
authorities to pay the wages .of ELSI's employees. I also understood Counsel subsequently to
state · that I tàlian governmental authorities, before the requisition, offered · to pay the wages of
ELSI's empl()yees if ELSl were to keep the factory open. Can these statements be reconèiled
and, if so, how? If Italian law requires requisition as a condition of governmental payment of
wages, what are the precise provisions of the relevant law ?
The PREsiDENT: l do not exp~ct to receive the reply today. Ithirik that, as it is practically
I o'clock, you may reply to Judge Schwebel's question tomorrow morning. Or dò you want
to reply now ?
Mr. BONELL: Mr. President, that is entirely up to you.
The PRESIDENT: If you want to reply now, you may do so.
Mr. BoNELL: One has to make one step backwards and think of what happened in July 1967.
At that point ELSI's management, in accordance with what had been worked out in the soçalled
reorganization pian in order to reduce the expenses for employees, announced its intention
to dismiss some 200 employees. The reaction on the side of the trade unions was a faidy strong
one and, being faced with a strike, the Company accepte<;l. to eQ.ter into negotiations with the trade
unions and representatives of the Sicilian Region, in o.rder to try and. find a generally
acceptable solution. The soluti()n- as we can read in the 1974 Claim of Raytheon- was more
orlessalong the follo,wing lines. Some r6o, or r68 if I am not mistà}l:en, out of these 200 employ(,!
es, though not actually dismisse<;l., were asked not to work anY longer for the time being,
but with their 11alaries being paid by the Sicilian Region. This was with a view to retraining
them, . as i t is stated, in order to allow t;hem either to be reassumed by the Company itself
with different tasks or to find a job elsewhere. This turned out to be impossible so that, at ~he
en<;l. of Mat:.ch 1968, again a strike broke. out and led to the difficult situation at the plant,
bef()fe. the .. requisition took piace.
The requisition - I dare say - was not at that time, nor has it ever been, accm;ding to
Italian law, a formai condition for the Italian State to pay the wages to the workers. On the contrary,
later on- if I am not rnistaken it was just around 1968 or 1970, butI do apologize for not
having a clear recollection of ali this - the Italian Parliament adopted a special act. providing
for what is called « Cassa integrazione guadagni ll, a speciàl fund intended to compensate for the
loss of earnings - sometimes dose to the total amount of the salaries - by those workers
w ho were put into that special régime by their employers, because they were felt .to be redundant.
ARRINGA BONELL 409
But at the time of the ELSI case, this system was not yet working, so that the Sicilian Region
- for obvious reasons I dare say- felt obliged to step in and to enact .a.speciallaw, copies of
which are annexed to our Counter-Memorial, providing the paymentof the full salarles. This
is what actually happened and these salaries were p11.i<i until 1,5 September, or October asI have
now been told, 1968. I apologize for not having these fi.gures precisely before me. I was referring
to the Government's proposal - and as a matter of fact one has to go back in time, because
the Sicilian law had not yet been passed by the Sicilian Regional Parliament - to the time at
which it had just been announced that the Region would among other things provide for the payment
of the salaries. But I think perhaps the most important point is that de facto the requisition,
of course put an end to the employment contract by the company with the dismissalletter,
although they shouìd hilVe notlfi.ed this dismissal in good time, according to the current trade
union agreement. They have not clone this. But from the point of view of thé Company the
termination of the employment. contracts was · effective .a t· thi:;; point. together with the requisition,
but thisis. just a de facto coincidence. On the one han d this ,prevented that the plant as such
could immediately be sold off and on the other hand, i t permitted the Mayor of Palermo to cali
the workers back and to urge the Regional Government to present a bill in order to have .the
workers p~id. This is, as far asI can remember now, the procedure followed on. that occasion
and, as I said befcire, it th(m went 0n the basis of a special Regional Act unti! the fall of 1968.
The PRESIDENT: Thank you very much. Do any of the judges want to put a question ? Thank
you very tnuch, Profess(ìr. We will continue tomorrow afxo o'clock. · · ·
The Court rose at I p.m.
C 3fCR 89f7
Wednesday 22 February 1989, at IO a. m.
Mr. CAPOTORTI, Mr. MONACO, Mr. FERRARI BRAVO
The PRESIDENT: Please be seated. I understand that Professor Ferrari Bravo wants to make
a short statement.
M. FERRARI BRAvo: Merci Monsieur le Président. Nous voulons seulement compléter la
réponse donnée hier à la question posée par M. Schwebel, réponse donnée par M. Bonell. Nous
avons transmis au Greffe et, je crois comprendre, aussi à la Partie américaine, deux pages qui ne
sont rien d'autre que la récapitulation de cette réponse avec la mention de documents pertinents:
ces documents étant tous déjà produits, il n'y a aucun document nouveau (voir annexe). C'est
tout ce que je voulais dire. Merci.
The PRESIDENT: Merci Monsieur Ferrari Bravo. Nous avons reçu il y a quelques minutes
la réponse qui a été préparée parla délégation de l'Italie; le Greffe transmettra ce que vous appelez
un<< supplement » à la délégation américaine. Je crois que c'est à M. Capotorti de prendre
la parole. Je donne la parole à M. Capotorti.
Mr. CAPOTORTI: Monsieur le Président, Messieurs les juges. Qu'il me soit permis de commencer
par des mots tout à fait semblables à ceux que mes collègues ont employés avant moi.
En effet, je désire à mon tour souligner quel prix j'attache au fait d'intervenir dans ces débats.
C'est la première fois que je plaide devant votre Cour et j'en suis extremement honoré.
Les collègues qui ont eu, avant moi, l'honneur d'exposer à cette Cour les raisons de l'Italie
dans l'affaire relative à la société Elettronica Sicula (ELSI), ont traité essentiellement deux points.
Tout d'abord, M. Gaja a donné les raisons pour lesquelles le recours doit etre considéré irrecevable
ensuite, MM. Libonati, Caramazza et Bonell, ont analysé la manière dont les faits se sont
réellement déroulés, surtout dans la période cruciale des années 1967, 1968, I969. Ma tàche
consiste maintenant à aborder le troisième point de la défense italienne, à savoir la discussion
du fondement juridique des prétentions que les Etats-Unis font valoir contre l'Italie.
Il s'agit, comme la Cour le sait, de prétentions fondées sur sept dispositions des accords
d'établissement en vigueur entre les deux pays, à savoir le Traité d'amitié, de commerce et de
navigation du 2 février I948 et l'Accord supplémentaire du 26 septembre I95I. Il s'agit, plus
précisément, quant au premier Traité, des artides III, paragraphes I et 2, V, paragraphes 2 et
3 et VII, paragraphe I, ainsi que du paragraphe I du protocole. Pour ce qui est de l'Accord supplémentaire,
il s'agit uniquement des règles contenues dans son artide premier.
* * *
Toutefois, avant d'interpréter ces dispositions conventionnelles, il convient de résoudre
une question de méthode: celle des critères d'interprétation à adopter. Dans la présente affaire,
la Partie adverse a dédaré qu'elle partage notre conviction quant à l'applicabilité des critères
établis parla Convention de Vienne sur le droit des traités du 23 mai I969, en sa troisième partie,
troisième section. En effet, en dépit du principe de non-rétroactivité établi à l'artide 4 de la Convention,
la jurisprudence internationale, sur la base d'une norme coutumière internationale généralement
reconnue, a amplement admis que les règles d'interprétation accueillies par !adite
Convention correspondent aux principes de droit international en vigueur.
ARRINGA CAPOTORTI 411
Il y a lieu de citer textuellement, une nouvelle fois, la règle générale d'interprétation établie
par l'article 31 de la Convention de Vienne. Elle dispose, au paragraphe. I, que: «Un traité doit
ètre interprété de bonne foi suivant le sens ordinaire à attribuer aux termes du traité dans leur
contexte et à la lumière de son objet et de son but ». Il est en outre important de rappeler, dans
cette affaire, la disposition de l'article 33, paragraphe I:
« Lorsqu'un traité a été authentifié en deux ou plusieurs langues, son texte fait foi dans
chacune de ces langues, à rtioins que le ttaité ne dispose, ou què les parties ne conviennent,
qu'en cas de divergence un texte déterminé l'emportera ».
Le paragraphe 3 de ce mème atticle précise que « Les termes d'un traité sont présumés avoir
le mème sens dans les divers textes authentiques », mais le paragraphe 4 ajoute que:
« Sauf le cas où un texte déterminé l'emporte conformément au paragraphe I, lorsque
la comparaison des textes authentiques fait appara1tre une différence de sens que l'application
des articles 3I et 3~ ne permet pas d'éliminer, on adoptera le sens qui, compte tenu
de l'objet et du but du traité, concilie le mieux ces textes ».
L'article JI, paragraphe I, précité confirme donc le principe bien connu d'après lequel un
traité doìt ètre interprété de bonne foi, et attribue une valeur determinante à deux aspects de
chaque traité: en premier lieu, le sens ordinaire des termes dans leur contexte, en deuxième lieu,
l'objet et le but du traité. Ceci équivaut à dire que la méthode textuelle et la méthodefonctionnelle
sofit préférées à toute autre rtiéthode lorsqu'il s'agit d'interpréter un traité. D'autres méthodes
possibles - telles que celle. axée sur la recherche de l'intention des parties, qui ressort notamment
des travaux préparatoires, et celle qui attache une grande valeur à l'évaluation des circonstances
dans lesquelles chaque traité a été conclu - sont destinées à jouer un r6le secondaire.
A cet égard; il y a lieu de rappeler que le délégué des Etats-Unis, au cours de la conférence de
Vienné sur le droit des traités, et précisément à la séance plénière du I9 avril I968, avait fortement
critiqué le caractère secondaire attribué par le projet de convention aux deux moyens mentionnés
par_ l'article 3~ du texte actuel. En effet, cet article qualifie les travaux préparatoires,
ainsi . que les circonstances dans lesquelles un traité a été stipulé, de « moyens complémentaires
d'interprétation ». Toutefois, la majorité des délégations a partagé et soutenu l'orientation choisie
par la Commission du droit international, lors de la rédaction de son projet de base, à savoir que
la volonté des Etats contractants doit ètre reconstituée à partir du texte d'un traité et que toute
recherche sur le processus d'élaboration du traité mème, ou sur la situation historique qui a entrainé
sa stipulation, a une valeur complémentaire et peut mème devenir superflue.
* * *
C'est sur la base de ces considérations que nous avons déclaré, dans les défenses écrites italiennes,
que nous ne pouvions pas partager la thèse énoncée par nos adversaires quant à la prétendue
«intention fondamentale» des parties contractantes du Traité de I948; cette intention aurait
été de stimuler la création d'un cadre favorable aux investit;sements. Mercredi dernier, M. Gardner
a repris cette thèse; il a parlé de la présence de nombreuses règles spécifiques et interdépendantes
visant la protection des investissements étrangers dans le Traité de I948, règles qui refl.
èteraient l'intention fondamentale des Parties d'établir un cadre susceptible d'encourager un
climat favorable aux investissements.
Nous avons néanmoins deux objections à opposer à ce propos. La première est que l'interprète
doit se fonder sur les termes du traité, sans y superposer une prétendue « intention des
parties». La deuxième est que lorsque l'on considère l'objet et le but duTraité de I948, tels qu'ils
résultent de son contexte, il est impossible d'ignorer la multiplicité et la variété des objectifs poursuivis.
La protection des investissements peut ètre considérée tout au plus comme l'un de ces
objectifs, et non pas comme le principal.
En réalité,le préambule duTraité affirme que l'Italie et les Etats-Unis désiraient promouvoir
des relations plus étroites entre leurs territoires respectifs, au moyen de dispositions correspondant
aux aspirations spirituelles, culturelles, économiques et commerciales de leurs peuples.
412 RASSEGNA DELL'AVVOCATURA DELLO STATO
Aucune mention n'est faite de la sauvegarde des investissements; c'est ce qui distingue ce préambule
de ceux des craités analogues condus entre 1951 et 1962 entre les Etats-Unis d'une part et certains
pays de l'Europe occidentale de l'autre (nous faisons allusion à la Grèce, au Danemark,
à l' Allemagne, aux Pays-Bas, à la Belgique et au Luxembourg). Là vous trouvez partout cette
mention de la protection des investissements dans le préambule. Le fait est que, dans le texte
du Traité de 1948 entre les Etats-Unis et l'ltalie, les problèmes relatifs à l'établissement sont
abordés selon une approche traditionnelle. Il s'ensuit qu'aux ressortissants des deux parties et
aux sociétés ayant la nationalité de l'une de ces parties est garantie une série d'avantages relatifs
à la possibilité de s'établir sur le territoire de l'autre partie pour y exercer des activités de nature
commerciale, industrielle, professionnelle, culturelle, scientifique, religieuse ou philanthropique.
Ceci signifie que l'objet et le but du Traité de 1948, de mème que le contenu de son libellé, sont
bien plus vastes que ceux d'un traité visant uniquement la protection des investissements et sont
sans doute beaucoup plus vastes aussi que l'objet et le but de l'Accord complémentaire de 1951
entre ces mèmes parties.
Le demandeur a toujours invoqué d'une manière globale certains artides du Traité de 1948
et le premier artide de l' Accord complémentaire de 195 I, comme si toutes ces dispositions faisaient
partie d'un seul texte. On ne saurait toutefois négliger la différence de portée qui existe entre ces
deux documents et surtout on ne doit pas oublier que les parties contractantes ont jugé nécessaire
de stipuler un deuxième accord trois ans après le premier, parce que les investissements n'étaient
pas suffisamment protégés par le premier traité. On a clone bien là la preuve que l'objectif principal
du Traité de 1948 n'était pas la protection des investissements. D'ailleurs, le préambule
de l'Accord supplémentaire dédare explicitement que les principes énoncés en 1948 devaient
ètre élargis. Le demandeur a manifesté à plusieurs reprises une tendance à interpréter les dispositions
contenues dans le Traité de 1948 à la lumière des critères pouvant ètre déduits de l'Accord
de 1951, lequel est indiqué comme le supplément du premier. Nous estimons que cette méthode
est erronée parce qu'elle porte à interpréter les dispositions du Traité par rapport au but d'un
accord successif, alors que celui-ci a entendu ajouter de nouvelles règles et non pas modifier
les dispositions de l'accorci précédent dans leur ensemble. On peut dire aussi que ladite méthode
unifie artificiellement deux accords distincts et qu'elle conduit le demandeur à déformer les
résultats qu'on obtient en interprétant le contexte du Traité de 1948 dans son unité et dans sa
globalité.
* * *
Cette dernière observation prend toute sa valeur si l'on tient compte d'une négligence extrèmement
significative qui ressort des défenses écrites du demandeur. Nous savons que le
présent recours a pour objet le traitement qu'ont reçu en Italie deux sociétés américaines qui
étaient devenues actionnaires d'une société italienne et avaient fini par prendre le controle de
cette dernière. Il est clone indispensable d'attribuer sa juste valeur à la disposition du Traité de
1948 dans laquelle sont indiqués les critères d'appartenance des sociétés et des associations à
chaque partie contractante. Il s'agit plus précisément de l'artide II, paragraphe 2, qui, vous le
savez, établit que les sociétés et les associations constituées ou organisées aux termes des lois et
des règlements en vigueur dans les territoires de -chaque haute partie contractante seront considérées
comme étant des sociétés ou des associations de ladite haute partie contractante. Cependant,
alors que le demandeur prend acte que l'investissement dont il est question a été effectué par
les sociétés américaines Raytheon et Machlett par l'achat d'actions de la société ELSI, il laisse
dans l'ombre le fait que cette société appartient à l'ltalie. Le demandeur a en fait préféré raisonner
le plus souvent comme si l'ELSI était une société américaine, comme si la présence d'intérèts
américains dominants dans la gestion de cette société entrainait son appartenance juridique aux
Etats-Unis. En réalité, il aurait dO. reconnaitre que l'ELSI, aux termes du Traité, était une société
italienne, malgré que tous ses actionnaires aient été des ressortissants américains.
Il n'y a pas de doute qu'en vertu des dispositions du Traité, notamment de l'artide II, paragraphe
2, la nationalité d'une société ou d'une association constituée aux termes des lois en
vigueur dans le territoire d'une partie contractante peut ètre différente de celle des associés.

414 RASSEGNA DELL'AVVOCATURA DELLO STATO
rapidité de la circulation des actions. On peut dire que la plupart des sociétés italiennes jouirait
d'une telle protection sur la base des accords avec les Etats-Unis. Voilà ce qui est absurde.
La solution proposée par le demandeur est d'autant plus inacceptable qu'il n'y a pas de
règles de droit italien qui imposent aux investisseurs étrangers la constitution de sociétés affiliées
locales. Elles sont établies en raison de l'intérèt économique et fiscal des investisseurs et par leur
libre choix.
M. Gardner nous a dit que « Foreign investment in locally iucorporated subsidiaries was
protected in I948 and it is protected today » (C 3/CR 89/3, p. 328). En principe, on ne saurait
contester cette affirmation. Mais on ne pourrait pas en tirer une règle générale visant la protection
des sociétés italiennes en Italie par le truchement de la protection prétendument accordée,
mème à cet égard, aux ressortissants des Etats-Unis qui en seraient les actionnaires.
* * *
Il nous semble opportun à présent d'analyser une par une les prétentions avancées par le
demandeur contre l'Etat italien, qui est accusé de ne pas s'ètre acquitté de certaines obligations
établies par le Traité de I948 et par l'Accord complémentaire de I95I. Mème si ces prétentions
ont parfois pour objet la prétendue violation simultanée de plusieurs dispositions, nous estimons
que notre analyse doit ètre effectuée au regard de chaque disposition; et ceci surtout parce que
la manière dont chaque artide a été conçu et rédigé a une importance décisive lorsqu'il s'agit
de l'interpréter en vue d'évaluer s'il donne lieu éventuellement à des droits subjectifs des actionnaires.
Il est superfl.u de répéter de quoi il est question ici. C'est en fait du droit des actionnaires,
ainsi que des sociétés locales affiliées, d'ètre protégés par les accords précités. Et à M. Gardner,
qui nous a reproché d'avoir constamment méconnu le droit des sociétés affiliées italiennes d'etre
protégées par le Traité (C 3/CR 89/3, p. 3I6), nous répondons que notre manière de penser
consiste plutòt à analyser la situation artide par artide; la protection des sociétés affiliées italiennes
est prévue par certains artides mais non par d'autres.
Le demandeur reproche tout d'abord au défendeur d'avoir enfreint l'artide III, paragraphes
I et 2, du Traité de I948, par une ingérence dans la direction et le contròle de l'ELSI. Ceci
se serait produit à cause de:
a) l'ordonnance de réquisition;
b) le retard Inis par le préfet de Palerme à se prononcer sur le recours formé contre la
réquisition;
c) l'occupation de la fabrique de l'ELSI de la part des travailleurs;
d) l'orientation donnée à la procédure de faillite, qui aurait avantagé l'Etat italien, ou
plutòt l'EL TEL.
Les points importants de l'artide précité figurent à la phrase finale du paragraphe I et au
paragraphe 2 tout entier. Je ne veux pas vous ennuyer en citant ce texte assez long et compliqué,
mais la Cour le connait; bien entendu, elle a sous les yeux les artides des deux traités.
En substance, par l'effet de l'artide III, les sociétés italiennes dont font partie des sociétés
américaines (ou qui sont contròlées par elles) ont la faculté de remplir les fonctions en vue desquelles
elles ont été constituées ou organisées conformément à la loi italienne, en jouissant du
traitement de la nation la plus favorisée, ainsi que la faculté d'exercer en ltalie leurs activités commerciales,
industrielles, philanthropiques, religieuses, etc., en jouissant du traitement national.
Quant aux sociétés américaines, elles ont la faculté d'organiser, de contròler et de diriger des
sociétés italiennes en Italie, conformément à la loi italienne.
Selon le libellé des deux dispositions, la violation de l'artide III du Traité de I948 supposerait
que l'Etat italien ait empeché la société ELSI d'exercer ses fonctions conformément aux
lois italiennes, c'est-à-dire d'exercer ses activités commerciales et industrielles en se coriformant
à ces lois et, ce faisant, qu'il n'ait pas respecté les standards de traitement prévus. La violation
de l'artide III supposerait, d'autre part, que l'ltalie ait imposé des restrictions aux activités
normalement liées à l'organisation, à l'institution, au contròle et à la direction des sociétés aux'
ARRINGA CAPÒTORTI 41S
quelle$ partidpent des . actionnaires · américains. Mais ·l'Etat italien · n'a commis · aucune violation
de ce gente eti ce dont la partìe adverse l'accuse (à tort, en tout cas), c'est de s'ètre ingéré dans
la direction; et dans le contròle de la société ELSI à un moment postérieur à l'époqtie où cette
société avait été organisée (et en effet notre adversaire ne reproche pas à l'Italie d'avoir entravé
l'organililation; de l'ELSI)< ,·.'
,,,. , Q~ telle :;tçcusation suppose que la faculté de dlriger et de 'contr6ler une .$oéiété. soit détacbée
deJa, facu1té de Horganiser et soit entendue conun.e Nquivalé:ht. d'une gar.antie que la société
P':lÌslil~ ç<>n;tin':lét, de g:~teit ses affaires sans ètre auéunetnent perturbée ••... '
Nous .sommés. tout àfait contraires à cette. interprétation. A notte avis, l'article III n'accorde
pas 'une liberté :t() tale <le. diriger ou de contré>le:t: des sociétés telles que rE:t.<Sl d.ans leur vie quo ..
tidienne; il ne prévoit pas une garantie absolue contre toute ingérence des autorités. M. Gardner
a vu dans l'article :IH la source d'une obUgation de l'Italìe de pro:téger les sòciétés des EtatsUnis
de toute intetférence dans leur direction et d.ans leur c6ntr6le, Nous repoussons ce point
de :vuei .qui ne, ca:rtespon;d. pas au te:l!:te 9.e l'artici e III. VELSl a certainement joui de. la faculté
d'e:l!:ercer. les foncti()ns , en vue . desquelles elle • avait été constitllée;' ainsi que. de celle, d'exercer
ses · activi~és sur ,le .territoireitalien. A .leut tour ,les actionnaires. · am,éri~ains. de , l'ELSI. ont. cert!'
J.inemen;t.joui <le Ja fac~lté, de 1' organi:ser•. de la, contr6ler et 4e la 4iriger. 1/exercice <l«:l. cette
façW.té n~ a p(ls. été l;lmp~pM Pat l~ réqw~Jidon ternflorair~ de 1'u$fue, Bref,1 Je; Jibe;llé. deJ'artic.le III
n'ét(j~e; • pas Ja pre:mi~r{;j) col\t~stati()n élevée par te .• <lelill~dl:\ur, .• • •. •..• .. •. . • •·• •.
}i'our s'en convainc;:l/e~ U sui:l.lt de comparer cet article avec:,l'article I deJ'Accord supplémentàÌ!
èe de 1951 ; seule dette dl;ltnìè~;e 4ispositi<:m inte~;<lit <l'un;eJaçon;<eX);)resse q~enapècher le contr&!
e effe9tifet l'acb;nin~stration dea entl;'eprises< qu(;l;Jes ressortissanta de .·chaque parti e. contract~
te ottt euJ'al,ltot:isàtion d'ac;:quédr,lorsque ce.t ernp~hement est le résultat de mesures. arhitraires
ou discriminatoìres. Cet aspect sera traité plus loin; pour l'instant, nous nous bomons
à signaler la tentative de la part du demandeur de confondre l'article III du Traité avec l'article
I de l'Accord supplémentaire, en dépit de la différence textuelle entre ces règles, et de la circonstance
qu' elles fìgurent dans le cadre de deux contextes différents.
* * *
Il y a d'autres aspects de l'article III sur lesquels nous souhaitons attirer l'attention de
cette Cour. Nous avons dit plus haut que le paragraphe 2 impose le traitement natiortal en faveur
des sòdétés · italiennes còhtr6lées par des sociétés · aniéricaines, et que ·le traitement • national· est
l'un des deux principes sur lesquels se fonde le Traité de 1948, comme il ressort de sòn préambule
(l'a"Utte principe étànt .celui du traitement du. pays le plus • favorisé), Un traìtement équivalent à
celui qui. est accordé au:X ressortissants comprend évidenune:ht le respect des obligations imposées
à ces derniers. D'autre part, tant le paragraphe t· que le paragraphe 2, là où ils · assuretit aux
soclétés contròlées par des ressortissants ou des sociétés de l'autre partie contractante la faculté
d'exercer.leurs•.fonctions et leurs activités sur le territoire où elles ont été cònstituées, ajoutent
la condition « conformément aux lois et règlements en vigueur >> · ( en vigueur, bien entendu, dans
ce territoire). n nous settible que cette formule corifìnne. et tenforce le principe: de l'assujettis.;;
sement des sociétés précitées à la loi locale; don t découlent non· seulement des droits~ mais aussi
des devoirs.
Nous souhi:litons nous.attarder brièvementsur ce point.· La ciréonstance principale sur laquelle
le demandeur fonde ses contestations consiste dans l'ordonnance de réquisition prise par
le maire de Palenne le Ier avril 1968. Cette ordonnance, de laquelle M. Caramazza a parlé
hier, a été prise en effet aux .tennes.de la loi N~ 2248 du 20 mars 1865, annexe E, article 7· Le
maire qui a décrété la réquisition .était dument habilité à prendre .une. telle mesurè puisque · c.ette
loi autorise les autorités administratives à disposer de la pròpriété privée en cas de grave nécessité
publique et d'urgence. La motivation de l'ordonnance de réquisition a exposé les raisons
pour lesquelles cette mesure avait été prise, à savoir: la réaction de l'opinion publique à la décision
de l'ELSI de mettre fin à ses activités et de licencier presque un milliet de salariés; les
grèves décidées par les syndicats; le préjudice pour l'économie sicilienne; l'intérèt montré par
la presse; le risque de troubler l'ordre public. En conclusion, et vu que les facultés reconnues
416 RASSEGNA DELL'AVVOCATURA DELLO STATO
à l'ELSI par l'artide III, paragraphes I et 2, étaient soumises à la condition de la conformité
aux lois et règlements en vigueur en Italie, ceci aurait suffi à exdure que la société puisse etre
exonérée de l'application de mesures impératives - telles que la réquisition - autorisées en
règle générale par la loi locale.
La Partie adverse commence par déformer la portée de l'ordonnance de réquisition, en
affirmant qu'elle avait une fìnalité bien différente de son but dédaré; la fìnalité de faire obstade
à la liquidation volontaire de l'ELSI. Quant à l'effet de la réquisition dans le temps, la Partie
adverse se fonde sur la dédaration de M. Carollo, le Président de la Région sicilienne, pour accréditer
la thèse qu'il s'agissait d'une réquisition sans limite de temps. Elle oublie de considérer
que l'ordonnance avait fìxé une limite de six mois, susceptible d'etre prolongée au besoin et
qu'il n'y a eu en réalité aucune prolongation. En outre, la Partie adverse objecte que la réquisition
a été ensuite dédarée illégale et annulée par le préfet de Palerme et que cette décision serait de
nature à exdure la conformité de cette mesure à la loi italienne.
Il y a lieu de faire trois observations à ce sujet. En premier lieu, le préfet de Palerme luimeme,
dans la décision précitée sur le recours de l'ELSI, a dédaré que la compétence du maire
de disposer de la propriété privée en vertu de la loi N. 2248 du 20 mars I86s (annexe E, art. 7),
ne pouvait pas etre mise en doute. En deuxième lieu, il est évident que, jusqu'au moment où
est survenue la décision d'annulation du préfet, l'ordonnance de réquisition devait etre considérée
conforme à la loi. Enfìn, l'artide III du Traité se borne à garantir aux sociétés en question
deux facultés d'agir, à condition qu'elles respectent les obligations imposées par la loi italienne
(dont l'obligation générale de se soumettre à d'éventuelles ordonnances de réquisition).
Cet artide confìrme ainsi que lesdites sociétés sont assujetties à la loi en vigueur dans le territoire
italien; il ne traite pas le problème de la validìté ou non des actes pris par les autorités administratives
locales.
* * *
En quoi consiste alors la prétendue violation, de la part de l'Etat italien, de l'artide III,
paragraphes I et 2, du Traité de I948? Nous pensons avoir démontré que ces dispositions n'entrament
nullement l'obligation pour les autorités italiennes de s'abstenir de toute ingérence dans
le controle et la gestion de l'ELSI: leur contenu est différent. Permettez-moi de rappeler à ce
propos que .les dispositions don t on peut déduire une protection indirecte des actionnaires, vu
leur nature exceptionnelle, doivent etre interprétées au sens strict. D'autre part, vu que la réquisition
a eu pour effet de rendre l'usine et les équipements de l'ELSI indisponibles pendant six
mois, il semble évident qu'elle n'a pas mis fin aux facultés garanties par l'artide III du Traité.
Quant au problème de la mise en faillite, permettez-moi d'insister sur un point qui est
d'une grande importance. Le demandeur a présenté de nombreux effets de la mise en faillite
comme étant des effets de la réquisition; il a ainsi décrit certains événements qui se sont produits
par suite de la procédure de faillite (engagée à sa demande et rendue inévitable parla crise
fìnancière de l'ELSI), comme étant imputables à l'Etat italien. La méthode suivie par la Partie
adverse ressort de sa description de la manière dont l'Italie a prétendument enfreint l'article
III du Traité de I948: cette violation aurait consisté, nous l'avons dit maintes fois, dans l'ingérence
de l'Etat italien dans la direction et le contrOle de l'ELSI. En réalité, c'est la faillite en soi
qui a privé l'ELSI défìnitivement de la direction et du controle de ses installations en les transférant
au syndic.
Pour condure le chapitre relatif à l'artide III, nous réfutons la thèse du demandeur selon
laquelle cette disposition comporterait un standard minimum de protection des investissements,
selon le droit international général. Nous sommes convaincus que le droit international général
n'assure aucune protection supplémentaire aux investisseurs par rapport à celle qui est accordée
par le droit conventionnal national; de fait, l'artide III précité ne prévoit aucune protection
supplémentaire de ce genre. A notre avis, la réglementation prévue par les accords d'établissement
est entièrement indépendante de la réglementation coutumière sur le traitement des investisseurs
étrangers.
ARRINGA CAPOTORTI 417
Une deuxième contestation que notre adversaire a formulée contre l'Italie se fonde sur
l'artide V, paragraphe 2, du Traité de I948; ce paragraphe est complété par la disposition du
point I du protocole.
La Cour en connait le texte; qu'il me soit clone permis de ne pas le citer. Néanmoins, il y
a lieu de faire observer qu'à l'expression du texte italien du protocole si estenderanno ai diritti
che (seront étendues aux droit que) correspond, dans le texte anglais du protocole, la phrase:
« shall . extend to interests held directly or indirectly by nationals, corporations and
associations of either Contracting Party in property which is taken within the territories of
the .other High Contracting Party ll.
En se basant sur l'ensemble de ces dispositions, la Partie adverse soutient que les autorités
italiennes ont exproprié les biens de l'ELSI sans payer une indemnité, en violant l'artide V,
paragraphe 2, du Traité, et le point I du protocole qui le complète.
A notre avis, le problème principal don t on doit discuter à ce propos est le suivant: est-il
possible ou impossible d'indure dans la nòtion d'expropriation la réquisition des biens de l'ELSI
telle qu'elle a été décrétée par le maire de Palerme? Cette question est liée à celle de l'interprétation
de l'artide V, paragraphe 2, du Traité, et due point I du protocole, vu notamment que
le texte italien ne correspond pas ici au texte anglais. Il conviendra aussi d'analyser par la suite
la question de l'indemnité versée par l'Italie pour la réquisition subie par la société ELSI.
A titre préliminaire, et compte tenu de l'opinion exprimée mercredi dernier par M. Gardner,
il nous paratt très important de souligner un point: la défense italienne est fermement convaincue
qu'elle a le droit de se fonder sur le texte italien des dispositions précitées.
N'oublions pas qu'à l'artide XXVII du Traité d'amitié, de commerce et de navigation entre
l'Italie et le Etats-Unis, il a été précisé que le traité a été fait en double exemplaire, dans les langues
italienne et anglaise, les deux étant également authentiques. La meme formule apparait
sous l'artide IX du Traité supplémentaire de I95I. D'autte part, au début de cette plaidoirie,
nous avons cité l'artide 33 de la Convention de Vienne en matière d'interprétation des traités
authentifiées dans deux langues. On se souviendra que le principe devant etre appliqué est que
le traité « faìt foi dans chacune de ces langues » (art. 33, par. I). Toutefois:
« lorsque la comparaison des textes authentiques fait apparaitre une différence de sens que
l'application des artides 3I et 32 ne permet pas d'éliminer, on adoptera le sens qui, compte
tenu de l'objet et du but du traité, concilie le mieux ces textes »,
M. Gardner nous a expliqué, mercredi dernier, que certaines dispositions du Traité de I948
avaient été rédigées et négociées en anglais et traduites en italien par la suite (C 3/CR 89/3, p.
3 I7). Il a estimé clone que ces circonstances autorisent l'interprète à considérer le texte anglais
comme prédominant et décisif en cas de doute. Cette thèse n'est pas seulement surprenante,
elle est étonnante, venant d'un juriste de l'envergure de M. Gardner. Je viens de citer l'artide 33
de la Convention de Vienne. Mais j'ajoute que, dès l'époque de l'affaire des Concessions Mavrommatis
en Palestine- c'est-à-dire, dès le 30 aoilt I924 -la Cour permanente de Justice internationale
avait mis au dair qu'en présence de deux textes d'égale autorité, mais l'un semblant
avoir une portée plus étendue que l'autre, la Cour meme a le devoir d'adopter l'interprétation
plus restrictive, qui peut se concilier avec l'un et l'autre des textes en question; en effet, dans
cette mesure, l'interprétation la plus restreinte correspond sans aucun doute à l'intention
commune des parties.
Cherchons maintenant à résoudre le problème principal du cas d'espèce. Il nous semble
évident que l'ordonnance du maire de Palerme, si elle est interprétée de bonne foi, s'avère ètre
une mesure ayant un effet différent des effets de l'expropriation. Cette ordonnance décrétait
« la réquisition avec effet immédiat et pour une durée de six mois, prolongeable au besoin » de
l'usine et des équipements de l'ELSI. Or l'effet d'une réquisition temporaire consiste dans l'attribution
à l'autorité de l'usage des biens réquisitionnés, pour une période déterminée, et non
pas dans le transfert à cette meme autorité de la propriété de ces biens.
D'autre part, nous avons déjà eu l'occasion de faire observer que la disposition sur laquelle
se fonde l'ordonnance de réquisition est l'artide 7 de la loi N. 2248 du 20 m1rs I86s dont I annex
418 RASSEGNA DELL'AVVOCATURA DELLO STATO
autorise les autorités administratives à disposer sans délai de la propriété privée en cas de grave
nécessité publique; par contre, la loi qui autorise l'expropriation à cles fìns d'utilité publique est,
en Italie, la loi N. 2359 du 25 juin 1865: c'est clone une autre loi. Le libellé de l'ordonnance
du maire de Palerme précitée ne peut etre interprété qu'à la lumière du système cles sources du
droit italien. Or, le principe selon lequelle respect ou la violation cles règles de droit international
ne saurait pas etre influencé par l'état du droit interne de l'Etat obligé - un principe que
M. Gardner a eu l'amabilité de nous rappeler (C 3/CR 89/3, p. 322) -n'a rien à faire avec cette
question d'interprétation du texte d'un acte interne de l'Etat italien. La condusion est clone
univoque: dans l'affaire en cause, il n'y a pas eu une expropriation cles biens de la société ELSI.
J'ajoute que, meme si notre raisonnement se fondait sur la notion de << taking of property »
qui figure dans le texte anglais à la place du terme « espropriazione », une réquisition temporaire
ne saurait etre identifìée purement et simplement avec le « taking of property »; il faut tout au
moins qualifier cette notion. D'après Rosalyn Higgins, qui s'est occupée spécifìquement de ce
sujet dans un cours qui s'était tenu en 1982 à l'Académie de droit international de La Haye,
les formes de contròle temporaire exercées par les autorités sur la propriété privée relèvent de
la notion de « indirect taking » (dépossession indirecte), alors qu'un véritable « taking » implique
un degré d'ingérence dans la propriété qui exdut fondamentalement son retour au propriétaire.
M. Caramazza nous a rappelé hier que la pratique américaine connait bien le phénomène
de la prise de contròle d'établissements industriels. Il ne nous intéresse pas de comparer les précédents
de cette pratique avec l'affaire en cause; il nous suffit de souligner que l'hypothèse de
la prise de contròle d'établissements industriels pour cles causes de nécessité publique n'est pas
du tout inconnue aux Etats-Unis.
De toute manière, la Cour me permettra de faire observer que les références au thème du
« taking of property » ne signifìent pas que la défense italienne ait accepté, ou jugé normal, de se
baser sur le texte anglais du Traité de 1948. Il est hors de doute pour nous qu'il faut tenir compte
du texte anglais comme du texte italien. Face à une possibilité de divergence entre les deux textes,
la seule solution que nous pouvons suggérer est celle qui est indiquée à l'artide 33, paragraphe
4 précité, de la Convention de Vienne, à savoir, l'adoption d'un sens susceptible de concilier
les deux textes. Or, il nous semble qu'une comparaison entre le terme «espropriazione»
et l'expression « taking of property », qui fìgurent respectivement dans les deux versions de l'artide
V, paragraphe 2, du Traité, doit aboutir à la condusion que le noyau commun aux deux terminologies
est le concept de privation défìnitive des biens. Point n'est besoin d'ajouter qu'une
solution de ce genre confìrmerait la non-applicabilité de la disposition précitée à la réquisition
temporaire dont il est ici question.
* * *
Nous avons jusqu'ici laissé de còté la question décisive de l'existence ou non de droits des
actionnaires en cas d'expropriation des biens de l'ELSI. La protection assurée par l'artide V,
paragraphe 2, du Traité se borne en soi à couvrir les biens des sociétés de chaque partie contraetante
sur le territoire de l'autre. En principe, les biens de l'ELSI, compte tenu de la nationalité
italienne de cette société, ne jouissent pas de la protection du Traité à l'égard de mesures
décidées par les autorités italiennes. C'est pourquoi l'allégation selon laquelle la disposition
précitée aurait eu pour effet de protéger les droits cles actionnaires américains ne peut etre étayéque
par le point I du protocole annexé au Traité. Nous avons déjà vu que ce point étend l'applie
cation cles dispositions du paragraphe 2 de l'artide V, qui prévoient le paiement d'une indeminité:
« aux droits que des ressortissants ou cles sociétés et associations de l'une cles Hautes Parties
contractantes possèdent directement ou indirectement sur des biens qui sont expropriés
à l'intérieur des territoires de l'autre Haute Partie contractante ».
Dans le texte anglais du protocole, les dispositions de l'artide V, paragraphe 2, s'étendent
« to interests held directly or inderectly by nationals. corporations and associations of either High
Contracting Party in property which is taken within the territories of the other High Contracting
Party».
ARRINGA CAPOTORTÌ 419
C'est à ce propos que se pose de nouveau le ptoblème du'défaut de cortcordance entre les
deux versions du Traitér dans l'une, il est fait mention des droits («diritti»), dans l'autre des
« interests ,, ~ dans l'une; des biens qui sont expJ:opriés, dans l' autre de la <! property which is taken
,,, :Point n'est besoin de répéter toutes les observations qui ont déjà été amplement dévelop~
ées surJa comparaison entre la notion d'expropriation et celle de « taking ofproperty ,,, H reste
à; à(lprofo:ndit: le J?t:g\)lètlle de .lt~; différence de sens·. entre les droits et l es' intérèts.
·C·.·.· / Le demaridetfr ~end à cons:idérer ces deux tenne.s comme des synonymes; ,·il setnble . donc
(iispçsé à pader de ì'fuJirectrightN (le teletè di t « interests ») des. actionnaires sur }es biens de
VELSl. Mais le fait est stittout que les actionnaires ne sont titulaires de droits qu'à l' égard de
la société et n'ont aucun. droit sur les biens de la société. Ceci est certain en droit italien; mais
égaleiliell.t én droit internarlonal, aans la mesuré où celui-ci accueille les notions fondamentales
du dtoit interne en matière de sociétés; Nous · avons déjà di t que Ia valeur internationale de la
distinction, entre les droit& d~une société et· ceux de ses actionnaires ·est confirmée par rarrèt de
cette Còur dans 'l'affaire Barcelona Traction, (Cl], Recueil I970, p. 34, par. 41). On ne
peut donc pas parler de droits indirects des actiohnaires · sur les biens de la société à laquelle ils
appa:rtiennent. ·•· •
De plus, il faut relever qu'un autre problème se pose surle pian de l'interprétation. Le point
l di.t protocole prévoit v elttension des (( dispositions du paragraphe z de. rarticle. v qui prévoient
lé paieritertt drune indetninité ,,~ Mais de quelles disposition& s•agit-il· e:x:actem.ent? Le demandeur
semble ètre convaincu qt:t~elles èomprennerit toutes l es .r ègles portant sur des èonditions ·.. relatives
à l'expropriati0n des biens, Nous avons toutefois de bonnes raisons de refuser une interprétation
aussi large; En réalité> l'artide V, patagraphe cz, prévoit en premier lieu l'obligation de
paiement d'une indemin:ité pour le$ biens. expropriési mais il prévoit aussi, en deu:X:ième lieu, en
faveur de « ceux qui recevront un telle idemnité », la faculté de retirer cette indemnité sans ingérences;•
en obtenartt dés devises étrangètes dansla monnaie de l'autre partie contractante. Evidemment,
ce sont ·.· des .dispositions coricernant le paiement d'une indeminité, et elles sont
étendues>en vertu du poìnt 1 du protocole .
. ··Il ressortdonc, de la leèture intégtale de l'article·V,· paragraphe·z, ainsi que du protocole,
qu'en. définitive· cel\if,;;.ci ne peut ètre> interprété • comme la source. de prétendus droits indire_
èts des àètìonnaires sur les biens de la soèiété à Iaquelle ils appartiennent. Le protocole étend
en fait le régitne privilégié des indemnités à tous les sujets - ressortissants, sociétés et associations
de chaque partie contractante - qui possèdent mème indirectement des droits sur les biens expropriés
à I'intérieur du territoire de l'autre partie contractante. Ces sujets peuvent comprendre
les titulaires de droits réels partiels, tels que l'usufruit, ou bien les créanciers munis de garanties
telles que l'hypotl:lèque. Si l'on voulait inclure dans cet:te mème catégorie les actionnaires des
société$, il fiiudtaìf peut...:etre prévoit les qroits qUe ces actionnaires sont en mesure d'avancer
aprèsla Uquidfitiori de la sòciété eri quèstion, On ne pe\it cependant pas estimer qu'en vertu du
pro~òi::oiè, les droitìl àttrlbué$ par l'artide v, paragraphe i, ii\ix sociétés ilrnéricaines éventuellemente:
Xproptiées en Italié puissent ètre étendus aux actionnaites américains des sociétés italiennes
soumìses à Ieur corttMle. En d'autres tei:mes, le pòint 1 du protocole n'est pas l'une des règles
destinées à lever,. à. titre. exceptionnet, le V()ilti social de l'ELSI.
Ce n'est qu'à titre incident que nous traiterons brièvement du problème des conditions
établies par l'artide V, paragraphe z, du Traité pour que les biens des ressortissants et des sociétés
et associations d'une partie contractante puissent ètre expropriés à l'intérieur du territoire
de ·l'autre partie. Nous pensons, en effet, avoir démontré que:
a) il n'y a pas eu d'expropriation, mais wie réquisition temporaire;
b) les biens réquisitionnés apparten11ient à la société italienne ELSI et ne .pouvaient donc
pas ètre « protégés » dans le cadre d'une réclamation .des Etats-Unis contre l'Etat italien;
c) les sociétés R!!ytheon et Machlett n'ont jamais été les titulaires indirectes d'un droit
de propriété sur les biens de l'ELSI.
420 RASSEGNA DELL'AVVOCATURA DELLO STATO
Ceci étant, et en admettant donc, à titre de simple hypothèse, que l'artide V, paragraphe
2, puisse etre applicable à l'affaire en cause, nous désirons préciser tout d'abord que la condition
de la procédure conforme au droit (due process of law) a été respectée dans la réquisition des
biens de l'ELSI.
En réalité, l'ordonnance de réquisition du maire de Palerme faisait mention des normes juridiques
sur lesquelles elle était fondée et justifiait la prise de cette mesure dans une motivation
détaillée. Les mesures postérieures à la réquisition - notamment la nomination des personnes
auxquelles l'usine a été confiée - étaient également conformes au droit. Cette conformité a été
reconnue à l'occasion du recours formé contre l'ordonnance précitée parla société réquisitionnée
devant le préfet de Palerme.
Quant à la condition du paiement rapide d'une indernnité réelle et équitable, il y a lieu de
relever que, si elle n'a pas été entièrement remplie, c'est en raison des événements qui se sont
produits après la réquisition. On sait que l'ordonnance du maire de Palerme avait reconnu que
l'ELSI avait droit à une indernnité. Toutefois, avant que ne soit déterminé le montant de cette
indemnité, l'ELSI a fait recours au préfet de Palerme en alléguant l'illégitimité de l'ordonnance
en question. L'acceptation dudit recours aurait nècessairement eu pour effet de transformer le
droit à l'indernnité en droit à la réparation du préjudice causé parla réquisition: c'est pourquoi
la question de l'indernnité est restée en suspens jusqu'à la décision du préfet. Après cette décision,
le syndic de la faillite de l'ELSI a cité le ministère de l'Intérieur devant le Tribunal de Palerme
en demandant des dommages-intérets pour les préjudices subis par l'ELSI.
Un procès a donc été engagé et son déroulement a connu des hauts et des bas. Enfin, par
un arret de la Cour de cassation du 26 avril I976, la demande en réparation pour les préjudices
causés à l'ELSI par l'occupation de son usine a été accueillie et le syndic de faillite a perçu la
somme liquidée en sa faveur.
En conclusion, si les circonstances ont empeché que le paiement de l'indemnité soit « rapide
», on ne peut nier qu'il a été << réel et équitable ». En effet, le montant de l'indemnité a été
déterminé parla Cour supreme après un jugement en troisième instance, ce qui a d'ailleurs permis
au syndic d'exposer amplement les raisons de l'ELSI, et aux juges de trois cours de les apprécier.
Quant à la détermination du montant de l'indernnité, le fait qu'elle ait été calculée sur
la base de la rent:abilité des biens pour la période de six mois coincide avec le critère de calcul
adopté aux Etats-Unis dan& l'affaire Pewee Goal Company, jugée par la Cour supreme le 30
avril I9SI.
* * *
Une autre disposition du Traité de I948 que le demandeur accuse l'Italie d'avoir enfreint
est l'artide V, paragraphe 3· Cette disposition garantit aux ressortissants et aux sociétés de chacune
des Hautes Parties contractantes, sur les territoires de l'autre, pourvu qu'elles se conforment
aux lois et règlements en vigueur, la protection et la sécurité relativement aux questions
mentionnées aux paragraphes I et 2 du meme artide, dans une mesure égale à la protection et
à la sécurité données aux ressortissants et aux sociétés de n'importe quel pays tiers. Le paragraphe
I, auquel on renvoie, tràite des personnes accusées de faits illicites ou détenues et dispose
l'assimilation des personnes aux sociétés en ce qui concerne les biens, donc seulement la protection
des biens. Le paragraphe 2 (qui a déjà été analysé) traite de l'expropriation des biens
des ressortissants, ainsi que des sociétés de chaque partie et du paiement des indernnités correspondantes.
La dernière phrase du paragraphe 3 de l'artide V dispose enfin que, dans toutes les
questions concernant le passage des entreprises de la propriété privée à la propriété publique,
ainsi que le passage de telles entreprises sous le contròle public, les entreprises dans lesquelles
les nationaux, les personnes juridiques ou les associations de chaque partie ont un intéret remarquable
jouiront, dans les territoires de l'autre partie, d'un traitement fondé sur le standard national
et sur le standard de la nation la plus favorisée.
Les faits qui, de l'avis de notre adversaire, attestent la violation de l'artide V, paragraphe
3, furent l'occupation de l'usine de l'ELSI par les travailleurs et le retard mis par le préfet à se
prononcer sur le recours formé par l'ELSI contre l'ordonnance de ré_quisition. De plus, selon
les Etats-Unis, l'ordonnance en question serait contraire à l'obligation de l'Italie d'assurer la
ARRINGA CAPOTORTI 421
protection et la sécurité cles biens cles sociétés Raytheon et Machlett. En outre, M. Gardner,
dans son intervention de mercredi demier, a considéré que la notion d'entreprise dans laquelle
cles sociétés américaines ont un intérèt remarquable couvre la situation d'une entreprise (telle
que l'ELSI) dans laquelle les Américains ont une participation plus que majoritaire, totalitaire.
Or, l'objection principale à l'argument soutenu sur ce point parla Partie adverse est simple:
l'artide V, paragraphe 3, à l'exception de sa phase conclusive, vise les sociétés et associations
américaines en Italie, et non pas les sociétés et associations italiennes en Italie. Meme en admettant,
comme simple.hypothèse, que la protection et la sécurité de l'ELSI ont été compromises par
les autorités italiennes, la disposition précitée serait inapplicable, vu qu'il s'agit de la protection
et de la sécurité d'une société italienne contre cles autorités également italiennes.
Pour surmonter cette difficulté, le demandeur a affirmé, dans sa Réplique, que « l'ELSI
elle-meme représentait les biens de Raytheon et Machlett en Italie ». A notre avis, on ne peut
nullement partager l'idée qu'une société soit l'objet d'un droit de propriété cles actionnaires:
la seule manière juridiquement correcte de décrire le rapport existant entre une société par actions
et ses actionnaires consiste à reconnaitre que ces derniers ont un droit de participation dans
la première, en tant que propriétaires d'un certain nombre d'actions. Quant à la phrase finale du
paragraphe 3 de l'artide V, il suffit de relever que M. Gardner n'a pas soutenu la coincidence
de l'hypothèse prévue parla règle avec le cas d'espèce; en effet, le passage d'une entreprise dans
le domaine de la propriété publique et sous le contròle publie ne se réalise qu'à la suite d'une
véritable nationalisation. En tout cas, notre adversaire n'a pas affirmé .que l'ELSI ait été exclue
du bénéfice du traitement de la nation la plus favorisée. Quant au traitement national, elle en
devait jouir sans doute, en tant que société italienne.
Permettez-moi enfin de faire deux observations sur certains faits que la Partie adverse affirme
etre incompatibles avec l'artide V, paragraphe 3· En ce qui concerne l'occupation de l'usine
de l'ELSI par les travailleurs, mes collègues, -et en particulier M. Caramazza, - ont déjà rappelé
qu'elle a eu lieu avant et non pas après la réquisition: ce furent clone les administrateurs de
l'ELSI, nommés par le vote de Raytheon et Machlett à l'assemblée cles actionnaires de la société,
qui ont choisi ·la ligne de conduite tolérante actuellement critiquée par le demandeur, et c'est
du fait de leur décision qu'il n'a pas été demandé à la police d'intervenir. Quant au retard mis
par le préfet à se prononcer sur le recours de l'ELSI, nous ne voyons pas comment et avec quelle
logique il puisse etre rattaché au prétendu manquement de l'Italie à l'obligation d'assurer la
protection et la sécurité cles sociétés Raytheon et Machlett. Est-ce que la garantie d'une justice
rapide rentre dans les notions de protection et de sécurité ? De toute manière, il suffit de répéter
qu'à notre avis, l'occupation de l'usine, le retard mis par le préfet à se prononcer sur le recours
et l'ordonnance de réquisition elle-mème ne concernent que la société ELSI, indépendamment
de ses actionnaires américains, auxquels l'artide V, paragraphe 3, ne confère pas de droits dans
le cas dont il s'agit.
* * *
·Passons maintenant à l'autre critique avancée par les Etats-Unis contre l'Italie, à savoir
que celle-ci aurait enfreint l'artide VII, paragraphe x, en s'ingérant dans la gestion et le contrCile
de l'ELSI. Avec la permission de la Cour, je négligerai encore une fois de citer le texte de la
disposition invoquée, l'artide VII, paragraphe I, parce que la Cour le connait. Toutefois, je
me permets de noter que, dans le texte anglais, l'artide VII, paragraphe I, figure l'expression
«or interests thereinn au lieu cles termes «altri diritti reali» (d'autres droits réels), et ceci a donné
lieu à certaines élucubrations de notre adversaire qui semble toujours convaincu que le texte
anglais est le seul libellé valable de ce Traité.
Dans l'affaire en cause, les droit réels que Raytheon et Machlett avaient acquis en Italie
en tant que sociétés américaines, et dont ils pouvaient disposer, se limitaient au droit de propriété
sur les actions de la société et sur de l'argent liquide. Il ne résulte pas que l'exercice de ce droit
subjectif ait jamais été entravé par les autorités italiennes. Cependant, lorsque le demandeur se
plaint de l'ingérence de ces autorités dans la gestion et dans le contr6le de la société ELSI, il
est évident qu'il pense que la gest~on et le contròle de l'ELSI étaient entre les mains cles sociétés
422 RASSEGNA DELL'AVVOCATURA DELLO STATO
investisseuses et que l'ELSI lui apparterait, de sorte que ces sociétés auraient titre à ètre protégées
aux termes de l'artide VII, paragraphe I.
On revient par là à l'idée que j'ai déjà analysée et rejetée, qu'une société (une société italienne
dans le cas d'espèce) puisse ètre considérée comme étant la propriété de ses actionnaires.
Le demandeur ajoute à certe conception - qui, je le répète est juridiquement erronée -
un autre argument qu'il prétend fonder sur le texte anglais de l'artide VII, paragraphe I, et plus
précisément sur l'expresion « immovable property or interests therein >>. La faculté d'acquérir
des « interests in immovable property >> comprendrait, selon l'interprétation donnée par notre
adversaire, le droit d'acquérir indirectement la propriété de biens immobiliers; et la société américaine
Raytheon serait, avec Machlett, le titulaire de ce droit, je répète, d'acquérir indirectement
la propriété des biens de l'ELSI, ou pour ètre précis, des biens immobiliers de l'ELSI, société
affiliée.
La Cour me permettra de faire remarquer qu'un échafaudage d'arguments si compliqués
nous parait franchement inacceptable. La notion de « propriété indirecte >> est tout à fait étrangère
au droit italien; en tout cas, elle ne peut servir à décrire la position des actionnaires de sociétés
étrangères par rapport aux biens immobiliers d'une société italienne qui est soumise à leur contròle.
Il semblerait que le demandeur veut employer à ses fins la différence entre la personnalité
des sociétés investisseuses et celle des sociétés contròlées. Il y a lieu de faire observer en outre
que le texte italien du Traité -là où il est fait mention de« la faculté d'acquérir, de posséder ou
de disposer de biens immobiliers ou d'autres droits réels sur les territoires de l'autre Haute Partie
contractante » - est beaucoup plus dair, bien délimité et rigoureux que le texte anglais. Pour
concilier les deux textes, on doit clone interpréter le texte anglais en tenant compte de la catégorie
des droits réels autres que le droit de propriété sur des biens immobiliers. Ceci amène à ne prendre
en considération que les soi-disants droits réels mineurs, tel que l'usufruit ou l'hypothèque.
En définitive, l'artide VII, paragraphe I, du Traité de I948 n'étaye nullement les allégations
des Etats-Unis dans la présente affaire. En partant du fait que, si l'on interprète l'artide VII
dans son ensemble, les paragraphes I et 2 apparaissent destinés à assurer la reconnaissance des
droits réels et successoraux sur les biens immobiliers - alors que les paragraphes 3 et 4 de ce
mème artide traitent de ces mèmes droits sur les biens mobiliers - il est évident que les bénéficiaires
ne peuvent ètre que les personnes physiques et les sociétés ayant la nationalité de l'une
ou de l'autre partie contractante et qui se trouvent sur le territoire de l'autre partie. On doit clone
considérer que la situation des actionnaires de ces sociétés échappe entièrement au champ d'application
de la disposition précitée.
* * *
Monsieur le Président, je constate qu'il est maintenant II h IS et il me reste encore sept
ou huit pages à lire. Préférez-vous que je le fasse maintenant ... ?
THE PRESIDENT: Vous pouvez terminer.
MR. CAPOTORTI: Nous avons parlé jusqu'ici des prétendues violations par l'Italie des obligations
découlant du Traité de I948. Il nous reste maintenant à analyser deux autres contestations
avancées par le demandeur contre l'Italie sur la base d'une dause de l'Accorci supplémentaire
de I95I.
La dause en question est l'artide I, qui se subdivise en deux points a) et b). Leur texte est
compris dans notre documentation ainsi que dans celle alléguée par notre adversaire. Je remarque
que panni les sociétés de chaque contractant sont comprises bien évidemment les sociétés américaines
Raytheon et Machlett, qui étaient protégées contre les mesures éventuellement prises
à leur égard - je souligne, à leur égard- par les autorités italiennes, à condition qu'il s'agisse
de mesures arbitraires ou discriminatoires ayant pour effet, aux termes du point a), de les empècher
de diriger et de gérer effectivement l'ELSI (une entreprise que les deux sociétés avaient
été autorisées à acquérir). Notre adversaire soutient que la réquisition décrétée par le maire de
Palerme était une mesure qui avait les caractéristiques indiquées ci-dessus, et qu'lle était clone
arbitraire et discriminatoire. De notre cf>té, M. Caramazza a expliqué hier pourquoi la réquisition
ARRINGA CAPOTORTI 423
n'était ni arbitraire ni discriminatoire. Pour évaluer l'allégation du requérant il faut clone analyser
tro!s questions relatives à ladite réquisition: a-t-elle été arbitraire ou discriminatoire? A-t-elle visé
les sociétés Raytheon et Machlett? Les a-t-elle empechées de diriger et de gérer l'ELSI ? Nous
avons déjà répondu et nous continuons à répondre négativement à ces questions; de toute manière
nous faisons observer qu'une seule réponse négative suffirait pour rejeter les allégations du
demandeur.à ce sujet. Pour ne pas répéter trop longuement les considérations déjà exposées dans
notre défense écrite, j'essaierai de résumer les raisons de ces réponses négatives.
En ce qui concerne. le prétendu caractère « arbitraire >> de la réquisition, commençons par
dire que, d'après le demandeur, ce caractère est démontré par le seul fait que le préfet de Palerme
a déclaré l'ordonnance du maire illégale parce qu'elle ne correspondait pas à l'objectif déclaré
(qui consistait à assurer aux memberes du personnel de l'ELSI la protection de leur emploi).
Nous estimons par contre qu'un acte ne peut absolument pas éhre qualifié d'arbitraire uniquement
parce qu'il n'est pas entièrement conforme aux conditions établies par le droit interne
d'un Etat. A notre avis, un acte illégal du point de vue d'un système juridique interne peut ne
pas etre arbitraire, et ce surtout si l'optique est différente, s'agissant d'évaluer l'acte en question
du point de vue du droit international. Dans la présente affaire, nous savons que le maire de
Palerme a réquisitionné I'usine et l'outillage de l'ELSI en exerçant un pouvoir qui lui était reconnu
par la loi italienne, et qu'il a motivé sa décision d'une manière détaillée; il ne s'agissait
clone pas d'.une mesure déraisonnable, capricieuse et dépourvue de toute justification.
Si telles avaient été les caractéristiques de cette mesure - je le répète: si elle avait été déraisonnable,
capricieuse et dépourvue de toute justification - on aurait pu la qualifier d'arbitraire;
ces qualifications sont en effet liées à la notion d'arbitraire. Le responsable d'un acte arbitraire
enfreint toutes.les règles en commettant un acte qui n'est pas inclus dans les catégories
prévues par le droit, un acte conçu uniquement comme un instrument pour porter préjudice
à sa victime et pour l'opprimer. Une autorité agit d'une manière arbitraire lorsqu'elle se place
en dehors de toute règle juridique; lorsqu'elle n'a aucun pouvoir qu'elle puisse légalement prétendre
exercer. Au contraire, l'inobservation partielle des règles auxquelles est soumise une
catégorie d'actes déterminée donne lieu à un acte illicite, mais non pas arbitraire. J'ajoute enfin
que la prétendue nature arbitraire de l'acte en question est contredite dans le cas d'espèce par
le simple fait qu'il était accompagné par la garantie judiciaire du droit italien consistant dans le
droit de faire recours au préfet. Ce recours a été présenté; il a donné lieu à l'annulation de l'acte.
Dans ces conditions, le destinataire effectif de la réquisition, c'est-à-dire l'ELSI, a disposé avec
succès d'un moyen susceptible de remédier à ce que l'acte avait originairement d'illégal.
En ce qui concerne la prétendue nature cc discriminatoire » de la réquisition, il convient de
rappeler tout d'abord que le sens acquis pa:r le terme « discrimination » dans l'usage du droit
intemational se fonde sur la notion d'une distinction injuste et préjudiciable basée sur des circonstances
déterminées et faite au détriment d'une certaine catégorie pour en favoriser d'autres.
Dans le contexte des traités d'amitié, de commerce et de navigation, qui se fondent le plus souvent
sur le principe du traitement national, une discrimination basée sur la nationalité représente
sans aucun doute un comportement que l'on doit combattre. Dans l'affaire en cause, l'ordonnance
de réquisition aurait été discriminatoire si elle avait été prise à l'égard d'une société
contròlée par des investisseurs américains en raison de la nationalité américaine cles sociétés investisseuses.
Or, ceci doit etre tout à fait exclu; dans les défenses écrites présentées par l'ltalie,
il y a maints exemples de réquisitions justifiées par cles problèmes de protection de l'emploi, à
l'égard d'entreprises italiennes contròlées par cles capitaux italiens.
Une autre façon d'interpréter l'expression '' mesures discriminatoires » peut etre fondée
sur la phrase finale de l'article premier de l'Accord de 1951. On y confirmel'engagement à ne pas
agir d'une manière discriminato ire à l' égard cles ressortissants et des sociétés et associations
d'autres parties, mais on ajoute: enfìn qu'elles puissent obtenir, à cles conditions normales, les
capitaux, les procédés de fabrication et les techniques nécessaires pour leur développement économique.
Il est tout à fait évident, d'après ce langage, qu'il y aurait une mesure discriminatoire
concernant les conditions faites aux entrepreneurs qui ont besoin de capitaux, de procédés de
fabrication ou de techniques pour leur développement si ces conditions étaient anormales. Bref,
au traitement normal, clone au traitement appliqué généralement aux entreprises engagées dans
424 RASSEGNA DELL'AVVOCATURA DELLO STATO
un processus de développement, on oppose un traitement anormal et clone discriminatoire. Ici
meme, l'idée de fond consiste à garantir l'égalité de traitement, sur un pian <<norma! "·
Le demandeur a affirmé l'existence d'une discrimination dans ce qu'il estime etre l'objectif
fina! de l'ordonnance du maire de Palerme: réduire la valeur de l'usine de l'ELSI et favoriser
ainsi l'entreprise qui a finalement acquis cette usine, à savoir une entreprise contròlée par l'IRI.
Cette allégation, en substance, se rattache à la thèse fameuse du complot fomenté par les autorités
italiennes, le complot mis en oeuvre par le maire de Palerme, le préfet de cette ville, les personnes
chargées de diriger la procédure de faillite, à savoir le syndic et le juge commissaire, don t
la décision a donné Iieu à la vente de l'usine, et les responsables de l'IRI, bien entendu. Ce complot
aurait entralné l'adoption d'une ordonnance de réquisition discriminatoire du fait qu'elle
avantageait injustement l'IRI. Nous avons déjà fait observer que cette thèse du complot n'est
que le fruit de l'imagination. De plus, elle ne serait valable que si les actes cles organes qui ont
dirigé la procédure de faillite et ceux d'une société contròlée par l'IRI pouvaient etre considérés
comme cles actes de l'Etat italien, ce qui n'est absolument pas le cas.
A ce propos, permettez-moi de relever que le demandeur n'a jamais expliqué, et encore
moins prouvé, sur la base de quelles normes du droit international les actes cles organes chargés
de diriger la procédure de faillite et ceux d'une société contròlée par l'IRI pourraient etre imputés
à l'Etat italien. La question relève de la responsabilité pour cles prétendus actes illicites de
cet Etat. En effet, la condition que l'acte puisse etre attribué à l'Etat ((( is attributable to that
State") figure dans le document élaboré en I96I parla Harvard Law School relativement au projet
de convention en matière de responsabilité internationale cles Etats pour les préjudices causés projet
à cles étrangers, comme étant l'une cles conditions essentielles de la responsabilité (voir art. I,
par. I, du projet). Il convient de citer en outre les artides du projet d'artides en matière de responsabilité
cles Etats, dont la première partie a été adoptée en première lecture par la Commission
du droit international en I98o. L'artide II de ce texte exdut que l'on puisse considérer
comme un acte de l'Etat le comportement d'une personne ou de personnes qui n'agissent pas
pour le compte de l'Etat. A son tour, l'artide 7, par, 2, admet que l'on puisse considérer
comme un acte de l'Etat le comportement de l'organe d'une institution ne faisant pas partie de
la structure de l'Etat, à condition que cet organe soit autorisé par le droit interne à exercer
les pouvoirs d'une autorité publique, dans la mesure où il agit dans le cadre de l'exercice de
ces pouvoirs, relativement à l'affaire en cause. Ceci étant, nous nous demandons comment il
est possible d'attribuer à l'Etat italien le comportement de l'EL TEL, qui a acquis l'usine de
l'ELSI à la suite d'une vente aux enchères annoncée par le syndic de la faillite.
D'autre part, nous nous demandons aussi comment on a pu affirmer, sans le prouver,l'existence
d'un lien de causalité entre le décret de réquisition temporaire, la vente de l'usine de l'ELSI
(dans le contexte de la faillite demandée par ses administrateurs) et le préjudice que les EtatsUnis
prétendent avoir subi. Un autre point fondamenta! de la théorie de la responsabilité internationale
de l'Etat est que le préjudice doit etre une conséquence directe du fait illicite. Dans
l'affaire en cause, ceci aurait dft etre prouvé par le demandeur, mais cette preuve n'a jamais été
rapportée.
En ce qui concerne le sujet passif de la réquisition, il y a lieu de relever que ce ròle a été
joué par l'ELSI, et non pas par les sociétés Raytheon et Machlett. Autrement dit, aux termes
de l'artide premier de l'Accorci de I9SI, ce sont << les sociétés et associations >>de chaque partie
qui peuvent, prétendre à la protection contre la mesure arbitraire et discriminatoire prise à leur
égard à l'intérieur cles territoires de l'autre partie. Par contre, dans la présente affaire, l'ordonnance
de réquisition, que l'adversaire dit etre arbitraire et discriminatoire a été prise à l'égard
de la société ELSI. Mais l'ELSI était une société italienne, en principe, et non américaine.
Enfin, en ce qui concerne l'allégation selon laquelle l'Italie aurait empeché les sociétés Raytheon
et Machlett de diriger et de gérer effectivement l'ELSI, il y a lieu de faire observer que
le décret de réquisition dont il s'agit n'a produit son effet, pendant six mois, que sur l'usine et
l'outillage de l'ELSI.
En condusion, nous estimons avoir démontré qu'aucune cles conditions dont dépend l'applicabilité
de l'artide premier de l' Accord supplémentaire n'a été remplie dans la présente affaire.
Ceci étant, cette disposition ne saurait etre invoquée avec succès par les Etats-Unis.
ARRINGA MONACO 425
La condusion susmentionée vaut également pour la disposition du point b) de l'artide premier
précité. Nous avons déjà eu l'occasion de dire que cette disposition interdit de porter atteinte
à « d'autres droits en intérets >> des ressortissants et des sociétés de chaque partie contraetante,
dans les entreprises qu'ils ont acquises et dans les. investissements qu'ils ont effectuées
sous, différentes formes. Toutefois, cette interdiction.ne vaut que dans la mesure où le préjudice
est causé par des mesures arbitraires ou discriminatoires. Etant donné que nous avons démontré
que la réquisition dont il s'agit ne constitue pas une mesure arbitraire ou discriminatoire, il s'ensui:
t. que m&;ne le point b) de l'artide premier est inapplicable.
· Le demandeur a affi.rmé que tous les droits et intérets lésés par la mise en faillite relèvent
c;le la disposition précitée. A ce propos, permettez-moi de répéter une fois encore - en espérant
que le dicton repetia iuvant est vrai - que le prétendu lien de causalité entre la réquisition et
la faillite n'a jamais été prouvé par la. Partie adverse et qu'en fait il n'e:l!:iste pas. Nous savons
que la faillite a été déterminée par l'état d'insolvabilité de l'ELSI bien avant la réquisition. M.
Bonell a parlé longuementsur ce pointhier. Quant à l'interdiction de porter atteinte aux droits
et interets des sociétés Raytheon et Machlett, il suffi.t d'ajouter que la procédure de faillite, dont
les deux sociétés ont demandé l'ouverture, ne représente certes pas une mesure à laquelle elles
ont été soumises sur l'initiative des autorités italiennes. Le fait que notre adversaire ait fortement
essayé de << démoniser » ces àutorités ne devrait pas avoir pour conséquence de mettre à leur
charge toutes les conséquences des erreurs de Raytheon.
J'en ai terminé, Monsieur le Président. Je vous remercie de votre attention.
THB PRBSIDBNT: Merci Monsieur Capotarti. Nous allons nous interrompre dix minutes.
The Court adjourned from II-35 a. m. to H-45 a. m.
THB PRBSIDBNT: Asseyez-vous s'il vous plait. Je donne la parole à M. Monaco.
MR. MONACO:
I. - Prémisse.
Monsieur le Président et Messieurs les juges. C'est un grand honneur pour moi de plaider
encore une fois devant cette Cour qui est la plus éminente juridiction internationale.
Je voudrais tout d'abord dédarer que je serai particulièrement bref, étant donné que mes
collègues de la défense italienne ont déjà démontré, maintes fois et sous différents aspects, le
manque de fondement des demandes avancées par le gouvernment des Etats-Unis.
Selon moi, ce qui reste à exposer, et peut-ètre à darifìer, est donc tout ce qui pourrait se
rattacher au lien, d'ailleurs inexistant, entre les faits qui ont été déjà exposés d'une façon très
détaillée, et les demandes en réparation.
2. - Le caractére subsidiaire des demandes en réparation.
La délégation du gouvernement italien ne saurait discuter la question de la réparation qu'à
titre tout à fait subsidiaire.
En effet, ce n'est que si une violation du traité est établie que la question de la réparation
se pose. Or l'Italie nie avec force l'existence de tout fait illicite qui puisse lui etre attribué.
De plus, les condusions de la Partie demanderesse supposent l'existence. d'une série d'actes
iilicites, ce qu'on ne saurait admettre meme à titre de pure hypothèse.
Enfìn, la Partie demanderesse refuse d'envisager, meme à titre subsidiaire, l'hypothèse que
seuls certains actes seraient illicites; elle fonde plutOt sa demande en réparation sur l' ensemble
de prétendus faits illicites. ·
L'un de ces soi-disants faits illicites dont les conséquences dommageables nécessiteraient
une réparation en vertu du droit international serait, par exemple, la réquisition de l'usine. Il
426 RASSEGNA DELL'AVVOCATURA DELLO STATO
est évident que l'effet dommageable supposé produit par ce seui fait, se différencie quantitativement
et qualitativement des conséquences dommageables qui résulteraient de toute la série d'actes
dont il est question dans les mémoires et plaidoiries du gouvernement demandeur.
Le refus de la Partie demanderesse de prendre en considération, à titre subsidiaire, l'hypothèse
que seuls certains faits- et non pas l'ensemble de faits qu'elle allègue- auraient provoqué
des conséquences dommageables met la Partie défenderesse dans une position difficile pour
discuter de !adite hypothèse.
Dans ces circonstances, une telle discussion ne manquerait pas de susciter l'impression que
la thèse principale de la Partie défenderesse n'est pas tout à fait fondée et affaiblirait en conséquence
sa position, alors m8me qu'elle demeure ferme à nier la réalité de tout acte illicite que la
partie demanderesse veut lui attribuer.
Je me bornerai donc à quelques remarques d'ordre général sur la nécessité de prouver l'existence
d'un lien étroit entre un prétendu fait illicite et ses éventuelles conséquences dommageables
aux fins de l'obtention d'une réparation en droit international.
3· -Le manque de preuve du lien de causalité entre le dommage allégué et le prétendu fait illicite de
l'Etat.
C'est en effet un principe incontestable du droit international que, pour que l'Etat lésé ait
droit à la réparation, il ne suffit pas qu'il existe un préjudice susceptible d'indemnisation et qui
se rattache de quelque manière à un acte illicite de l'Etat; il est en outre essentiel de démontrer
l'existence d'une relation de cause à effet suffisamment étroite entre le prétendu acte qui constitue
l'origine de l'obligation d'indemniser et le préjudice lui-m8me.
La jurisprudence internationale exclut nettement l'obligation de verser une indemnité pour
un préjudice qui n'a pas été « éprouvé avoir été une conséquence réelle et inévitable n (affaire
Yuille et Shortridge, dans LAPRADELLE et PoLITIS, Recueils des arbitrages internationaux, vol. II,
Paris, 1932, p. 78) de l'acte illicite, ou quand ce dernier « was not in lega[ contemplation the proximate
cause of such a damage n (affaire Cabos Lopez, Recueil des sentences arbitra/es, Vol. IV, p.
20). Afin d'apprécier d'une manière plus précise les demandes des Etats-Unis et les caractères
propres de la présente affaire, il est utile de rappeler certains des motifs sur lesquels des tribunaux
internationaux se sont appuyés pour décider qu'il n'y avait pas de lien de causalité suffisant entre
le dommage allégué et le fait illicite (ou prétendument illicite) d'un Etat.
L'un de ces motifs consiste à dire que l'acte imputé à l'Etat, mème s'il a contribué à créer
une situation favorable à la survenance d'un fait illicite, ne peut en ètre considéré comme la cause
directe, parce que le fait dommageable en question se serait produit de toute manière par l'effet
d'autres circonstances qui ne peuvent pas 8tre imputées à l'Etat.
Dans l'affaire Remy-Martin (Recueil des tribunaux arbitraux mixtes, Vol. IV, p. 415), par
exemple, le tribuna! arbitrai mixte franco-allemand a refusé d'accorder des dommages-intérèts
poùr le manque à gagner d'une distillerie française résultant de l'interruption de ses activités
à la suite de sa saisie par les autorités allemandes pendant la guerre, parce que, m8me sans l'acte
illégal de la mise sous séquestre, la distillerie, de toute manière, n'aurait pu fonctionner à la suite
de l'impossibilité de se procurer, en temps de guerre, les raisins français nécessaires à la fabrication
de ses produits. Plus significative encore est l'affaire Guillemot-] acquemin (Recueil des
sentences arbitrales, Vol. XIII, p. 70), dans laquelle une ressortissante française a intenté une
action en restitution de deux appartements à Rome qu'elle avait loués à une société publique
italienne et qui avaient été saisis pendant la guerre. La commission de conciliation franco-italienne
a conclu que, puisque les loyers avaient été fixés à un taux légal à cette époque, mème:
« sans le séquestre et sans les mesures prises par le séquestrateur, Mme Guillemot-Jacquemin
[se serait trouvée], vis-à-vis de ses deux locataires, exactement dans la m8me situation
que celle dont elle se [plaignait] ... Tout lien de causalité faisait donc défaut entre les restrictions
que le Gouvernement français voulait voir lever et les mesures prises par le Gouvernement
italien à l'égard des deux appartements en tant que biens ennemis n.
ARRINGA MONACO 427
Dans certains .cas; la raison pour laquelle le.lien de causalité entre lefait illicite de l'Etat et
le préjudice causé à un particulier a été considéré comme trop ténu- ce qui excluait l'obligation
d'indemniser - a. été. que le comportement de la victime elle-mème (ou une situation créée par
elle) l'avait exposée aux effets de l'acte illicite; lequel n'aurait entrainé .aucun préjudice sans ce
comportement ou cette situat:ion.
A cet égard, on peut cited'affaire Di!:tne Simone Re'l}erand (Recueil des sentences arbitrales,
V oh XIII~ p;. 2·'16)d:élat:ive à une maison .qui avait été vendue aux enchères en Italie pendant la
guerre,. conséciltiveinent: à une série de · mesures prétendument illégales prises au détriment de
la propriétaire, qui ét:ait une ressortissante française, mesures qui l'avaient empèché de transférer
en Italie: les fonds. néce.ssaires pour payer les intérèts éohus d'une hypothèque. ·. sur · cette
maison. Puisque:
« la sltuation • pécuniaire de Mme Reverand · était, ava'nt le 1 o juin I 940, obérée à tel point
qUé depllis mai I9J9 elle n'avàit pU àCqUittér les ar:i'érages de sa dette hypothécaire »1
la comtriìssion de coriciliatit:iri franco;:..itltlienne coriclut que <d'ori ne peut soutenir dahs ces coriditi<)
ns C}ue c'est du fait de la guerre que l'intéressée s'est trouvée hors d'étàt depayer les arréràges
eh questioh ». .. . .·. . . ·.• . . . ... · ·. . . . . . . . .. · . .. ..·. ·. •.. . · ·
. Dans d'i11itres. ~w:i:es; le· refus d'accorder. une indemnité , a été déteb:nirié non seW.ement par
« le Hen trop lointain qui tllttache. la )!ert~ 11u fait générateur », mais aussi << par le Caiactère trop
aléatoire ~u bériéfice espéré (LAPRADELLE etPòù'ris; op; cit., p; 284} .. Certe situation s'est produite
eh · particulier · dans ·. des affaii:es où ·le préjudice pòur lequel une lndemnité . était demandée dépendaitd'une
perte de revenus qui présentait un caractère tout à fait aléatoìre. •.· .· .·
. En d'autres i:ermes, sous réserve. de toutes les différences résultant cles. aspeets divers des
affaires dont il s'agit, les sentences arbitral~s irtternationales confirment qu'en statuant sur l'obligation
de réparer et stir le montant de l'indeinnité due, il faut tenir compte non seulement du
lien entre chaque fait illicite ìmputé à l'Etat et chaque préjudice qui fait l'objet d'une demande
en réparation, mais aussì 'de I'ihddehce qtie des circonstances ou des actes tion imputables à l'Etat
défendeur ont · pu avoir sur la· survenance du préjudice.
4· - L' éventuelle réalisation de la valeur de l'ELSLpar la liquidation supposée.
Nous avons amplernent démontré que la preuve du lien de causalité allégué. par le demandeur
n'a nullement été apportée. De plus, il :faut rappeler que, en raison de l'incidence possible .de
cet aspect SUl," l'évaluation éventueUe du préjudice, ce prétendu lien de causalité semble se fonder
surtout sur la simple hypothèse selon laquelle Raytheon aurait pu ohtenir un résubat fulancier
tqut à fait di:fférent s'il y ayait e~ ~n.t:liquidation régulière. Le gouvernement des Etatt;-:-Unis
persiste à afiirmer que les créanciers de l'ELSI auraient été remboursés intégralement si cette
procédure avait été possihle et que Raytheon aurait évité les r~percussiqns découlant de la situation
ru.ineuse de l'ELSL, Selotl le demandeur, tout cela aurait été possible parce. que « had
the Respondent not interferedwith the liquidation, Raytheon and Machlett would have recovered
the market value of ELSI as a going concern in I968 » (Rèplique, p. 156).
Cet argument semble dépol,lcyu. de tout fondement, comJ:ne l'qJ;lt déjà montré très amplement
mes collègues MM. Bonel1 et Carainazza, d'autant plus qu'il suppose que la totalité de la
valeur comptable de l'ELSI aurait été réalisée dans la procédure de liquidation, sa valeur comptable
étant considérée comme laplus proche de sa valeur d'entreprise en activité (Réplique, p.
I sS). Cela est difficile à adniettre aux fins de l'évaluationdu préjudice quì aurait été causé à Raytheon,
car en vertu du principe adtnis par la jurisprudence de droit international, c'est au demandeur
qu'il incombe de prouver que « soit eh c::onsultant le cours ordiriaire des choses, soit
en s'attachant aux affaires de la pàrtie lésée ou aux dispositions prises par elle, il est probable
-non pas seulement possible '- que celle-ci aurait réàlisé tel ou tel profit si le fait illicite ne s'était
pas produit » (affaire Fabiani, Pasicrisie Internationale, Berne, 1902, p. 365).
Cependant; l'éventualité de la réalisation de la valeur comptable totale de l'ELSI parla liquidation
n'a pu qu'apparahre tout à fait improbable à l'époque, voire impossible du point de
428 RASSEGNA DELL'AVVOCATURA DELLO STATO
vue de Raytheon elle-m~me, car la propre direction de l'ELSI avait envisagé une valeur de Iiquidation
rapide très inférieure à la valeur comptable et elle avait cherché, avec insistance mais
sans succès, à parvenir à un accord avec les principaux créanciers de l'ELSI sur la base d'un
remboursement de so p. cent seulement cles sommes qui leur étaient dues.
Comme nous l'avons déjà démontré, la vérité est que le scénario de la réalisation de l'ELSI
comme une « entreprise en activité » (going concern) ne correspond nullement à la réalité. A
cet égard, on peut remarquer avec intér~t qu'alors que le Mémoire considérait cette solution
comme le scénario le plus optimiste, la Réplique la qualifie de seule possibilité. La preuve que
cela ne correspond pas à la réalité, contrairement aux allégations du demandeur, réside dans le
fait que, dans sa Réclamation de 1974, Raytheon retenait une estimation de l'ELSI très inférieure,
c'est-à-dire reposant sur la valeur de « réalisation rapide>> (quick-sale value). Sans parler du fait
qu'une évaluation basée sur la << réalisation rapide n est tout à fait hypothétique et ne reflète pas
la valeur réelle cles biens, le recours à une telle estimation, dans la Réclamation de 1974, exclut
clone qu'il puisse s'agir d'un « worst case scenario ... for purposes of interna! corporate planning
by ELSI-s shareholders » (Réplique, p. 159), comme le soutient le gouvernement cles Etats-Unis.
Il faut aussi exclure qu'une telle évaluation, que le gouvernement cles Etats-Unis présentait
comme «la plus défavorable cles hypothèses >> (worst case scenario), ait été utilisée lors de la Réclamation
de 1974 seulement pour entamer les négociations «in the spirit of compromise>> (Réplique,
p. 159). Un tel esprit ne transparalt pas dans la réclamation dont il s'agit. Il y a lieu d'ajouter
que deux évaluations différentes, l'une fait par le syndic de la.faillite et l'autre par l'ELTEL
(celle-ci devant ~tre considérée comme tout aussi objective que celle de Raytheon), aboutissent
à cles chiffres nettement inférieurs.
Le demandeur dit que la base d'évaluation utilisèe fut la « going concern basis >> et nous
savons qu'ils utilisent la « book value basis >> comme équivalence.
Mais ELSI n'était pas un « going concern n. Ainsi, les évaluations du demandeur n'ont aucune
signification. L'alternative à la « going concern basis » est la «break up value basis », utilisée
nécessairement lorsque les éléments de l'actif sont vendus séparément.
Personne n'a rien dit à ce sujet, mais il est stlr que le produit d'une aliénation séparée aurait
été bien inférieur au chiffre présenté par le demandeur.
Une « break up value >> est bien la base qui a ètè utiliseè dans la faillite.
Ce n'est certes pas à la partie défendresse -qui nie l'existence de tout fait illicite et rejette
par conséquent toute obligation de payer une indemnité pour le prétendu préjudice - qu'il
incombe de proposer une autre méthode d'évaluation. Comme nous l'avons déjà indiqué dans
le Contre-mémoire (p. 77), l'Italie formule ses observations à titre tout à fait subsidiaire, à seule
fin de contrer les « dubious còntentions of law and the distortions of facts >> contenues dans les
allégations du demandeur.
Monsieur le Président, Messieurs les Juges, vous allez entendre certains éclaircissements,
j'espère, de la délégation italienne à l'égard de la question dont j'ai parlé tout à l'heure. Et j'en
viens d'une façon très rapide aux deux derniers points de mon exposé. L'un se réfère au recouvrement
cles frais de justice et de procédure et l'autre est relatif à la question cles intér~ts.
5. - Le prétendu recouvrement des jrais de justice et de procédure.
Premièrement outre les observations présentées dans le Contre-mémoire italien (p. 116),
quelques autres remarques peuvent ~tre formulées au sujet cles frais de justice et de procédure
supportès par Raytheon. Malgré les affirmations du gouverement cles Etats-Unis, les frais de
justice et de procédure exposés parla société à l'occasion cles procès intentés contre elle en Italie
par les banques créancières de l'ELSI ne peuvent ~tre considérés, de toute manière, comm
e une conséquence directe cles agissements de la Partie défenderesse (Réplique, p. 156). Ils résultaient
de l'insolvabilité de l'ELSI, dont seule cette dernière était responsable, avant m~me les
circonstances contestées. Abstraction faite de toute évaluation sur les agissements du défendeur,
ceux-ci ne peuvent avoir été, au maximum, que la cause indirecte d'une circonstance résultant
ARRINGA MONACO 429
exclusivement d'une situation propre à l'ELSI et créée par cette dernière. Ceci nous permet
d'affirmer que ces dépenses, telles que la juridiction italienne les a fixées, doivent etre considérées
comme définitives et ne peuvent plus faire l'objet de· recours de la part du demandeur.
Il y a lieu de souligner en outre que, contrairement aux allégations du demandeur, il est
rare que les tribunaux. internationaux établi$Sent le montant du remboursement des frais de
justice et de procédure exposés par le sujet lésé dans.l'exacte mesure indiquée par celui-ci. En
règle générale, .ils établissent ce. montant en se basant sur le bon sens, selon une pratique proche
de. celle des tribunaux nadonaux. Rappelons, à titre d'exemple, que l'Iran-US Claims Tribuna[
n'a pas liquidé ·les frais de justice dans tous les cas et meme, lorsqu'il l'a fait, le montant
a été inférieur à celui expo$é par le demandeur. Cette conclusion résulte par exemple du cas
Sylvania Technical Systems v. Iran, décision N. 64 du 27 juin 1985: ce jugement est intéressant
parce qu'il contient de· nombreuses considérations à ce sujet. Et de meme on peut se référer à
un autre cas l'Oil Field of Texasv. Iran and National Iranian Oil Co., décision N. 43 du 8 octobre
1986. Ceci est d'autant plus manifeste si l'on considère que, contrairement au cas présent, les
frais de justice et de procédure le plus souvent remboursés sont ceux relatifs aux procès dans lesquels
le particulier, lésé de manière illicite par l'Etat, a tenté sans succès d'obtenir la réparation du
préjudice auprès des tribunaux de l'Etat en question. A ce propos, il serait intéressant de relire
le texte de l'artide 36 de la Conven.tion on the Law of State Responsability for Injuries to Aliens
(revised Harvard Draft Convention), préparée comme nous le savons par MM. Sohn et Baxter,
que le demandeur lui-meme a inséré dans la n. 63, p. 157 de Sa Réplique:
« a claimant shall be reimbursed for those exepenses incurred by him in the local and international
prosecution of his claim which are reasonable in amount and the incurrence of
which was necessary to obtain reparation on the international piane >>,
Il faut enfin souligner que les frais de justice ont été attribuées par les tribunaux italiens à
Raytheon dans les procédures elles-memes; cela est important. Les décisions ont clone établi des
ftais légaux de caractère norma!, qui comprenaient aussi les honoraires d'avocat calculés sur la
base des tarifs en vigueur. Par conséquent, tout autre frais de justice éventuellement supporté
par Raytheon ne peut apparaitre admissible dans les circonstances indiquées.
6. - La question des intéréts.
Ce n'est évidemment qu'à titre encore plus subsidiaire que des remarques supplémentaires
s'imposent sur la question des intérets. L'importance que lui accorde la partie demanderesse,
surtout s'agissant d'intérets composés, confère à la réclamation une dimension que l'on peut
considèrer ccmme astronomique en l'état des choses.
La thèse de la partie demanderesse peut etre comme suit: des intérets sont dus à partir de
la date où le fait dommageable s'est produit; bien plus, il faudrait aussi prendre en compte, comme
nous l'avons déjà dit, les intérets composés.
Il faut aussi rappeler ceci: tout en défendant la thèse que des intérets composés sont dus,
M. Ramish a eu l'amabilité de dire:
<< The United States recognizes that arbitrai tribunals historically have not shown much
inclination to award compound interest. Indeed, the Iran-US Claims Tribuna[ has not awarded
compound interest » (C 3/CR 89/4 p. 348).
Il est dès lors surprenant que M. Ramish se soit au contraire acharné à démontrer qu'en
droit international contemporain, il y a une obligation de payer des intérets en tout état de cause,
et à les faire courir à partir du jour où le prétendu fait dommageable se serait produit.
Pour étayer cette argumentation dans ses deux aspects, M. Ramish traite d'une façon quelque
peu cavalière des précédents judiciaires et arbitraux.
Il cite par exemple l'affaire célèbre du Vapeur Wimbledon (CP]I, série A N. I, p. 54)c'est
la première décision de la Cour permanente de justice internationale - sous le chapitre
The Award of Interest at Commercially Reasonable Rate, from the Date of Injury to the Date of
28
430 RASSEGNA DELL'AVVOCATURA DELLO STATO
Payment. A cet égard, M. Ramish di t: « The Court must, as in the ' Wimbledon ' case, take
account of ' the present financial situation of the world ' including contemporary rates of interest
(SS ' Wimbledon ', supra, p. 32) ». Mais voici la citation complète de la m~me phrase de l'arr~t
que je me permets de soumettre à l'attention de la Cour:
« Quant aux taux des intér~ts, la Cour trouve acceptable dans la situation financière
actuelle du monde, en tenant compte des conditions admises pour les emprunts publics,
les 6 p. cent demandés; ces intér~ts, cependant, doivent courir non pas à compter du jour
de l'arrivée du Wimbledon à l'entrée du Canal de Kiel, suivant la réclamation des demandeurs,
mais bien de la date du présent arr~t, c'est-à-dire du moment où le montant de la somme
due a été fixé et l'obligation de payer établie ». (CP]I, série A N. r, p. 32).
M. Ramish cite également (C 3/CR 89/4, p. 327) la phrase suivante d'une décision de la troisième
chambre du Tribuna! des réclamations Iran-Etats-Unis dans l'affaire Mc Collough (IranUS
Claims Tribuna[ Report, Vol. II, p. 29):
'' The first principle is that under norma[ cù·cumstances [an d especially in commercia[
cases] interest is allocated on the amounts awarded as damages in order to compensate for the
delay with which the payment to the succesful party is made ».
On pourrait enfin, sans vouloir insister, rappeler que M. Ramish a enlevé les mots « and
especially in commerciai cases » et mis à la place des petits points.
Dans la plaidoirie de M. Ramish (C 3/CR 89j4, p. 348), la citation de la sentence
du m~me tribuna! en l'affaire The Islamic Republic of Iran est tout à fait incomplète parce que le
tribuna! ne visait que la question du pouvoir de prendre une décision sur les intér~ts. Le tribuna!
a, d'autre part, refusé d'indiquer une règle générale à propos des intér~ts et a conclu de la
manière suivante:
« The determination of the applicable principles of law in any given case, and consequently
the question of whether an award of interest is appropriate, must rest witht he Chamber
concerned, and the Tribuna[ therefore concludes that the alternative request for the establishment
of genera[ rules governing the award of interest by the individua[ Chambers must be denied »
(Mealey's Litigation Reports, Iranian Claims, Vol. 2, N. I7, p. g).
7· - L'appréciation de la réparation sur le plan international.
Monsieur le Président, Messieurs les juges, il ne convient pas, à mon avis, de poursuivre
cette analyse de petites astuces, mais plutòt de revenir aux principes de droit international en
matière de réparation qui ont été développés par la doctrine et par votre jurisprudence.
La Partie demanderesse en réalité traite la présente affaire comme une simple affaire commerciale,
telle qu'elle pourrait ~tre soumise à un tribunal arbitrai entre particuliers ou entre Etats
et particuliers. Il faut plutòt, à mon avis, piacer la question cles intér~ts, comme celle des conséquences
dommageables, dans le contexte qui lui est propre: celui d'une affaire portée devant
la Cour. Dans ce cadre-ci, la réparation ne saurait ~tre sans rapport avec la gravité de la violation
de l'obligation internationale. De plus, la réparation doit ~tre appréciée en raison cles circonstances
et clone tenir compte du comportement de la Partie défenderesse, ainsi que de la Partie demanderesse
et, dans les cas de protection diplomatique (ce n'est pas le cas ici), également de celui
du ressortissant pour lequel cette dernière prend fait et cause en l'espèce.
C'est une matière fort délicate, dans laquelle la jurisp~dence de la Cour s'est encore peu
aventurée et il serait probablement trop présomptueux, - tout à fait présomptueux de ma part, -
de faire quelques suggestions à la Cour quant aux principes à dégager. Je préfère m'en abstenir,
d'autant que je partage pleinement la thèse, défendue par mon gouvernment, qu'aucune violation
n'ayant été commise, il n'y a pas lieu à une quelconque réparation.
Je suis ainsi, Monsieur le Président, Messieurs les juges, arrivé à la fin de mon exposé et je
vous remercie beaucoup de l'attention que vous m'avez pr~tée.
CONSULENZA HAYVVARD 431
L~ PRESIDENT: Je vous remercie, Monsieur Monaco. I give the fioor to Mr. Highet.
Mr. FERRARI BRAvo: I aro sorry, Mr. President, I think there is a small misunderstanding.
I announced that, before Mr. Highet, our adviser on accountancy, Mr. Hayward, would take
the fioor, with your permission.
'l'he PRESIDENT: I cali upon Mr. Hayward. I invite you to make the declaration provided
in the Rules of Court.
Mr. HAYWARD: I solemnly declare upon my honour and conscience that I will spe!tk the
truth, the whole truth and nothing but the truth and that my statement will be in accordance
wìth my sincere belief.
The PRESIDENT: Thank you very much. You may now proceed.
Mr. HAYWARD: Mr. President and distinguished Members ofthe Court. It is an unexpected
honour forme, firstly, to have been named as an adviser to the Italian delegation and, secondly,
to have been given the oppottunity to address this Court.
Mr. President, I should be pleased if you would allow me to set forth my qualifications.
I am a practising member of the Institute of Chartered Accountants in England an d W ales
and also a member of thé Paris Region of the French Ordre des experts comptables et des comptables
agrèès. I have also received an authority to practise in the Netherlands from the Ministry
of Economie Affairs. ·
l am a partner in the Dutch firm of public accotmtants, KPMG Klynveld Kraayenhof &
Co., itself a member of the intemational partnership of Klynveld Peat Marwick Goerdeler.
I have spent the last 25 years both in practice and in business on the continent of Europe,
in Belgium, Switzerland, France and now the Netherlands. I have also, for a period of some
four yeats, managed, as Directeur gènèral adjoint, a group of publishing companies based in
Switzerland, One of my responsibilities at that time comprised the acquisition and disposal by
sale or by closure of a number of group companies in Europe and in North America.
As the Italian Agent indicated on Monday, I shall be addressing the Court on matters arising
from the production, last Friday, of the audited financial statements of ELSI as at and for the
year ended 30 September I967. I shall also comment on the valuation presented to this Court
by Mr. Lawrence on I6 February.
In this short address I do not intend to make use of the overhead projector but I shall piace
before the Court five exhibits marked A through E and to which I shall frequently refer. These
exhibits, Mr. President, are in the blue folder that you have in front of you. The Court will note,
and the index so indicates, that ali but one of these exhibits are no more than copies of selected
information previously placed before this Court by the Applicant.
Exhibit A, which I would ask the Court to referto now, is a copy of the chart appearing on
the Memoria! (p. 6o) and which Mr. Ramish set out on a transparency last Thursday. As
the Court will recall, Mr. Ramish stated: « Column I charts the basis for the United States claim
for reparation in this case. It starts from the conservative premise that ELSI's physical and
intangible assets were worth at least bòok value » (C 3/CR 89/4, p. 332). ·
But, Mr. President; the l!7,053·5 million lire shown by Mr. Ramish (that is in the top lefthand
column of the exhibit) cannot represent book value of ELSI at 31 March I968 (this
number has been drawn from Schedule BI. of Mr. Arthur Schene's Affidavit appearing as Annex
I3 to the Memoria! and is to be found before you as Exhibit B). The « total assets » of I7,053·5
million lire was unadjusted for provisions and write-downs arising from the independent audit
of ELSI as of the 30 September 1967 balance sheet date.
As you can see from the second from the far right column of Exhibit B, the total assets of
ELSI at 30 September 1967 were shown in the Affidavit as amounting to 17,956.3 million lire.
In passing, I should also like to refer you to the intangible asset line captioned « Deferred Charges
» just above the total assets line and amounting to 1,653 million lire in both the fina! two
columns. I shall be retuming to this number later.
Now, I request you to look at Exhibit C, the next exhibit, which is a copy of the assets side
of the ELSI balance sheet as at 30 September 1967 audited by Coopers & Lybrand. The balance
432 RASSEGNA DELL'AVVOCATURA DELLO STATO
sheet has three colurnns in the lire presentation and the first colurnn, entitled « Book Figures »,
indeed agrees with the I7,956.3 million lire reflected in Schedule BI to the Annex I3, which I
earlier presented to you as Exhibit B.
However, the audited balance sheet on Exhibit C refers to « Company's Adjustments »
totalling 3,062.4 million lire resulting from an additional write-down to the value attributed to
inventories of I,309.4 million lire, a write-down of IOO million lire to the value attributed to
investments and the complete write-off of the intangible assets of I,653 million lire as being of
no value.
I must stress that these adjustments were made and agreed by Company management following,
no doubt, lengthy discussions with the auditors. Indeed, the Coopers & Lybrand audit
report confirms that the adjustments were made by the Company in preparing the balance sheet.
The auditors also state that such adjustments have not, at the date of their report, been recorded
in the books for, essentially, tax reasons.
The true adjusted book values after audit are thus I4,893.9 million lire and not I7,956.3
million lire as shown in Annex I3 - a reduction of 3,062.4 million lire.
Accordingly, the book values used by Mr. Ramish for the purpose of the Applicant's claim
shou}d, in my opinion, also be reduced at 3I March I968 by at least 3,062.4 million lire.
But this is not all. Coopers & Lybrand have qualified their audit report in respect of an
overstatement in the reported iriventory values of 453·3 million lire and revenue expenditure
incorrectly included in fixed assets and thus overstating this caption by 463.6 million lire.
These misstatements total 9I6.9 million lire and must be read in conjunction with two further
matters over which the auditors have expressed doubts. Firstly, no evidence was presented
to them justifying favourable price adjustments, included as an asset of the Company, on the
supply of klystrons for 25 I .6 million lire and, secondly, they were unable to determine whether
amounts appearing as fixed assets are fully represented by specific items of physical property.
As the audit report was dated 22 March I968 I believe it is appropriate to consider these
adjustments as also applying to the 3 I March I968 book values.
In conclusion, therefore, the book value amount used by Mr. Ramish and drawn from Mr.
Schene's Affidavit, appears to be incorrect and should be reduced by 4,230.9 million lire to arrive
at I2,822.9 million lire as explained in Exhibit D.
As the Court has heard earlier this week, Mr. President, the Respondent rejects the Applicant's
view that book value, even when properly reflected at the corrected value of I2,822.6
million lire, at 3I March I968, is a fair proxy for the value of ELSI as an ongoing enterprise.
As the Court has heard, the ongoing enterprise or going concern nature of ELSI was substantially
compromised well before 3I March I968. Note IO to the audited financial statements,
before you as Exhibit E, indicates that there is a shareholders deficit at 30 September I967 of
88I.3 million lire. Should this become « officially » the case (in inverted commas in the text),
that is to say, should the adjustments made in arriving at this total of accumulated losses be
entered into the Company's books of account, then the Directors would have been obliged to
convene a stockholders meeting forthwith to take measures either to recover its losses by providing
new capitai or to piace the Company in liquidation.
Mr. President and distinguished Members of the Court, I point out that this note was written
by the Company and is attached to its own accounts presented for audit.
If I may depart from my prepared brief fora moment, I think we need to go back to I967
to consider the situation in I967. Many companies in Italy, France, and Spain at that time had
two books of accounts. One was the official books of account for fiscal monetary exchange reasons,
and the other was the proprietor's set of accounts which reflected the true economie substance
of an enterprise. I t is my view that the audited balance sheet which was presented to
Raytheon is the equivalent of the proprietor's set of accounts in this context, and does truly
represent the substance of the economie enterprise.
The Company was nota going concern at 30 September I967 and, accordingly, an orderly
liquidation with disposal of the Company's business and assets as a going concern was an impossibility.
No additional capitai funds were available to it on the admission of Raytheon. The
Company was on the verge of insolvency wellqefore the requisition of the plant on I Aprii I968.
CONSULENZA HAYVVARD 433
It is in this light, I believe, that the Court must consider Mr. Lawrence's testimony of x6
February 1989. Mr. Lawrence has testified that:
«I t is my opinion that there was a good prospect that a purchaser of any or all of those
[ELSI] businesses would have been prepared to pay a substantial premium over the value
of the tangible assets for the benefit of this goodwill, particularly if there was competition
between more than one prospective purchaser to acquire the business» (C 3/CR 89/4, p. 341).
Mr. Lawrence has based his valuation on the potential sale as a going concern, a sale between
a willing buyer and a willing seller and indeed a sale in a market of depth whereby more
than one prospective buyer is to be found. I would note that the concept of going concem has
been consistently maintained by the Applicant and is referred to in of the United State3 Memoria!
(p. xo).
Now it is for this reason that. Mr. Lawrence has seen fì.t to give a value of 3,500 million lire
to intangible assets when his own firm agreed with Company management that no value, other
than for fiscal reasons, could be attached to the intangible assets appearing in the records of
ELSI at 30 September 1967.
Further, a value of 300 million lire has also been attributed to Mezzogiorno grants for which,
as explained by Mr. Caramazza in his submission of yesterday, no justification has been given.
Mr. President, in my opinion, the valuation of Mr. Lawrence, based upon the premise of
ELSI as a going concern, is unrealistic and is not supported by the underlying economie position
of the Company, either at 30 September 1967 or at 31 March 1968.
Mr. President and distinguished Members of the Court, I have now come to the end of my
address. Thank you.
The PRESIDENT: Thank you. Do the American delegation wish to examine the expert now ?
Mr. FERRARI BRAvo: Mr. President, I regret to take the floor. Of course Mr. Hayward will
be at the disposal of the Court and of the American delegation for all questions they may wish
to put but, in fact, Mr. Hayward did not speak as an expert in the sense given to this word by
the Rules of Procedure of this Court. Certainly it was my fault if there was some misunderstanding,
but Mr. Hayward has been listed not as an expert but as an adviser, and ltaly asked for permission
for him to address the Court in the same capacity as Professor Bonelli and Professor
Fazzalari did last week. They were also listed as advisers on behalf of the American delegation.
So, for our part, the Italian delegation will not cross-examine Mr. Hayward, but I repeat that
Mr. Hayward is ready to answer any questions.
The PRESIDENT: I accept the statement of Professor Ferrari Bravo, but Mr. Hayward himself
took the declaration as an expert. Therefore I think that, in this case, it would have helped
for you to submit your objection before he took the declaration.
Mr. FERRARI BRAvo: I did not want to interrupt you.
The PRESIDENT: But you have the right to do so. I myself understood that under Artide
64 of the Rules of Court Mr. Hayward had been declared an expert of the ltalian delegation;
he therefore can be submitted to cross-examination by the American delegation, now, if they
wish to. Mr. Matheson.
Mr. MATHESON: Mr. President, I have no desire to press the point with the Respondent's
delegation. W e will be prepared to comment upon the expert presentation when we make our
rebuttals, and we may at that time have further questions but, for the time being, I am not going
to press whatever procedura! rights I might ha ve. Thank you.
The PRESIDENT: So that we can have an orderly discussion on this subject, I think it is better
for you to put questions tomorrow. Otherwise you will have to keep the expert from the Italian
delegation here next week, when the expert from the American delegation will not be here. Therefore,
I am going to give you the opportunity tomorrow moming to put questiona to the expert
from the Italian delegation. Do any of the Judges want to put a question? Judge Schwebel?
434 RASSEGNA DELL'AVVOCATURA DELLO STATO
Judge ScHWEBEL: If I understood the expert correctly, he was submitting that the Applicant's
argument was based on the concept of going concern value and, in his opinion, ELSI
was not a going concern - or if it was going it was going down and not up, in essence.
I haven't, of course, just now had a chance to review the submissions of the Applicant in
this regard, but as I recall the testimony and the written pleadings, my impression is that the
Applicant was arguing that this is a case, unlike the generality of cases, where a «going concern))
value was not the basis of damages sought, but rather (( book value >> was, precisely because the
firm was not making a profit and had no prospects, apparently, of making a profit. Damages
were therefore claimed on the basis of the sale value of the company in terms of its assets sold
as a unit or by various lines. Now, is my understanding of what the Applicant argued consistent
with your remarks of a few moments ago on (( going concern >> value, or not ?
Mr. HAYWARD: Let me say first of all that the Applicant-I am speaking from memory
as I do not have the papers here with me- but in Mr. Ramish's address he mentioned that the
book value was a proxy for a going concern, that there was no means in which a going concern
value at this stage could be attributed to a Company of I967. But the book value was to be sold
in business lines or as a business. The intangible assets, which is goodwill, attach to a business,
they do not attach to assets; so if any value is given to intangible assets, then the business must
have been sold as a business.
Now, in the book values of the Applicant there remains I,659 million of intangible assets
in the balance sheet, which the auditors actually wrote off at 30 September I967. So, intangible
assets, the sign of a going concern valuation basis, are retained in the Applicant's book value
basis.
The PRESIDENT: I would like to put a question to you, Mr. Hayward, please.
Mr. HAYWARD: Yes, Mr. President.
The PRESIDENT: During your statement, if I understood you correctly, you said that on 3 I
March 1968 the Company was on the verge of insolvency. Now I was a very good student of
mathematics when I was in the secondary school, but then I followed law; therefore, I have forgotten
all about mathematics. For me, what insolvency means is that you have the assets and
you have the debts, and the debts are more than the assets ?
Mr. HAYWARD: Indeed, Mr. President.
The PRESIDENT: I suppose that this is an accountant's idea - for you I think this is a crucial
question - on 3I March I968 the debts of ELSI were above the assets of ELSI?
Mr. HAYWARD: Yes, Mr. President.
The PRESIDENT: Could you explain this in more detail, please.
Mr. HAYWARD: Indeed, with pleasure. The audited accounts of ELSI, on which Coopers
& Lybrand issued their opinion on 22 March I968, relate to the year ended 30 September I967.
Those audited accounts show a shareholders' deficit - speaking from memory - of 88 I million
lire, that is to say, that at 30 September I967 the debts exceeded the assets of the Company from
the audited balance sheet. Now, we know that in the six months following 30 September the
Company made another I,ooo million loss. I am not saying that their debts went up by I,ooo
million, because it may be that other money carne in, but nonetheless the Company had not
improved at March I968 over September I967. But the audited accounts produced a situation
revealing a shareholders' deficit - the debts exceeded the assets.
The PRESIDENT: Thank you very much. Any other questions? Yes, Judge Schwebel.
Judge ScHWEBEL: In pursuance of what the President just said, are you then amending your
statement that ELSI was on the verge of bankruptcy to say that it was bankrupt, or do you
maintain your statement that it was on the verge of bankruptcy ?
Mr. HAYWARD: I have not used the term (( bankruptcy )), I have used the term (( insolvency >>;
I prefer that term.. I think my statement was (( on the verge of insolvency well before 3 I March »
CONSULENZA HAYVVARD 435
-I was talking in terms of the period before 3I March. Yes, I believe that the Company, at 3I
March, was on the verge of insolvency.
The PRESIDENT: But I think that the point is this : was i t insolvent, or not ? Because i t is
one position to be on the verge of insolvency, and another to be insolvent.
Mr. HAYW ARD: Insolvency is a situation - in French i t is " cessation de paiements » - where
the company cannot pay its liabilities as they fall due. Now, it can be that a supplier does not
press for payment, enabling the company to pay off other suppliers earlier and, therefore, the
insolvency situation, while technically the company is insolvent, may be prolonged because of
the business life of the company. Un ètat de cessation de paiements can .exist, but until one has
gone to the court and actually declared that the company is insolvent, the company can stili
continue business - which I think was the case of ELSI.
The PRESIDENT: Any other questions? Judge Schwebel? Thank you very much, Mr. Hayward.
Well, we have I5 minutes. I do not know if Mr. Highet would wish to continue right now?
I understand he does not. So, tomorrow morning the Arnerican delegation will have the opportunity,
if they wish, to cross-examine the expert. That will be the fìrst matter in the morning
for the Court, then I think Mr. Highet is going to take the fioor and PrOfessor Ferrari Bravo will
fìnish the statement of the Italian delegation.
We will meet tomorrow, gentlemen, at IO o'clock. Thank you very much.
The Court rose at I2,50 p.m.
SUPPLEMENT TO THE ORAL REPLY GIVEN BY PROF. BONELL TO A QUESTION PUT BY ]UDGE SCHWEBEL
AT THE SITTING OF 2I FEBRUARY I989.
The Italian Delegation is honoured to state the following:
x. In July I967 ELSI took the decision to dismiss 300 workers.
2. To avoid those dismissals, the Regional Government entrusted ESPI (Ente Siciliano
per la Promozione Industriale) with the task of fìnding a solution.
3· As a result, an agreement was reached, in terms of which ELSI's workers were merely
suspended, an d not dismissed, and in August I 967 they began a retraining programme, their
payment taking the form of a daily allowance, made by the Region (cf. Unnumbered Document
annexed to Counter Memoria!, Vol. I, p. 20j2I).
4· In March I968 the situation became criticai. ELSI decided to dose the plant and
dismiss the major part of its workforce. The Italian Government- meeting of 29 March I968
(cf. Memoria!, Annex I5, Exhibit G) - offered to have the Region pay the salaries (by means
of ad hoc regional legislation) if the dismissal letters were not sent out.
Requisition was not a formai condition for the assumption of the payment of wages by the
Region.
The requisition kept the factory open.
For the payment of salaries, the Region enacted regional legislation.
By Regional Laws N. I2 of I3 May I968 (cf. Document N. 37 annexed to Counter Memoria!),
N. 23 of 6 August I968 (cf. Document N. 38 annexed to Counter Memoria!) andN. 3I of 23
November I968 (cf. Document N. 39 annexed to Counter Memoria!), the payment of extraordinary
monthly allowances equal to the actual monthly wages was borne by the Region until I5 October
I968.
Law N. I2 of I3 May I968 (quoted above) also covered the wages of March I968 which
had not been paid by ELSI.
Prof. LuiGI FERRARI BRAvo
Agent of Ital:y
C 3JCR 89j8
Thursday 23 February 1989, at IO a. m.
Mr. HIGHET - ]UDGE ODA
The PRESIDENT: Please be seated. According to what was decided yesterday, I cali Mr.
Hayward, who will be cross-examined by the American delegation. Mr. Hayward, please.
Mr. MATHESON: Mr. President, we have no questions to put to Mr. Hayward.
The PRESIDENT: Very well. In that case, we shall continue with the Italian delegation.
I give the floor to Mr. Highet.
Mr. HIGHET: Thank you, Mr. President.
Mr. President and distinguished Members of the Court, it is always a great professional
honour for any international lawyer to be called upon to address this highest of tribunals. And
it is also a privilege, for whi.::h I am particularly grateful, to be able to present the closing arguments
of Italy to this Chamber in the first round of the ELSI case.
The Court has before it the arguments of both sides. Where do they stand ? The Court
has heard repeatedly, and effectively, what are considered to be the relevant facts. Applicant
has stated them as being " disputed » and " undisputed », but it should be clear by now that many
"facts » that are in dispute are not facts at ali, but are conclusions (1). It is thus intellectualiy
impossible, and probably wholly unnecessary at this stage, to respond cogently to the kind invitation
of Mr. Matheson to "indicate which specific facts it disagrees witù, and ... [to] referto
the documentary evidence which supports its position »,
The Court has also extensive arguments on various points of law.
Now, my job today, Mr. President and distinguished Members of the Court, is to try to
put it ali together for our side, and to use advocacy to the extent I can to assist the Court in
its task of sorting through ali these troublesome questions of fact and law.
* * *
I would like to start, Mr. President, by discussing a particularly significant aspect of this
case.
It is one of the first espousal cases that has been before the Court in a very long time. It
is a derivative case relating to rights that - if they did exist - initialiy belonged to Raytheon
or, in minuscule proportion, to Raytheonjs subsidiary Machlett Laboratories.
The factual harvest available to Applicant is therefore not of its own making. It many well
be the case that Applicant's more extreme and tendentious characterizations have been quite
naturaliy based on the long6term frustrations and angers of its client and national, Raytheon.
Now, Italy does not suggest that Raytheon was not frustrateci and disappointed by what
happened to ELSI. That frustration is not even worth discussing further, however, unless it
stems from a real denial of a right or privilege by the Italian authorities. It is also not worth
discussing unless that denial can be proven by direct evidence and unless the burdens of proof
and of persuasion can be satisfied.
That is not the case before you. The case now before the Court is based, to a wholiy unacceptable
degree, on circumstantial evidence, unfounded inference, and innuendo.
(1) E.g., C 3/CR 89/I of 13 February 1989, p. 245·
REPLICA . HIGHI!T 437
Applicant has not satisfied the burden of proof in any normal sense of the expression. N or
has it carried the burden of persuasion. For Applicant, Mr. President, must demonstrate that
there is no other reasonable, and rational, explanation for what has befallen its client Raytheon.
The absence of only one link permanently separates the act or omission - assuming that one
did exist - from the iniuria or damage.
There ate therefore two eléments thàt must be satisfied in all cases, particularly in unilateral
cases brought by application. They are the burden of proof and its sister the burden of persuasion.
* * *
First, however, it is appropriate to review the recent development in the case that occurred
over the weekend, that is related intimately to the issues of proof and persuasion. l t is the «conj3piracy
» questions.
Applicant may try to deny it, but the basic case advanced by it in these proceedings is clearly
based on the inarticulate major premise that there was a « conspiracy », or a form or concerted
àction, amongst the officials; various·officials,. any officials of the ltalian Government. The case
ìm:plies, but does not state or prove, that this concerted action existed at least between 1967 and
1969.
And it ìmplies, Mr. Presidimt, but again does not state or prove, that this concerted action
involved IRI offidals, the ofllciàls charged with àdministering the Mezzogiorno programme for
the Regional Goverrunent (induding the transportation benefits); that it involved the regional
officials of Sicily; that it involved the Mayor of Palermo and the Prefect.
The case implies, but does not state or prove, that this concerted action involved the bankruptcy
·. trustee, · the · banks, and the o:fficials concemed with any one of the four auction sales.
l t implies, but it does not state or prove, that this concerted action might also bave involved the
judicial authorities of Italy on various levels.
As our Agent has pointed out in his opening address on Monday, the existence of a pian of
concerted action or conspiracy ìs so essential to the United States case that it is hard to imagine
Applicant seriously denying that it relies on it - as it did in its answer of 17 February.
Now the Agerit also pointed out, Mr. President, that this answer has placed Applicant on
the horns of an uncomfortable dilemma. Either Applicant was seeking to assert State responsibility
against Italy because of this .concerted action, or it was not.
I t has now denied asserting a conspiracy and that means - semantically and legally - that
it also denies, and must deny, the equivalent: that of deliberate and concerted action. A claim
that ltalian officials engaged in a deliberate and concerted course of action, a:s envisaged by the
United States case; is substantially no different from a claim that they engaged in a conspiracy.
This I hope will emerge with cllu'ity, Mr. President, in a few minutes when I touch on the
things that have been said in this case by the Applicant about the ltalian motives and plans.
Applicant has therefore conceded that it can no longer rely on establishing that connection
of will or purpose that might link the Mayor of Palermo to the President of the Sicilian Region
to the trustee in barikruptcy, to IRI, to EL TEL, and so forth and so on.
Y et how else can one link their actions or omissions .so as to form a composite w ho le, so that
the end result of their asserted actions or omissions can be, in law, attributable to the ltalian
Government?
That is the dilemma. The only other way in which these actions or omissions can be linked
one to the next is by a disciplined and cogent chain of causation - that is the only other way -
a chain that admits of no rupture - not for an instant, no rupture, not a single link can be missing
- and a chain that will satisfy the traditional and respected requirements of the international
law of State responsibility for injuries to aliens.
438 RASSEGNA DELL'AVVOCATURA DELLO STATO
These requirements, of course, are well-known to the Court and I will not dwell on them
any further, other than to say that when one here applies even the most rudimentary test to find
a necessary and sufficient chain of causation, Applicant's case falls apart instantaneously.
This is because there is no evidence in the record to support the connection of one link to
another in the chain. One incident - say, the requisition - cannot be linked to another incident
- say, the lease to EL TEL, the litigation on the guaranteed loans, the bankruptcy auctions
- unless a relation of cause and effect is asserted, proved, argued and established.
And, Mr. President, this must be by a preponderance of the evidence. One need go no
further than to say that there is simply no evidence of these connections before the Court, far
lessa preponderance of evidence. Now it is not for Respondent to deny that which has not been
plainly asserted, and certainly it is not for us to contradict that which has not been supported
by a factual assertion. It is like disproving a negative, it is like shooting in the dark.
I used the words « factual assertion >l. It is, as ever, essential to distinguish between the
assertions of fact and the conclusions to be drawn from those assertions. What Applicant has
done here is, unhappily for Applicant, to claim the benefit of the latter without doing the work
required by the former.
First, it has put an impressionistic, or descriptive, case. This was based on the claims of
its client and national Raytheon. This case is largely comprised of conclusions of fact and of
course also the related conclusions of law. But the conclusions of fact are stated first, without
the supporting facts required to establish them.
And they are then in turn, as the pleadings move along, referred to as if they had been established.
Such is the case, for example, with the conclusions that President Carollo's statements
were somehow transmuted into actions, into State action. Proof ? There is none.
The same is true of the conclusion that there was a « boycott >> of one, two, three different
public auction sales. Proof? None exists in the record. The same is true of the conclusion that
ELSI could otherwise have sold off some or part of its product lines or finished products or
inventory or goods in process in time, intime for what, to make the 8oo million lire bank loan
repayment to Banca Nazionale del Lavoro falling due on 18 Aprii, so as to avoid the guillotine
of bankruptcy. This was pointed out by Professor Libonati on Monday (2). Proof that it could
have done so? None.
The same is true of the conclusion that, but for the stubborn and untoward interference
of the Italian authorities, there could have been an orderly sale of the various elements of ELSI
in weeks following the « firing)) of 8oo workers on 24 hours' notice. Proof? We do not even have
to ask.
This case is difficult. It contains, throughout, like a dark thread running through a bolt
of lighter-coloured cloth, a silent major premise that Italian public officials were acting in concert
to bankrupt ELSI, to deprive Raytheon of its subsidiary, to acquire it for itself at a fraction
of its fair market value.
Now Applicant has rejected the notion that it ever asserted there was a << conspiracy >l.
Perhaps, now Applicant will come back and say that all they are denying is that there was a sort
of « quasi-criminal conspiracy >l, whatever that may be in international law - and I for one do
not purport to know.
They will doubtless say, Mr. President, that the facts speak for themselves, in establishing
that there were actions an d omissions on the part of I talian authorities sufficient to com p rise,
taken separately and together, a violation of Raytheon's rights under the Treaty and the Agreement.
And this would merely be a variation on the statement in their 17 February communication,
that:
« [t]he relief sought in this case is based on the acts and omissions of the Respondent's agents
and officials at the federai and local levels (including IRI), without any allegation that these
officials were working in conspiracy )) (italics added).
(2) C 3/CR 89/5 of 20 February 1989, p. 372.
REPLICA HIGHET 439
Yet, Mr. President, with no such « allegation », with no case made that these officials were
acting in concert, where is Applicant's case ? What is being complained of? The individuai
acts ? That is not the way the pleadings read, and that is not the way the submissions read.
I mean, how serious was the unconscious reliance of Applicant's case on this point? lt is
worth making, and I apologize but I fear it must be clone, a quick tour d'horizon of the pleadings,
written and oral, just in order to see how deeply this point underlies Applicant's case.
It is like a great white shark gliding, unseen and unheard, beneath the calm waters of a bay,
In the very introduction in the Memorial (p. 3), it was stated:
« the Government of Italy requisitioned ELSI's plant and related assets, in arder to prevent
the liquidation and to facilitate that acquisition of ELSI's assets by Italy's commerciai
conglomerate Istituto per la Ricostruzione Industriale (IRI) » (italics added).
In the Memorial (p. 20), it was written that:
« [t]he Government of Italy thus achieved its objective of acquiring ELSI's plant and other
assets without paying or otherwise co-operating with ELSI's shareholders ... and without
paying a freely market-determined price » (italics added).
Later on, it was said that (p. 36):
« The declaration of a public emergency in this case was a mere device; if the closing of
the plant was an 'emergency ', it was an emergency of Italy's own creation ... the planned
closing was nota bona fide public emergency, nor was the requisition a bona fide public response
» (ltalics added).
It goes on to say,
« The purpose of the requisition appears to have been to create the appearance of action,
while allowing time for IRI to step and to take over the plant ... IRI was developing plans to
expand into this area, but was not ready to do so» (Italics added).
A little bit further on in the Memorial (p. 41):
« The requisition .. . was only the first step in a series of concerted actions taken by the
Italian Government and IRI authorities to acquire ELSI's plant and related assets at less
than fair market value, while leaving Raytheon with responsibility for paying ELSI's outstanding
debts. Having requisitioned the plant and caused ELSI's bankruptcy, the Government
of Italy discouraged private bidders, boycotted the auctions itself, and worked out special
arrangements for a piecemeal take-over directly with the bankruptcy authorities.
« The object of these actions was to secure ELSI's facilities for IRI ... they were taken
with the clear object and effect of favouring a public Italian enterprise at Raytheon's expense ...
Thus, not only did the Government of Italy wrongfully cause the bankruptcy, it also proceeded
wrongfully to exploit the bankruptcy which it had caused » (ltalics added).
The Memorial continues (p. 41):
« The Government of Italy's objective was to acquire ELSI's facilities for IRI at the
lowest possible price. Toward that end, it incrementally consolidated both the appearance
and the substance of a take-over of ELSI's facilities, which enabled it ultimately to dictate
the sale price >> (ltalics added).
The Respondent does not exaggerate, Mr. President, when it says that Applicant's case
is based four-square on the concept of a conspiracy by the Italian Government, or concerted
action by Italian Government authorities. Applicant cannot deny this. Its submissions must
therefore suffer the consequences.
Now it is not that the case is inartfully drawn. It is that it is an espousal case. It is as if
Applicant, in preparing its case, had to pay uncritical heed to Raytheon and to its point of view.
440 RASSEGNA DELL'AVVOCATURA DELLO STATO
A classic example was pointed out in correspondence last month with the Registrar. An
attempt was obviously made by Raytheon over the years to falsify, suppress or paper over some
small but critically important portions of the evidence - to pretend that they didn't exist or to
conceal their existence. In a matter of this seriousness, surely such an attempt would only have
been made if what was being covered up was of great importance. l t is, in effect- can be taken,
in effect - as a form of admission against interest that these indications were the best evidence
of relevant facts as to state of mind.
What do we find that was in the undoctored manuscript minutes (kept by hand) of the
critically important meeting between Raytheon's top officers and President Carollo of Sicily,
but omitted from either or both of the typed versions of those minutes, ostensibly on the ground
that they were « summarizations »? (They were not summarizations).
I referto the meeting of 20 February. Now the Court will recall that five weeks before the
requisition, the top officers of Raytheon- Messrs. Adams and Clare, whom we know, and Mr.
Profumo - stated that they expected at that meeting that there would be an inevitable bank
crisis a full month before the requisition and that a week later they expected to « run out of money
and shut the plant )). These words had been dropped - carefully dropped, since the rest of the
typescript seems to follow the handwritten minutes more or less word for word - from the
texts filed with the Court.
Other words were dropped too, such as that March 8 was « stressed repeatedly ))' at that meeting
at which Mr. Adams was present and Mr. Clare was present, as « the absolute limit for a
shutdown, a shutdown due to [a] total financial crisis )).
The statement was even made by Mr. Adams, who was then the Chairman of the Board
of Raytheon, at that meeting - but it was excised from the typescript - that, without more
money, ELSI would « shortly disappear )). Where is the possibility of an « orderly liquidation )),
in the case of a company that was expected to shortly « disappear )) ?
Most of the evidence, such as it is in this case, has been produced by Applicant. And in
fact i t was produced by Raytheon and, as the Court can see, some of it has been tampered with.
How reliable is the rest of it? I do not know.
Moreover, how forthcoming is it? It took a request, only a few days ago, under Artide 62
of the Rules to obtain discovery of critically important financial statements of 30 September
1967, financials that Mr. Hayward and Professor Libonati have been so interested in. Now those
were not filed voluntarily with Applicant's pleadings, although one might have expected that
they would have been considered rather important, in the interests of justice and the amicable
resolution of a matter of this kind.
In reverse, then, this is proof positive of the inherent value of the traditional rule that local
remedies must be exhausted. Because, if they are not exhausted or not even seriously attempted
- as is the case in the present proceedings - the result will be or may be something very much
like this case before the Court today - a half-digested, conclusory, ill-established, impressionistic
series of complaints without factual justification, based solidly on a conspiracy theory that
has ali the earmarks of a corporate grudge fight, and none of the signs of careful and criticai
juridical review.
In our judgment the point conceming the hidden agenda, or conspiracy, or concerted action,
is a critically important one for the outcome of this case. And this point must be made clearly
and unambiguously: in fact so clearly that Applicant will never be able to wriggle away from the
homs of the dilemma that it has brought upon itself.
It must be made so clearly that the Court can, without regret, simply dismiss this entire
proceeding as ill-considered and unjustified. The point, Mr. President, goes far beyond the issue,
really, of whether or not there was a so-called « conspiracy ». It goes really to the integrity of
Applicant's case.
I quote these passages here not merely to make it painfully clear perhaps that Applicant's
case really did depend on an unproved assumption of concerted action. They are quoted here
to illustrate to the Court directly: first how deeply this matter has infected the entire case of
Applicant, and second how it is in fact impossible for Applicant to purge its case of these unproven
assumptions.
REPLICA HIGHET 441
In the Memorial (p. 43), Mr. President, it was stated that:
« the Government of Italy skillfully took advantage oj its own commanding position and its
initial wrongful requisition to acquire ELSI's plant and assets at a reduced price for the use
of their own commerciai enterprise. ... Having caused the bankruptcy, the Government
of Italy further shaped its results, to the detriment of Raytheon and Machlett and the benefi.
t of IRI », (Italics added).
Then the Memorial said (p. 44):
« With the requisition, Italy » - this is important- « embarked on a course of activity aimed
at acquiring the bulk of ELSI's assets fora public enterprise at less thanjair market value >>, (Italics
added).
And again (p. 6o):
« As shown . above, a principal object of the requisition was to prevent Raytheon and
Machlett from disposing of ELSI's assets. The Government of Italy wanted to acquire the
a!)setsitself and was not prepared to pay for them as of 1 Aprii 1968. The requisition met
the immediate politica! need of responding to the local outcry against the plant's closing,
while giving the Govenzment oj Italy the opportunity to plan its acquisition strategy », (ltalics
added).
Finally (p. 62), concerning the litigation against Raytheon for the payment of ELSI's
guaranteed debts, · the Memorial said:
« The evidenée indicates, moreover, that these suits were not only a foreseeable consequence
of the Government's actions, but part of its plan to shift the costs of its actions
[viz., the bank suits] to Raytheon » (ltalics added).
In the Reply, one finds the same assertions of conspiracy and concerted aétion, a hidden
global agenda on the part of the Italian Government. Thus (p. 147):
« the Respondent was completely unresponsive to Raytheon and Machlett's e:fforts to stabilize
ELSI fimincially, precipitating the conditions which led to the ' social unrest '), (Italics
adde~).
No, I do not make this up. This sentence actually says that Italy deliberately did not intervene
to help aut ELSI, in the periods before those last days, and that Italy therefore precipitated
ELSI's fi.nancial crisisl That is what it says. And the Reply also says that:
<< The real purpose of the requisition was not to stem ' social unrest ', but to wrest contro}
of ELSI's plant, equipment and assets from its rightful shareholders ... That purpose was
arbitrary ». (Ibid., italics added).
It would have. been. The deep dependence of Applicant's case on the hidden premise of
concerted action did not end with the written pleadings. As my colleague, Avvocato Caramazza,
pointed out to the Court on Tuesday morning, the recent oral statements of Applicant's counsel
were loaded with implications and innuendos to just the same e:ffect.
In order to complete this exercise, I would like to touch on a few of the less gracious examples.
They are possibly less overt than the many examples I have just cited from the written
pleadings, because probably it is more diffi.cult to stand up and say these things than it is to wrìte
them.
The Deputy-Agent, Mr. Matheson, alluded - in his catalogue of « undisputed facts » -
to an « intention » on the part of the Italian Government, ostensibly evidenced by statements
beginning before the requisition, « to take over ELSI for itself» (C 3/CR 89/1 of 13 February
1989, p. 252; italics added).
442 RASSEGNA DELL'AVVOCATURA DELLO STATO
Later on, on that same morning of the first day, Mr. Mahteson said that:
« The Respondent clearly wanted ELSI for itself yet was unwilling to partlctpate in
ELSI on a lawful commerciai basis. The Respondent's tactics continued following the requisition
» (lbid., p. z6s; italics added).
On the next page, he sai d that:
« Subsequent events [subsequent to the first bankruptcy auction] suggest that this too
was part of a national government plan >> (Italics added).
Even Professor Gardner was not immune from imputing a base and sinister plan to the
Respondent. He stated that:
« Through the ensuing bankruptcy process the Respondent' s plan to take over ELSI
through its State-owned conglomerate was brought to fruition (3) ». (Italics added).
Mr. President, what are we to make of ali this? As I have just noted, one of the things that
it brings out is the wisdom of requiring the exhaustion of local remedies in espousal cases.
And this is particularly true, I would say, in commerciai espousal cases such as this one.
Here complex facts are readily susceptible of distortion, or incomplete recollection; the personal
ill-feelings of corporate officers can readily be vented in the construction of a corporate response,
hostile to the host country, but which, in a court of law, must be tested against the measure
of objectivity.
The best way to test it is to require proof of the company that claims to have been injured.
This the United States has not clone of Raytheon or, if it has, it has not produced the fruits of
that enquiry in this Court. For there is no evidence of any conspiracy, of any concerted or parallel
action.
Ali that the Court has to deal with here is the recitation of a series of events, joined with
assumptions and innuendos. They are set forth descriptively and impressionistically. They
are repeated over and over and over again until they somehow magically acquire the specifìc
gravity of actual facts.
There is an interesting analogy to the hidden conspiracy. That is the unjustifìed and silent
amalgamation of ali ltalian things and persons into one enormous entity, known as « the Italian
Government ».
Mayors, officials, trustees, prefects, business executives, regional presidents, centrai governmental
officials, bank officers, lawyers, counsel, judges, potential bidders at auctions, officials
conducting auctions - ali of these, and many more, are magicaliy homogenized into a uniform
group of << Italian Government representatives », so that anything said or clone by any of them
can, by virtue of that homogenization, be attributed not merely to the Italian Government but
also to each other.
There is a similar assimilation process at work on institutions: IRI, ELTEL, ITALTEL,
the Region of Sicily, the city of Palermo, the bankruptcy courts, the banks, the regular court,
the national government by its ministries, individuai ministries, ali the ministries, and so forth.
For some of these entities, of course, Mr. President, there is full justifìcation for an attribution
to the Italian Government. But that is not true forali of them nor is it true in such an
in discriminate manner.
What about IRI ? What about the banks ? What about EL TEL ? Why, why must we assume,
without any proof, that whatever they say or do is official governmental action ?
The common denominator is of course nationality. This common attribute seems to inhibit
careful thought, and arrest cogent analysis. And, at the end of the day, because of the « Italian
» nationality of these people and these institutions, are we somehow to accept, without more,
that it is appropriate that they can ali be assimilateci one to another ?
(3) C 3/CR 89/3 of IS February 1989, (p. 315); emphasis added,

444 RASSEGNA DELL'AVVOCATURA DELLO STATO
And unless it can be proved that the Italian Government participated, in such a manner
as to attract responsibility in internationallaw, in a silent or hidden conspiracy underlying the
asserted boycott for example - or unless it can be convincingly argued that the bankruptcy of
ELSI was solely or even principally due to the requisition, and not necessitated by its terrible
financial condition - then the chain of causation is broken, the logical imperatives of the case
have evaporateci, and Applicant's cause of action will have to go the same way.
On this analysis, there are three main problems with the case of the United States. Mr.
President, the first problem is that the company described in the pleadings of the United States
is an entirely di:fferent company from ELSI.
It was a di:fferent company, one that could perhaps have been known as « Raytheon Italia»,
that had run on the rocks and shoals of commerciai difficulties in 1968, but as to which it was
stili entirely poss.ible to conduct an « orderly liquidation )), But this was not ELSI. This was
not Elettronica Sicula. It would have been a wholly di:fferent entity - a sort of heroic version
of ELSI.
It would have had to have been a company that had not made the consistent losses described
on Monday by Professor Libonati. It would have had to have been a company that would not
give its employees pink slips in a disorderly manner, or without proper notice. It would have
had to be a company, one would think, as to which the senior officers or the shareholders had
already begun to obtain some concrete results in a search for buyers of product lines or divisions,
in an orderly liquidation. Having regard to the consistent record of losses, one would have thought
that it would have been a company as to which some decision of orderly liquidation would have
been made a lot earlier - years earlier maybe, say even in 1965!
What did we learn from the testimony of Mr. Adams and Mr. Clare? Well, a number of
things, but in this context first, that it was very clear indeed that Raytheon had decided not to
put a penny more into ELSI perhaps as early as the late summer or early fall of 1967 (4). We
learned that the top officer on the spot did not think that they could make the next payroll (G),
W e also learned that the same officer conceded that ELSI was « belly up just before the requisition
(6
) », W e learn that he said that « It was impossible to get rid of anybody there (1) », and
that even to get « rid of two people o:ff the television line ». caused a three-week strike (8).
Nonetheless we also note that this same officer, because of the « very peculiar )) thing « that
the Italian staff in the office would not touch them ... personally inserted about 8oo letters into
envelopes and stamped them and took them round early in the morning and posted them o:ff (9) )),
Now it was an imaginary workforce, an illusory workforce, that could be disxnissed in this way
without, obviously, severe repercussions. For, if the disxnissal of two workers .can cause a strike
of three weeks, how many weeks would be caused by the dismissal of 8oo ?
The heroic or imaginary ELSI, however, was a company that could withstand these pressures.
I t perhaps was a company where these other << curious )) things had not occurred. In
addition, the heroic ELSI was an entity that was perfectly capable, in Applicant's view, of being
sold to a willing buyer at current market values - of realizing a fair sale price.
The imaginary company had good products, good customers and good work-in-process.
The real ELSI had none of these. The imaginary company had sufficient funds to meet the
next few payrolls, at least. It surely could have met- or would have had to have made provision
to meet - the Aprii debt amortization payment I referred to. The real ELSI could do
neither.
Thus the real ELSI had to disxniss 8o per cent of its workforce, like it or not, no matter
what the risk. It had to shut down and dose its doots. It could not go on while the Raytheon
executives, Mr. Clare and Mr. Oppenheim, sewed up the last details on the spin-o:ff proposal
with Company X and Company Y, international firms eager to acquire portions of ELSI's pro-
(4) C 3/CR 89/2 of 14 February 1989, (pp. 271, 286).
(5) C 3/CR 89/2 of 14 February 1989, (p. 287).
(6) C 3/CR 89/2 of 14 February 1989, (p. 287).
(7) C 3/CR 89/2 of 14 February 1989, (p. 277).
(8) C 3/CR 89{2 of 14 Febrary 1980, (pp. 277 and also p. 290).
( 9) C 3{CR 89{2 of 14 Febrary 1989, (p. 279).
REPLICA HIGHET 445
duct Hnes and its considerable goodwill. It could not continue in existence while the sàle and
disposition of plant, inventory, fì.nished goods an d work-in-process was being ·. brought to a
conclusion to Italian or French or German purchasers.
That would have been an « orderly 'liquidation », woti:ldn't it? Bti:t that was not ELSI.
That was: not the situation bere'. The losses: ofthe real ELSI had · become · completely crushing.
The. re!ll. ELSI was << doomed >>'by excessiye interest and royalty pa.yfuents:. . I ts • business was not
ftourishirig ;.:;.;_ no t even standing stilt AEi Pr,ofessor Libonati said, i t could make only .losses.
ltis sad to sawjUld it is sad to deàl with a rec.ord offailure, but the real ELSI was a. total di•
saster; The workers had occupied the plant, off and on, for we.eks. There were wildcat strikes.
The production lines had been stopped. The books and fìnancial records had been moved from
Palermo. No official business was being conducted in corporate headquarters - meetings. were
being held in Rome.
This was the reaLELSl. l t was .a company in disarray .;..__ in flight. The real ELSI was a
r<>ut .•• The heroicELSlwasan utterly differentanimal, and, indeed, like theunicorn, it is one
that sadly never existed.
The second problem with Applicant's case is that there is. in fact no direct evidence of any
ofthecritically relevant facts. Compatedto most·.cases that.have been resolved· by the Court
in the past, the eviderice in. this pr.esent case is . not only • highly charged with · assumption and
innué:ìidl:>t it is also circums:tantial in the. extreme.
In order to cop~ with the inconvenience of a lack of direct evidence, an interestfug pleading
technique has been devel<>ped by the United States; · It is proof by pleading, rather than plead~
ing by proof: i t is a repetitive technique, almost of incantation.
The tJnited States pleadings, somewhat irritatingly, assume that claims and suggestion
can be considered, established; or proven, . if they are repeated frequently or vehemently enough
- and then if they refer backwards to what was said earlier. Yet none of this is proved by any
direct evidence. And such a proof is as fundamental to this case a:s ....: the Court will1 of course,
remember - was the question; in Corfu Channel; as to whether mine damage to the Saumurez
an d· « Volage » had in. fact occurred.
Referenèe is made to Applicant's case as if it had been proven, four-square, in law. I t is
a criticai flaw; I t is a reversé petitio principii. I t is not merely begging the question; i t is begging
the case (1~). · .·.
Asingle example- consider the opening pages of the United States Memoria! (in Part l)
once again. In the thir~ paragrap~ it viias stated that: . .· . . .
« On I Aprii xg68 ... tlJ,() Governi)lent of ltaly requisitioned ELSI's plant andrelated
assets, in. order to prevl)nt the liquidation . and to facilitate the acg_umtion of ELSI' s assets by
]taly' s comimercial conglomerate ... [I:R:Il » (Italics added). · ·
That is.what it says; that·is. how the ·doè;llni.e:rit.opens.
B1Ìt • what evidence is there • in thìs case that there was an intention formed on the part of the
Government of I taly to do this J Whose statement represents this state oftnind ? Di d the IVIayor
of Palermo J:eal1y hold a brief for IRI's acquisition plans ? Where is the Court to find any respectabie
èvidénce, or haJ;d J?roof, ofsuch a J?lan ? · · . . . ·
N ow. none .of this .can • siù:isfy the <(common sense » test.· which usually. succeeds when ali
other devices fail. Does it make coi:nmon sense, Mr; Presideht, to suggest that the Italian Government
was at pains to dispossess Raytheon ofELST in order to conveyit to its own subsidiary
entity, if in the course bf so doing it was necessary for Italian State-owned banks to take enorrnous
losses in the process? l t just does not make sense.
In fact, on this theory, have the ultimate losses to the ltalian State-owned bariks been figured
into the total « price » that the Italian Government is supposed to have « paid » to acquire
the last vestiges of ELSI ?
(lO) Italian Rejoinder, (pp. 207-208).
:9
446 RASSEGNA DELL'AVVOCATURA DELLO STATO
Seriously, Mr. President, if this whole affair really was a concerted action by the Italian
Government and its representatives, why should these bank losses - no doubt reluctantly incurred
in the overall collapse of ELSI - not have been worked into this '' price » in the form
of a huge offset or deduction from the damages sought in this case ? The fact that no such account
has been taken of losses like this, which were very substantial, is just another indication
of the artifi.ciality, if not the inconsistency, of Applicant's claim.
At least the point indicates one thing. If the « Italian Government » had set its cap at dispossessing
ELSI from Raytheon it surely could have clone so in a far more economica! manner.
There are far less expensive techniques of effecting a " creeping nationalization », if that is what
one is after.
Yet what, one may ask, is wrong with circumstantial evidence, when no other kind is to be
had ? The Court's jurisprudence in this area follows a rule of reason and i t respects the facts
and circumstances of each case. In Corfu Channel it was tragically obvious that there had in
fact been mines; their lethal effect had been plain to see. In the United States Diplomatic and
Consular Staff in Tehran case, there was no question concerning the fact that United States
Embassy. employees w ere being held hostage. This was notorious an d also plain to see. In the
Military and Paramilitary Activities in and against Nicaragua case there was no real denial that
the air attacks and similar incidents had in fact taken place. Their effect and existence were
also plain to see, and in fact undenied - and even admitted against interest - by high US
officials. This is where it becomes difficult to react to a request to agree to « disputed » and «undisputed
>> facts because, in the present case, there is surely no argument that a requisition did
occur.
There is no argument that there was a bankruptcy, or that the properties of ELSI were
ultimately disposed of to EL TEL by the receiver for a certain amount of money. Nobody is
contesting those kind of things. Of course they are undisputed. But the real argument here is
about a different order of things. It is about the motivation or the cause of the requisition, the
nature, the legai effects to be attributed to it - what its necessary result in law was.
These are the elements that can, under appropriate circumstances, engage international
responsibility: not just a single isolated action such as a bankruptcy or a requisition, without
more. The real fact that is in controversy in this case, Mr. President, is whether there was a
government-wide conspiracy, a hidden agenda, on the part of the regional and national authorities
of the Government of Italy to shut down ELSI and let it wither on the tree, and then pluck
it after a silent boycott of the bankruptcy auctions. And one might say that if one does not fi.nd
a government-wide conspiracy or a hidden agenda, that must affect the characterization to be
given to the requisition of the plant by the Mayor of Palermo.
Indeed, it is remarkable how highly the Applicant's case is coloured by innuendo and unjustifiable
characterization. A fine small example is the rigid, deliberate repetition of the impassioned
and undiplomatic comments by President Carollo in his memorandum of 20 Aprii 1968(11),
and the mistranslation of the future indicative into the English imperative « shall », the point made
on Tuesday by my colleague Professor Bonell.
We were, of course, gratifi.ed to note that Professor Gardner confi.rmed our analysis of the
word« shall »;in his discussion of Artide I of the Supplement he stated that « (t]he terms of this
provision - ' shall not be subjected ' - are imperative and unqualifi.ed (12) ».
Another example is that it is in effect asserted that unnamed Italian authorities secretly
conspired to cause purchasers not to appear at the auction sale. This has not a fragment - not
a fragment - of evidence to support i t. Quite to the contrary: the bankruptcy sales were widely
and publicly advertised all over Europe. The notices are in evidence, and were fi.led at least with
the 1974 Claim. Professor Bonell noted this point on Tuesday (1 3).
(11) Annex 38 to the Memoria!.
(12) C 3/CR 89/3 of 15 February 1989, (p. 318).
(13) C 3/CR 89/6 of 21 February 1989, (p. 407).
REPLICA HIGHET 447
Now, does Applicant not have to prove something more, in order to establish a (( conspiracy ))
or a (( boycott )) - deliberate boycott - of auction proceedings, than merely asserting that no
purchaser showed up and that there must therefore have been a boycott ? Of course it does.
If an auction is taking place, and if the ultimate buyer does not go to the auction hall on the
first day, did he (( boycott )) the auction? And if he (( boycotted » it, and if no one else showed up,
can we conclude that he also caused everyone else to (( boycott )) it ? In fact, anybody who did
not show up at the auction, no matter who they were, theoretically would have (( boycotted ))
the auction. Now, in neither instance is there evidence of any kind, and this point just does not
make sense.
And you cannot answer questions of this sort, Mr. President, by stringing together, as
Applicant's pleadings have done, a series of unsupported innuendos, conclusions and repetitive
inferences of mixed fact and law, instead of presenting some hard, clear evidence that certain
things were in fact so, and that certain things in fact were done.
Even then they would have to link clearly, and unambiguously, to the Treaty. It is similar
to the burden of proof. It could be called the burden of interpretation. It is not acceptable
for a sovereign State to be held responsible for violating internationallaw and treaty obligations
on any other basis.
The third problem, Mr. President: there is no necessary chain of causation and causality
from the act or omission to the injury claimed to have been suffered.
It is a commonplace that there has to be a causai connection between the asserted act or
omission and the injury suffered. This is true of course in international litigation as much as it
is in municipallaw. Now, if there is an intervening cause- and if the injury is nota necessary
consequence of the act or omission- you cannot find responsibility. It isn't there. And the
ltalian Rejoinder has set forth the principles and authorities (14) and Professor Monaco yesterday
reminded us of the law on this subject.
One of the key links in the chain - here, in this case - is the actual condition, as the Court
is well aware, of ELSI on the eve of the shutdown. If you can prove that ELSI was in disastrous
shape on 2I March I968- and I think it difficult to hold that it could have been in any other
condition - then that seems to go to the issue of making the value less attractive, and the possibility
of an (( orderly liquidation )) hopelessly remote. 2 I March, 29 March, any of those dates
before the dismissal notices were sent, will suffice. Was it able to be liquidated in an orderly
manner? Now, the pleadings, of course, are replete with evidence advanced by ltaly that ELSI
was grossly overburdened by debt, undercapitalized, and was even then at a severe shareholders
deficit.
This evidence has never been rebutted. Why ? Because it is not rebuttable.
Neither side can deny that ELSI was a real money-loser. In the words of Mr. Adams, it
was shortly going to (( disappear » unless it could be shored up by a further injection of working
capitai (15). It was (( belly up just before the requisition )), according to Mr. Clare (16). And far
from being a going concern, ELSI had already gone; in a familiar American expression, - sad
to say,- it was a (( goner ». The requisition could not have made much of a difference, if any.
Where then is the causai link between the requisition and the bankruptcy ? What is the
key point? Is it not that the financial condition of ELSI was the thing that made it necessary
for the Board of Directors to vote bankruptcy? l t was not the Mayor's requisition.
If the company had been healthy and a (( going concern )), and the Mayor requisitioned it,
why would there be a need to declare bankruptcy? As Italy pointed out in its Rejoinder (17),
ELSI had in effect acknowledged that it was unable to pay its debts, (( as is clear from the fact
that it was intended to satisfy unsecured creditors, claims to the extent of only so per cent )),
Now if ELSI had been able to pay its debts, why could not Raytheon (and Machlett, for its I
per cent) just have taken their lumps and endured for one month or two months ? Sort it out?
(14) Italian Rejoinder, (pp. 234-236).
(16) See the handwritten minutes of the meeting of 20 February 1968.
(16) C 3/CR 89/2 of 14 February 1989, (p. 287).
(17) Italian Rejoinder, (p. 197).
448 RASSEGNA DELL'AVVOCATURA DELLO STATO
Why not ? Could it have been that there was no realistic hope whatever that the offer of so cents
on the dollar to the senior creditors would be acceptable ? Could it have been that the situation
was already too far gone ?
The answer is: obviously the enterprise was no longer a going concern; obviously i t could
not seriously offer anything more than so cents on the dollar for the vast amount of corporate
working capitai obligations it had; and obviously it was insolvent and technically bankrupt,
it could not pay anything. Everything was coming due in a matter of days, just before the
requisition.
It is useful here, Mr. President, to apply a form of what we, in the United States, like to refer
to as a« but for »test. Would X have happened, but for Y ? Has Applicant sustained the burden
ofproof that, but for the requisition, ELSI would not have gone into bankruptcy; would have
been an attractive target for an assets purchase, and could have been liquidated in an orderly
manner at current market values? No: Applicant has not! And yet unless Applicant can satisfy
the << but for » test - right then and there - it loses the case. You cannot murder a dead man.
ELSI was already a dead company.
Then how is the « but for » test to be met? By making sure, obviously, that the chain of
causation is impeccable. And yet here there is no objective realistic connection between whatever
the Mayor of Palermo did or didn't do, or whatever the courts did or didn't do, and the
ultimate damages asserted to have been suffered by Raytheon.
Mr. President, the banks would have sued anyway. The guarantees would have been called
anyway. There would have been serious problems with finding purchasers anyway. All of this
would have happened anyway, whether or not there ever was a requisition. Unless someone can
produce a rniracle.
This is a corollary perhaps of the old device in logical philosophy called « Occam's Razor»:
that one should seek the simplest explanation, the least complicated explanation for things.
And the simplest answer to w ha t befell Raytheon and ELSI is that they suffered severe business
reverses as a consequence of bad planning and management, inefficient communications and
insensitive handling of the local situation. This is a business tragedy such as is frequently seen.
It is not unusual. But it does not mean it is actionable.
If one cuts this case with Occam's Razor, one gets the same result that one does with the
« but for »test. And it underscores the need for satisfying the burden of proof. Now if Applicant
wishes us to believe that there is a more complex explanation for what befell Raytheon and
ELSI, in order to invoke Italy's responsibility under the Treaty and Supplement, surely it is
for Applicant to prove by a preponderance of the evidence that Occam's Razor should not be
used to cut off its argument.
And stated another way: why should a respondent in a case brought by application have
to prove that something did not happen, when the applicant has not been able to establish that
it did? Is it for Italy to disprove something which, although not proved by the United Statesand
although not supported by factual evidence - is merely stated as a conclusion by the United
States? Is it for Italy to prove that the requisition did not bring about the bankruptcy, or that
bankruptcy did not cause the losses suffered ?
No, to the contrary, Mr. President. It is the job of the United States to prove, by a preponderance
of persuasive evidence, that the requisition necessarily did cause the bankruptcy,
and that the bankruptcy necessarily in turn did cause the losses.
It has, very simply, not clone its job. It cannot be satisfied with merely asserting something.
Even repeatedly. It must prove it, and it must carry the burden right across the bright line of
proof and persuasion - and carry that burden all the way down the field, and establish its affirmative
case against Italy by a convincing preponderance of reasonable evidence.
The reason for this is that the consequences to Italy of a negative finding of responsibility
in this case would be grave and serious. The United States has to do more than just state a claim:
it must prove it by a convincing preponderance of the evidence- just the same way that Italy,
were it suing the United States under the Treaty, would have to do.
REPLICA HIGHET 449
Mr. President, I am coming to a more or less natura! break in my presentation. I expect
that it will take approximately one more hour.
The PRESIDENT: Then we are going to take a break now.
Mr. HIGHET: Good. Thank you Sir.
The Court adjourned frorn u.10 to u,3o a.m.
The PRESIDENT: Please be seated. Mr. Highet.
Mr. HIGHET: .Thank you Mr. President. Mr. President, Members of the Court, just before
the .coffee brea,k I.had pointed out that the United States has to do more than just state a claim.
It must prove the clairri by a convincing preponderance of the evidence just as Italy, were she
suing the United States under the T~;eaty, would have had to have done.
I now would like to turn to five main assertions of mixed fact and law upon which the case
of the United States depends .. They are the grandes lignes of the Applicant's case.
· The.first ~ I have ofcourse said it repeatedly and it is one that the United States can neither
escape · rior. avo id - is that the~;e was a hidden conspiracy or con certe d course of action on the
pa~;t of the Italian Government.
But this has two parts. The first part is a c;onspiracy of omission. I t is, in substance, that the
!talian Governmerit and its various dependi:mcies deliberately failed to help ELSI.
The second part, the second leg, is a conspiracy oj commission: to bankrupt, to requisition, to
split up ELSI.
Let us deal first with the sins of omission. Amongst other things, it has been suggested in
the written pleadings and certainly orally that the Mezzogiorno benefits that should have belonged
to ELSI were riot forthcoming and particularly (18), the preferential purchasing arrangements
with State · agencies were not concluded, that incentives and other benefits were not
granted, that regiOnal and natio:rial authorities had been of no assistance. And these statements
are produced in essenée to convey the message that somehow Italy and its various homogenized
dependencies helped or had substantial part in placing ELSI in the difficulties in which she
found herself by March 1968 and certainly even by 30 September 1967.
But nowhere is it clearly stated that there was any duty whatever on the part of any authority
to give any of those benefits. And I mean that duty under Italian municipal law, a duty
under the Treaty. No duty, none. Neither Mr. Adams nor Mr. Clare were able to say that they
were certain that Raytheon and ELSI had an unqualified right to any of those benefits.
Now my colleague, Avvocato Caramazza, has explained these benefits to the Court, and quite
honestly why they were really not available to Raytheon and ELSI. And again neither Mr.
Adams nor Mr. Clare were able to testify that Raytheon or ELSI had effectively followed up,
had done sornething, to pursue, to pin down, to make a determination, to obtain the rights, if
any they had, that they might have assumed to be in existence.
Now it rnay have .displeased Raytheon that such benefits were not available. I arn sure it
would have displeased Raytheon to find out that what it had been told by its lawyers and its
advisers could not bear fruit but, Mr. President, this does not create a cause of action for Raytheon
or ELSI. I t does not justify a clairn by the United States under the Treaty or otherwise.
There is not a single shred of evidence that I arn aware of in this case that there was any
benefit or purchasing allowance, Mezzogiorno benefits, transportation subsidy or otherwise,
as to which ELSl was clearly erttìtled or Raytheon entitled that was requested and denied.
There is no evidence. It is a leitmotij, this point, it is a bass counterpoint, to the main case.
You hear it in the background throughout these pleadings as you read thern and as you listen
(18) See for •xample US Memoria! (pp. 6-8-9); Adams Affidavit (Annex 9 to the US Memoria!) at para. 28;
Schene Affidavit (Annex 13 to the US Memoria!) at para. 12; and Clare Affidavit (Annex 15 to the US Memoria!)
at para. 21-42; US Reply (pp. 127-128); and see (contra) Italian Rejoinder (pp. 204-205);
450 RASSEGNA DELL'AVVOCATURA DELLO STATO
to counsel. I t belps to lay tbe groundwork for tbe (( conspiracy ll theory. It sets tbe tone. But
tbe point - sucb as it is - sadly is discredited by tbe uncontrovertable evidence.
One otber point will prove this result. In tbe 1967 ELSI Reorganization Pian, tbe Clare
Report, whicb you will recall, Mr. President, tbe Raytbeon officials suggested tbat tbis sbould
be a modification of the Mezzogiorno programme and regulations in order to permit ELSI to
claim tbereunder and to benefit tbereby (19). W eli, common sense requires tbis to be in effect
a black-and-wbite admission tbat ELSI was not otberwise entitled to any of tbese benefits.
I sbould add in this context that, as part of tbis leitmotij, Raytbeon and Applicant appear
to studiously avoid referring to tbe fact tbat Italian public autborities indeed gave a buge amount
of assistance to ELSI over tbe years. Tbis does not really come out of tbe case. I am referring
bere to 7 billion lire in low-interest loans made over tbe decade from 1956 to 1966, tbat Mr.
Adams did not seem to recall even when I asked bim about tbem (2°).
And tbere is more importantly, tbe acts of commission, tbe second leg of tbis first point:
tbe alleged conspiracy to bankrupt and split up ELSI. Now I bave said, and it is true that tbis
is not proved by evidence before tbis Court, tbere is neitber proof nor persuasion and every component
of tbis tbeory just evaporates wben you look at it carefully.
Mr. President, rereading tbe famous 20 Aprii Memorandum, tbe (( sball and willll
memorandum, tbat was cited verbatim I believe once by Mr. Sofaer, two or tbree times by
Mr. Matbeson on tbe opening day: Is tbat Memorandum really as tbreatening as tbe United
States would bave it be ? Can it not also really reasonably be interpreted in a different way ?
It is an impassioned statement, an emotional prediction, as to wbat tbe consequences would be.
Not just a threat.
W eli, indeed, it is not inconsistent, sucb an analysis, witb wbat was said wben, on Wednesday
27 Marcb, President Carollo bad warned tbe Raytbeon negotiating team:
(( tbat if we proceeded [tbat is Raytbeon], if we proceeded witb sending out of tbe letters
of dismissal, tben tbe plant would almost certainly be requisitioned; that be [Carollo] was
prepared to pay tbe people for 1 1/2 montbs wbile tbe liquidation of tbe Company was sorted
out; and tbat tbe Region and tbe unions, togetber witb the Centrai Government would
tben prepare for tbe liquidation of ELSI, witb subsequent rebuilding ll (21).
What was wrong witb that?
W as i t tben prudential, or realisti c, for Raytbeon to conclude tbat (( this was nowbere near
a definite enougb offer for Raytbeon, Lexington, to accept (22) ll, baving regard to the fact tbat
tbe alternative to wbat tbe kind of tbing tbat President Carollo was suggesting bere was wbat ?
It was complete disaster. Tbat was tbe only alternative.
Moreover, bad Raytheon not in fact bad (( fair warning ll? Wbat did tbey expect to bappen
wben dismissal notices were sent to about 8oo out of a I,ooo employees over one weekend, in
a year of great unrest, serious economie trouble, serious unemployment in Italy and tbe Region
and wben tbeir own senior officers knew perfectly well, as carne out of Mr. Clare's testimony,
tbat tbe discbarge of only two workers bad tied up tbe television line witb three weeks wortb of
strikes (23) ? Wbat else did tbey expect? But that is not Government action. It is assumption of
a risk. It is a very deliberate refusal to take into account tbe realities of tbe situation.
On Friday nigbt (29 Marcb) - I point out that I cbecked tbe calendar and it comes out to
be a Friday nigbt - tbe last real meeting of the Raytbeon team and tbe local officials started at
9.30 p.m., and among otber things, Mr. Carbone:
(( commented, tbat, at tbis bour of tbe nigbt, we [tbat is to say, tbe Raytbeon team] would bave
to take tbe word of tbe Prime Minister of Italy as we could not expect him to put sometbing
in writing witbin tbe next bour or so ... (24) ll,
(19) Annex 22 to the Memoria!, p. 41.
(2°) C 3/CR 89/2 of 14 February 1989, (p. 274).
(21) Exhibit F to Clare affidavit, Annex 15 to the US Memoria!, p. 2.
(22) Exhibit F to Clare affidavit, Annex I 5 to the US Memoria!, p. 2.
(23) C 3/CR 89/2 of 14 February 1989, (p. 277).
(24) Exhibit G to the Clare affidavit, Annex 15 to the US Memoria!, p. 3·
REPLICA HIGHET 451
Of course. How could you expect a Prime Minister to put something in writing at 9.30
p.m. on a Friday night. But this was not good enough for the Raytheon people. Extensive proposals.
were màde - and I invite the Court to go back and look at precisely those Minutes in the
exhibits ·- but again .the Raytheon people balked. Mr, Clare:.
<( einphasized the diuiger of losing :niarkets, losing people ».
He 'l'raceeded to lose ~hem by himsclf, didn't he ? ...
« and the need · to either open the pian t on full production as soon as possible or shut i t.
Any concept of m interìm solution was really doomed to failure for those reasons (2~) ».
This is like one ofthose children's puzzles where it is. said: << What is wrong with this pic-
~ure ? >l What is wrong with this ? Why is it that he does not seem to see that he is doomed to
failure. anyway? They couldn't even meet a payroll, • as ·. Mr; Clare. conceded on cross-examination..
Yet; only two. days eadier, the satne negotiating team had been explicitly warned by Mr.
Carollo that « the plant would almost certainly be requisitioned » if they shut ìt down.
To be fair, however, andlooking .again at the fl.urry of last-minute meetings ...,-- 26, 27, 29
March (Carollo, Carollo and Carbone)(26} ~ .it Ì$ worth looking back over them. What is the
overall.irnpression that •· you get fl(om these documenta ?
·Isit not that the local; regional; and national authorities of Italy were ali sincerely and
deeply concerned about ELSI's terminai. fiscal crisis, w ha t would happen to the workers, w ha t
would happen to the Region ? Of course that. is • true. . I t comes · right out of ~e paper.
:Poes i t. not appear that ali. these officials, these homogenized representatives of. the I talian
Government, that they were doing .. theil;: best to try to get something together, as best as they
could, to salvage a disaste~;, an impeJ;lding dU.aster - something which ;tppeared to them to be
right around the corner and to promise no good to anybody involved ? How does it look like
a. conspiracy to ht,trt ELSI ? Earlier I read that passage to the Court, before the break, where it
was said in one of the written pleadings that the requisition was trumped up and th!lt the Italian
Govemrnent had indeed caused this crisis, caus.ed this financial crisis, by not stepping in ançl
interyening.
·. Why~ this ìs becoming, as you see, 1\IIr. President, increasingly, difficult to understandwhy
were.Raytheon's executives- in the Ainerican expression- so« hard-nosed ». Why couldn't
a little fl.exibility be shown? I asked Mr. Clare: he said no, the decision had been made.
Mr. Adams testified very clearly that the decision had been made back in September 1967 that
they were not going to invest any more money. But why did Raytheon's negotiating team continue
stubbornly to assume the risk at this time ? And now to be represented by their Govemment
and to pretend, orto demonstrate, that ~ey are shocked by the consequences - that tbey
rnust. ha ve known pel;'fectly well would bave bappened. I am not talking about a plot that tbey
would bave known about. I am talking about tbe simple hutnan consequences of what they did
in Palermo.
In factwe know, tbanks to Mr. Adam's and Mr. Clare's testimony, tbat Raytbeon bad made
the decision to casb out long, long before tbe end of March - unless something wonderful
tumed up, like Mr; Micawber. There was no possible « give » on Raytheon and ELSI's part.
Tbere was no way in whicb tbey could ha:ve moved a sirigle centimetre toward tbe middle of tbe
table in discussions with Carollo and others.
We can see, Mr. President, -by looking back- that, if anytbing, tbis made tbings irretrievably
worse.
Why was it necessary, Mr. President and Members of the Court, for tbe Raytheon and ELSI
officials to proceed in such a seemingly precipitate manner ? Tbe rnailing of tbe letters of dismissal
at 3 in the morning or wbatever it was - the hurry to end it ali - seem almost spiteful,
witb hindsight, trying to read between tbe lines. Consider bow long it must bave taken for two
or three tired senior executives tbemselves to stufi 8oo envelopes. How long do you think tbat
(25) Exhibit G to the Clare affidavit, Annex 15 to the US Memoria!, p. 3·
(26) Exhibits F, G, and H to Clare affidavit, Annex 15 to the US Memoria!.
452 RASSEGNA DELL'AVVOCATURA DELLO STATO
took them at 2 in the morning, or whatever it was, while the local ELSI employees glared at
them?
It is as if Raytheon and ELSI had wished to make it very clear indeed to the local and national
authorities that this was somehow their mess, for which they too were responsible, and
if they were not going to help Raytheon and ELSI get out of it, weli then the devii take the hindmost.
It almost comes out of reading merely the documents, and it is confirmed, I think, without
question, by the direct and cross-examination testimony at least of Mr. Clare.
This kind of conduct or rigidity raises the suspicion - and it could raise the suspicion certainly
- of yet another unspoken and unmentioned influence on the situation: something that
we deduce or infer is there, but we do not realiy know is there, like the orbit of a dark star, the
companion of Sirius. Something, for example, like whatever the effects would have been of that
very restrictive investment programme of the US Government that went into effect in January
I968, that I have mentioned- or something, perhaps, more along the Iines of a secret agenda
on the part of Raytheon that we do not know about. There must have been something there to
explain this. There realiy must have been.
Could it have been a pian to push the local authorities to the absolute brink; to disregard
their warnings; to turn down requests for delay; to request everything in writing late on a Friday
night, when you know you could not get it - ali of this, perhaps, with the knowledge that if you
did not obtain those written undertakings that they were trying to pressure the State authorities
into, they would in a curious way be « sheltered » by something like a requisition that they were
told would probably, or almost certainly, happen ?
A requisition might allow Raytheon to get off the hook for the time being in a situation that
was a complete disaster anyway - that they had not been able to work out. The company was
« belly up ». There was not enough money to make the next payroli, unless they essentialiy fired
four out of five of the workers.
There was nothing in fact that Raytheon and ELSI could do, given Raytheon's unbending
decision to wash its hands of ELSI's operations and to make no further investment. Only Italy
and the Italian local and regional authorities, and perhaps IRI, could perhaps « bail them out ».
But if they were not bailed out, and since they had made no progress whatever in arranging
the sale of whole or part of ELSI's business on the famous « going concern » basis in the oftrepeated
« orderly liquidation », werent' they realiy stuck? They were in a hole. They were
painted into a corner. Look at it this way:
I. ELSI had been steadily doing nothing except lose money for years; i t had never made
any money.
2. Raytheon had long since made the decision not to put more money into ELSI.
3· W e now know that ELSI was at a state of shareholders' capitai deficit during the period
we are worrying about.
4· Raytheon had tried, unsuccessfuliy, although seemingly even not very efficiently, to
arrange for a buyer for ali or part of ELSI.
5· Few purchasers bought ELSI's products- that is the problem, that is one of the reasons
why the company did not make money - and so even fewer purchasers might be expected to
want to buy the product Iines;
6. Raytheon and ELSI had tried unsuccessfuliy to arrange for IRI or the regional authorities
to step in - there was no obligation for them under the Treaty to do so;
7· ELSI had « run out of cash »;
8. It could not even make the next debt repayment coming due in Aprii;
9· The labour tensions were such that it obviously should have been - it must have been
- thoroughly weli anticipateci that these mass dismissal would simply cause an horrendous
plant-wide strike, sit-ins, and goodness knows what else, and yet ...
IO. Mr. Clare mailed the dismissal notices and shut the plant.
REPLICA HIGHET 453
The only conclusion that really can be drawn from this sad sequence is that this whole affair
is at least 99 per cent Raytheon's and ELSI's own doing .
. Raytheon Iliade the decision not to put in more money. Raytheon was unable to sell o:ff
all or part of the plant, even though it had known for five or six years that ELSI was a loser.
The Clare Report carne out in 1967. They circulated it ...,-- as we learned in testimony -widely.
They stili were unable to sell the plant. Raytheon and ELSI could, or would not make a deal
with lRI or the regional authorities for a bail-out, because of its policy against additional cash
exposure, cash investment, by the mother company.
Raytheon and ELSI, Mr. President, knew the risks full well- that, if they dismissed 8oo
people an d shut the plant, i t would probably be the end of the road for the w ho le enterprise:
That is what had to be the fact. How could anybody, even only listening to the evidence before
the •. Court, sensibly · conclude, otherwise ? The .situatitm was a disaster.
The conclusion could only be that Raytheon and ELSI were forced, by their own economie
planning, into that decision and, it was they who, in fact, pushed the button that led ineluctably
to the .bankruptcy they voted on··three weeks later.
The requisition by the. Mayor .of Palermo was a • disruption, to be sure, but in the fa ce of
ali the evidence it was a relatively minor one. The plant was already in terrible shape. The real
disruption was caused by Raytheon and ELSI. It was the decision of Raytheon and ELSI to
«fire )) . 8oo employees, without noti ce, in the middle of the night, that was o ne of the things that
just obviously was. to bring about this whole catastrophe - or, more properly, since it already
was a catastrophe, . that accelerated . the conclusion of this 1:1ad business tragedy.
It really was Raytheon that caused the bankruptcy, not the Mayor of Palermo.
This is • true, for two reasons:
First, it was Raytheon and ELSI's actions that inevitably triggered the requisition as to
which Raytheon and ELSI ha:d alteady been amply, and not necessarily maliciously, or even
threateningly, forewarned, Wasn't it obvious what would happen - as night follows day?
Second, Raytheon and ELSI would have been staring bankruptcy in the face in any event,
even·if'the workforce had peacefully gone o:ff to cc get jobs digging ditches "• in Mr. Clare's
poignant phrase ne7).
. They would have been bankrupt, as Professor Libonati made plain on Monday, for the simple
reason that they had debts coming due - even forgetting about the payroll - and they had no
more cash · to. speak of an d Raytheon was no t going to add any.
8oo milHon lire were due to Banca Nazionale del Lavoro on 18 Aprii (28), plus even reduced
payrolls, and as Mr. Clare had agreed that ELSI was going into the month of Aprii with no more
than approximately 22 million lire in thekitty, what other conclusion can you come to?
Now comeS: the Mayor of Palermo, requisitioning the plant on I Aprii, after Mr. Clare
has stuffed his envelopes and mailed his notices. This introdùces a new element. It creates an
escape hatch, a distraction, from the business failure that Raytheon had in fact created and maintained
· for a n uni ber of consecutive years.
Thus Raytheon in 1968 had nothing to cc lose "· In this sense, it had already been lost. Either
some real help.might.appear, in writing, over the weekend, that. could have been acceptable to
Lexington, or. Raytheon would be taken off the hook and could blame the authorities for interference.
And Ra:ytheon would therefore suffer no more by being adamant, and perhaps could
benefit by such conduct.
However, the ltalian Government does not chose to make its legai case by surmise and
speculation concerning motives, secret agendas, and conspiracies.
It just suffices to say that the conduct of the Raytheon officials at these meetings, at the
criticai period just before the requisition, appears not merely obdurate and stubborn, but almost
incomprehensible, when read in the larger context of the consequences for the many employees
of the second-largest employer in Sicily.
(27) C 3{CR 89/2 of 14 February 1989 (p. 284).
(28) Unnumbered Documents submitted by Italy and annexed to the Counter~Memorial, Vol. II, p. I79·
454 RASSEGNA DELL'AVVOCATURA DELLO STATO
A t least, Mr. President, what kind of « orderly liquidation >> could possibly have been seriously
expected to have been conducted, starting 9 o' dock Monday morning, I Aprii? No payroll,
no funds, no books and records, some employees occupying the plant, everything in disarray,
corporate meetings held elsewhere ? There is enough here to push the burden of persuasion ali
the way back to Applicant's side of the fi.eld - indeed, ali the way back to his ten-yard line.
* * *
Now the second grande ligne in Applicant's case is that the requisition caused the bankruptcy
of ELSI.
I have already dealt with much of this idea, but there is one important and relatively unattended
point that should deserve fresh scrutiny.
This is the fact that the question of the causallink between the requisition and the bankruptcy
has been thoroughly dealt with already, with fi.rst-hand information and within years
- not decades - of the incidents in question. There was a whole string, as the Court will recall,
of serious judicial proceedings that concerned ELSI. Why should they not be taken account of
now?
Let me say fi.rst that, by failìng to chalienge the various actions in the Italian court system
by remedies that should have been available to them, Raytheon and ELSI never put their causes
of action to the test, with one obvious result that their case should later be found wanting under
the international law requirement of exhaustion of local remedies.
But, going back to these cases, these Italian cases, my conclusion is that the law found in
them, or at least parts of the law, should constitute a persuasive indication as to what the « law
of the case >> could be on this one point to a signifi.cant degree.
It is persuasive authority - of course, hardly conclusive or binding on an international
tribuna!, and certainly not on this Court- but nonetheless persuasive, on certain aspects of the
factual situation and the legal conclusion that can emerge from those facts, unless there realiy
are arguments that were not considered by those courts and that could have been made by Raytheon
and ELSI, had they been in the proceedings in one way or another- and we have heard
nothing about that, we haven't heard a peep from Applicant.
The point to which I draw the Court's attention is really, Mr. President, a very simple one,
and it depends on a very simple analysis. I t is the question whether it realiy was the requisition,
or whether it was the fi.nancial condition of ELSI, that was the proximate cause of ELSI's bankruptcy.
The fact that this point was considered at some length in these cases should be given considerable
weight, I submit, particularly since the United States has never even hinted at why
those cases might be wrong. lt does not even discuss them.
The fi.rst case was brought about by the complaint by the trustee in bankruptcy against the
Minister of the Interior and the Mayor of Palermo (19); the second was the I973 Judgment of
the Court of Palermo (3°) on that question; the third was the I974 Judgment of the Court of
Appeal of Palermo, reversing the lower court decree C1); and the last was the I975 Judgment
of the Court of Cassation (32). And I invite the Court's attention again to these decisions.
None of the proceedings has been chalienged, as such, by the United States. No aliegation
has been made that the judges of these Courts were part of the conspiracy against ELSI and
Raytheon. Applicant has not overtly made that claim, and has surely produced no shred of
evidence that could support such an inference.
Of particular importance, Mr. President, is the Judgment of the Court of Palermo (supplemented
by the decision of the Court of Appeal of Palermo). Now that judgment specifi.cally
(29) Complaint dated x6 June 1970 (Annex 79 to the US Memoria!).
( 30) Judgment of 2 February 1973 (Annex So to the US Memoria!).
(31) 24 January 1974; Annex 8x to the US Memoria!).
(32) 26 Aprii 1975 (Annex 82 to US Memoria!).
REPLICA HIGHET 455
dealt with a number of the very issues that are before the Court here today (33) and they are worth
a fresh reading in the light of these oral proceedings. The Court sai d, very simply:
(( It is clear from these conditions that the connection between the company's bankruptcy
and the takeover is unfounded, as the defendant administration correctly maintained,
since Raytheon-ELSI's economie situation had already been seriously compromised, as
its own management explicitly admitted >>.
And the Court continued, Mr. President:
!cthe precise definitions above show that the bankruptcy was due to other, much more relevant
causes and not to the takeover which had no such effect (34) >>.
Th<:l Court of Appeal of Palermo agreed, and it pointed out specifically in regard to the
causation issue that:
« The fact that the company was insolvent during the time immediately prior to the
Mayor's intervention - in connection with which we may recall the many and noisy demonstrations
which this gave rise to, as we are reminded by the Court- [that fact] is sufficient
to rule out any causai link between the subsequent requisitioning order and the company's
bankruptcy and that the còmpany's state of insolvency was decisive and sufficient
cause for its · failure ... (35,) )),
Mr. President, as well as the three decisions in the case brought against the Minister of the
Interior and the Mayor of Palermo, extending from 1973 to 1975, there were three more proceedings
(including a decision by the .President of Italy) (36). There is also a court decision approving
the lease to EL TEL (87) an d a judicial confirmation of the approvai of EL TE L' s offer to purchase
the remaining physical assets (38).
If these judicial processes are excluded from the conspiracy theory, they contain the only
real evidence before this Court on the issue of the causai relationship between the requisition
and the bankruptcy.
What then happens to the chaim of causation ? To the burdens of proof and persuasion ?
The question, I suhmit, Mr. Presl.dent, answers itself.
* * *
The third grande ligne of Applicant's case is that the bankruptcy that then occurred made
an (( orderly liquidation )) impossible.
The short answer is that it would have been impossible anyway. The idea of an (( orderly
liquidation >> is legend. It is pure fantasy. The Rejoinder of Italy described it unarguably
(p. 196):
(( the overall picture was as follows: the company had a chronic deficit; its production lines
were shut down; its workforce was occupying the plant; its management had practically
disappeared (39) >>.
(33) These !lre dealt with on pages S, 9, and IO of Annex So to the US Memorial.
(34) Annex So to the US Memoria!, p. Io. [Emphasis added].
(35) Annex SI to the US Memoria!, p. I4. [Emphasis added].
( 36) These include the Judgment of the Prefect of Palermo of 22 August I969 (Annex 76 to the US Memoria!);
the appeal to the Council of State of that decision, in turn decided on I9 November I97I (Annex 77 to the
US Memoria!); and the ultimate ruling by the President of the Republic of ltaly dismissing the appeal of that
decision by the Mayor of Palermo, on 22 Aprii I972 (Annex 78 to the US Memoria!).
(37) Decree of the Civil and Criminal Tribuna! of Palermo of 9 May I969 (Annex 64 to the US Memoria!).
( 38) Appeal ofthe 7 June I969 order ofthe Bankruptcy Judge ofthe ELTEL offerto purchase ELSI's remaining
physical assets, fìled on 9 June and rejected on 20 June I969. See Bisconti Affidavit, Annex 26 to the US
Memoria!, para. 24. (Exhibit 38 of !< The Claim »; see Italian Counter-Memorial, p. 91).
(39) Italian Rejoinder, (p. I 96).
456 RASSEGNA DELL'AVVOCATURA DELLO STATO
What more needs to be said ?
How can anybody say, with a straight face, that this hopelessly disorganized business disaster
was a « going concern », or that these assets could somehow be sold o:ff at << current market
value »? Yes indeed, or at book value with increments for goodwill? The idea is tragically ridiculous.
Yet all that is necessary for Italy to demonstrate to the Court is that there are serious difficulties
with the propositions. We do not have to prove that they really are as absurd and farfetched
as they really are. l t is not Italy that is suing the United States in this case. The burden,
Mr. President, is on the other si de.
Now there is a related point: that there was a harmful delay in appealing and lifting the
requisition. But what unequivocal evidence of this exists ? Where has the burden ended and
what is the chain of causation there ?
'As the Court of Appeals of Palermo pointed out, the requisition order, moreover, was only
addressed to ELSI's plant an d equipment, not to all of its assets (40). The pleadings of the United
States ~ and most specifically the Affidavit of Dr. Biscanti (41)-seem to imply that the requisition
was universal and of eternai duration. W ell it was no t. The requisition expired in accordance
with its terms by the end of September 1968.
Moreover, we know that ELSI's books had been removed to Milan a month earlier (42).
We know that the production line was to be shut down by ELSI's own Board, that it had only
been partially operative before, and that workers had been in and out of occupying the plant
for some weeks.
The requisition or requisition decree was obviously protective. The evidence combines to
indicate as much. But it is certain that the burden has not been carried, Mr. President, as to the
contrary proposition. And the United States must bear this burden, it must discharge this burden
and convince the Court that it was not obviously protective.
Even the Merluzzo Affidavit annexed to the US Memoria! fails to convince the reader (43
).
* * *
The fourth' grande ligne is that there was a hidden conspiracy to boycott the bankruptcy
sales and to prevent the buyers from bidding in.
Once again, it becomes repetitive to say this, but there are elements in this case which are
fearsomely repetitive. The evidence supporting this is quite literally, nonexistent. There is
not a shred of factual justification, not a shred to justify this claim. Now, Mr. President, the
charge is even harder to entertain when it is recalled that there was widespread advertising of
the bankruptcy sales in the international financial press.
If an international firm - say a hypothetical major European or J apanese electronics firm
- reading the financial press, wished to buy ELSI's product line or plant, or inventory, or workin-
process or the whole thing or what-have-you: and if ltalian enterprises were staying away
and << boycotting » the bankruptcy sales, why couldn't the international firms then have benefitted
from a lack of bidding competition ?
Why wouldn't they have taken advantage of an alleged << boycott >> - of the absence of other
bidders ? The point does not even make common sense. Merely to say that EL TEL or IRI
affiliates did not show up - it is true they did not show up - is not to conclude that there was
a<< boycott ». l t means that they were not interested in buying at a knockdown price for that
particular auction, or wished the price to go further down, or were not interested in buying the
particular mix of assets that were then being o:ffered for sale.
In addition, the point begs the question as to whether there existed a duty to buy anything,
or to pay anything. Where is this duty? What obligation does the Government of Italy have ?
(40) Italian Rejoinder, (p. I 96).
(41) Annex 26 to the US Memoria!.
(42) Nett affidavit, Annex 30 to US Memorial, p. 2.
(43) Annex 21 to US Memoria!.
REPLICA HIGHET 457
Or IRI or ELTEL: were they obliged to come in and bid at a high price? Was ELTEL obligated,
under some Byzantine theory of internationai responsibiiity, to pay more than it << had »
to ? If so, how much?
We were reassured, of course,. to hear Mr. Lawrence, Applicant' s expert, support this point
when: he stated that he << would not .critìcize Siemens for seeking to obtain the best possibie bargain
>> in reiationship. to an. appraìsal (44
);
The fifth, .and}a$t, .grande ligne i$ the assertion that certain consequentiai losses wouid
not have occurred butfor. the requisition and the resuhing bankruptcy.
Mr. President, these include the non.,.-payment of debts by ELSI to Raytheon; the requirement
that Raytheon satisfy its guarantees of ELSI's indebtednes.s; and the fact that an << unfounded
» derivative suit was brought by five << Government-controlled » banks in relation to the
unguaranteed.loans to :ELSI and the .. position of Raytheon as a Ieonine sharehoider.
In each and every one of these subordinate claims the United States has fallen far short of
carrying the burden of proof. It has not even carrieditacross the half-way Iine. There is no
evidence to connect these secondary, contingent losses to any ltalian Government action whatever.
Let us deal first with the derivative suit by the Itaiian banks.. What is so outrageous about
a suit of thìs type against a .dominant shareholder ? One notes perhaps with curiosity the ubiquity
in the United States pieadings of .constant references to Machlett Laboratories as if it were a
substantial enterprise- one that had to be named at ali times as if it were a co-joint venturer.
You know, when I first saw the written pieadings I really thought that the case invoived Raytheon
and a giant and littie-known eiectronics firm that had always been very publicity-shy.
Iqhen etr:l~rged that Machlettis only atiny Connecticut company, 100 per cent owned by Raytheon,
. and . thaf in t\lrn , i t owned Iess than x per cent of ELSI.
· W ell, why is i t illappropri~~:te. for ltalian banks,. in arder to. recover their big losses against
a. sole shareholder, at Jeast to try to seek to establish that Raythe0n was in substance, although
perhaps 11oUn forill, ('lffectively the xoo per cent owner of ELSU Moreover, the very fact that
they lost • the law suits proves the fairness of the process. I t is qui1;e conceivabie however that
they rnight in fact have prevaìled~ . . . .· . . .
· Now the non-'piiyment of debts by ELSI and the caliing of the guarantees were consequences
as mucl::t of the 6nanciai disaster - << the total financiai crisis » - of ELSI, as they were
of anything else (this is true both of the guaranteed debt and the non-guaranteed debt).
And to hoid, orto impiy, that it wasltaiy that was responsibie for Raytheon having to perform
guarantees on it!l failed subsidiary's indebtedness is oniy possibie if there is no reasonabie
doubt that, if Italy had not intervened in any way, such guarantees wouid not have been required
to, be performed for other reasons.
. Was thete any prospect that ELSI, with its unbroken string of loss years, couid ever have
paid these loans off? How ? Especially how, given Raytheon' s announced decision not to bring
the capitai up to the legai requirement, or not to invest more money ? W as not the oniy prosPe.
Ct, Mr. President, for paying them offthat ELSI wouid be split up, carved up and sold piecerneal
or, perhaps, some kind of comll1ercial miracle might have occurred? But there was no
re!Ùistic . prospect of repaying those Ioans: how couid there be with consistent losses ? I t is
simpie. ·W e are therefore · talking about a company that was incapable of meeting its obligations
in the ordip.ary course of busine!;s. In just another two. weekS the guillotine wouid ha ve dropped.
ELSI was in fact a company that c:;ould not pay its debts when they came due and had to be put
up on the auctiop. block to meet · its working capitai Ioans.
On this series of unassailabie premisses, one can see that the guaranteed loans wouid have
had to have been calied in · any event, unless Raytheon had succeeded, mirabile dictu, in finding
a buyer for ali or part of ELSI, by the end of March or in the first week or two of Aprii.
But, because Raytheon decided to dismiss the workers and << shut the piant » over the weekend
of 29, 30, 31, it made practically impossible- and not merely improbable- the likelihood
of finding such a buyer in the first few weeks in Aprii. Unless Raytheon could have dane so, by
the time the instalment and the guaranteed loans became due, quite without regard to anything
( 44) C 3/CR 89/4 of x6 February 1989 (p. 337).
458 RASSEGNA DELL'AVVOCATURA DELLO STATO
else, they would have to have dedared bankruptcy with no help, even cosmetic, from the local
authorities.
Finally, in order for Applicant to have us take its proposition seriously, it really does have
to show that there was, or could have been, one or more buyers or bidders in the wings, who
could have, or would have, purchased something to stave off the bankruptcy or the performance
of the guarantees and the repayment of the loans if the Mayor had not intervened.
There is no such showing, Mr. President. There is in fact no showing at all. I invite the
Applicant to produce any evidence or even a description of any such possibility. One imagines
that if there had been any, we would certainly have heard about it before today. In short, there
was none.
And if there was none, then we go right back to the same sequence of events: that Raytheon
and ELSI made the decision to fire 8oo workers, and dose the plant, that Raytheon and ELSI
precipitated the obvious situation prevailing in Palermo in 1968.
The United States must not only meet these points of logic, and deduction and common
sense. It must do more. It must produce evidence: facts, events, records, incidents, occurrences,
correspondence, messages, telexes, cables, minutes. It must tell us that ELSI in fact did have
a realistic chance of surviving the shutdown and disaster that would surely have befallen it when
the workers got the word on Monday morning.
* * *
Mr. President, where the factual case of the United States suffers to a shocking degree,
from an almost total absence of direct evidence, and relies on circumstantial matter, condusions,
and innuendos: the legal case of the United States also suffers a nearly analogous disability.
The daims of rights and obligations under the Treaty and the Supplement are just not
sustainable. Yet the United States simply says that they are: in much the same way that it says
that certain things happened and that, because of the circumstances, the Chamber should then
draw certain condusions. Yet the legal assertions come off no more strongly or better than the
factual ones.
A quick glance back at these instruments will first inform the interested reader that ELSI
itself was of course not broadly covered, being very much of an Italian corporation. ELSI's
shareholders were protected but only in a limited and controlled way.
Professor Capotarti set forth yesterday our carefully measured and non-heroic interpretation
of the Treaty and the Supplement. The United States Legai Adviser and Professor Gardner
have both told the Court that they are concerned about the effects of the Court's interpretation
of the Treaty instruments in this case on the other FCN treaties to which the United States
is a party (45).
On our side, we would like to reassure them. The interpretation of the Treaty and the Supplement
that they are urging upon the Court is wrong: it is a misinterpretation. So the effect
of a finding by the Court consistent with the Italian position on these instruments will then,
they will doubtless be happy to learn, support the integrity and cogency of those agreements,
rather than disrupting them by heroic interpretations.
An example is the over-broad use of Artide III of the Treaty by the United States. Professor
Gardner has sought to make a major point out of Artide III. I note the verbatim record
of last Wednesday, (46
). He went so far as to say that <<Artide III ... is really the heart of the
Treaty », and devoted no less than six pages of argument to this point. Now, I know that Professor
Capotarti has most ably presented the Italian case on the Treaty, but as an American
lawyer, I cannot resist pointing out a few things, Mr. President.
Artide III, as any US business or corporate lawyer with any experience will confirm, is
specifically aimed at measures that might otherwise prevent the recognition of foreign corporations;
or their exercise of the functions for which they were create d; or their organization by
(45) C 3/CR 89/1 of 13 February 1989 (p. 251); C 3/CR 89/3 of IS February 1989 (p. 328).
(46) C 3/CR 89/3 of 15 February 1989 (pp. 315-317).
REPLICA HIGHET 459
th~ nationals of. the other ·State; it. is designed · to prevent action .tbat would prevent service on
or election to the boards of directors of tbese companies by non-nationals - disqualifying them
in other words ;, or restrict ownership by non-natio nals to, s11y, less tban so per cent .of the equity
or voting. stock. o:t those companies •
.. ·lt prov:icles, a1so for reçognition. of corporate ertterpri!lèS formed un der· tbe laws of tbe otber
party; it als() pert&ts !:lire<lt branCh operations, as opposed to subsidiary operations, under tbe
Iaws of the bost C()untry; artcl finally, it permits corporations controlled by nationals oftbe otber
to engag~ in a spt)~~ lìlundrydjstofactivities as mentioned. It.is .a petfectly routine provision.
Tb.ese .pr()visi()ns are' technical1 they are permissive~ they are regulatory. Tbey do not concern
the ()ngoing pperations of · corPQrll,tìons ~. theyjust do · not •- save in the specific context
of being able to engage, possessing tbe legalpower,. protected .. under tbe Treaty, in tbe types of
activity specifiedi or,to maintain a corporate .identity ~ tbings like that. I t is a beroic dìstortion
of such .provisions to assume that they concèrn th~ ongoing governance of corporate affairs in
all o.ther, respt)cts. ,.1\:nd this is my pQirtt.
Pttifessor Gardner artd tbe Applicant attribute magical qualities to tbe words « organize,
con:txoland manage >l<in Atticle III1. Paragraph 2 •.. Tbey bave become a sott of « universal solvent>>
in Applicant's case. Professor Gardner would. have them apply to anything that is done
to · affect the .a:ffairs of a cor-poratio~h to any Jp,terference with tbe effective management an d contro!,
ls that wbat the 'l'reaty says ? < :a.y no means.
As usual, Lewis. Carroll got i t: right:
w1 W}len .I use a ~ord '• HumJ;>ty Dumpty said, .in rath.er a. scornful torte, 'it•means
justv/IJ,dt 1 chdose it to tiiù.in ...._ neithir more nor less' (47) >Y; (Italics added).
·.· -.:::-·.·.· ·:-·.·:.-:.. . .···.. . . . .· .· ··.
• But fou.•canrtottnake words mean wbat you want tbem to mean.
· Just because Article III· of the Trea:ty uses tbe words << organìze, control and manage » does
not mean. that we caìl; use them out of turn, out of tbeir normal.context, by tacking on a concept
such as c<effective >>1 or. cc çontinuous »,
With tespect; Mt. Presidertt, tbe artificiality of Professor Gardner's interpretation .· cannot
avoid popping out between the lines. l refer to bis Compte rendu; (p. 3.17), where be
said tbat « [a]t ali times Rayt:heon and Machlett conducted their management and control of
ELSI in conformity with Italian law, and therefore · Article III provides a guarantee tbat they
' sball be permitted ' to organize and control ELSI ». Leaving aside tbe toucby issue as to bow
Machlett, · of all companies,. could exereise eitber management ot contro! - I was mucb taken
by the idea of Raytbeori « conducting >> ìts « management and control ». How does one conduct
management? . Ho.w does. one. conduct control?
1t. WQuld be doing Professor Gardner, I tbink, a service; to restore bis reading ofthe Treaty
to its correct ptopoxtions and to limit tbe meaning of Article Hl to the subjects that it was clearly
intended to covet, and not apply i t .as a. universal solvent for all business problems and operations,
bowsoever described.
Thèy can be picked up, wbere and as relevant, by tbe other provisions of tbe Treaty and
tbe · Suppletnent tbat. Professor Capotorti bas ably analyzed for tbe Court. I t may well . be that
this · Treaty is anacbroni&>tic, and sbould be updated · and revised• .· •· But one tbìng is clear: in an
old-fashioned way, Article III does riot say fuore than wbat companies can do,. or wbat sba~
rebolders· and directors can be or do, and tbat· corporations and.brancbes sbould ·be cognizable
and valid; under the laws ofeach party. It is not an operational provision. I t is nota code of
conduct for multinationals and their bosts.
Tbe question migbt arise as to wby such excellent lawyers could so easily mistake tbe meaning
of Article III. Tbe answer is quite clear. It is because they are not comfortable with tbe
limitations on the provisions of Article I of tbe Supplement. That Article provides tbat:
cc nationals and corporations of either (party] ... sball not be subjected to arbitrary or discriminatory
measures ... resulting particularly in (a) preventing tbeir effective control and
management of enterprises whicb tbey bave been permitted to establisb or acquire ·•• [etc.]».
(47) L. CARRoL, Through the looking-glass (1986; 1965 ed.) p. 94·
460 RASSEGNA DELL'AVVOCATURA DELLO STATO
There i t is! There we fin d that prevention of « effective contro l an d management » is mentioned.
It is directly mentioned. This is where it belongs, not in Artide III of the Treaty.
A question for the Applicant: if Artide III means what Professor Gardner said it means,
why did Italy and the United States need to sign Artide I of the Supplementary Agreement
at all? I t would not be required. Artide III would already have covered the field. Indeed,
covered it without any pesky or irritating need to allege and prove that the measures taken were
« arbitrary or discriminatory ».
It was Professor Gardner who put Applicant's motivation into a triumphant nutshell when
he said, (p. 3 16), that part of Artide III « expresses a treaty right that is not qualified by a national
or most-favoured-nation standard ... the provision is non-contingent- it is absolute ».
It was therefore to escape the straitjacket of the arbitrary and discriminatory standards of
Artide I of the Supplement that our opponents have so deverly tailored a wholly new suit out
of the old doth of Artide III. The problem is that it does not fit.
Similar concern can arise concerning Artide VII of the Treaty. Those provisions really
seem, quite dearly, quite obviously, to be limited again to a facultative context: to make sure
that Treaty nationals have the right, the power « to acquire, own and dispose » of real property
or of personal property on Treaty terms.
It concerns a power of acquisition and disposition to convey title to real and personal property-
powers that we ali know that years ago (and sometimes even today) are denied to nonnationals.
But this emerges from a straightforward reading of the Artide. The Artide has
nothing to do with ELSI.
Turning to Artide V, and from legai interpretation to factual support: when one recalls
the numerous Italian legai proceedings that I mentioned 20 minutes ago, how can you possibly
employ Artide V? How can it be said that there is anything approaching a denial of justice of
any kind, leaving asi de the local remedies rule ? An d if su eh were alleged, why were the I talian
courts wrong ? This has never been even suggested or discussed. What hearings were truncated,
or denied? I t is not stated. Why is a protective order, such as the requisition, not to be treated
as what it purports to be-« protection and security » for ELSI? I t is not stated. Is there not
at least a presumption of legitimacy and good faith ? There should be a burden to overcome that
presumption. And the burden is not on Respondent, it is on Applicant.
Now, if so, has Applicant really overcome the presumption, carried that burden, other
than by merely labelling the requisition as a bad thing, or saying that it was in bad faith or not
in good faith? No, it has not. When one turns to the prohibition against takings without prompt
adequate and effective compensation in the Treaty, and reflects on the factual background presented
to the Court here, how has the United States proved that Italy took anything?
Where is the evidence of the degree to which (if a t ali) EL TEL an d I taly are supposed to
be one and the same ? Why are prices paid by major public companies at bankruptcy sales to
be measured as if they w ere compensation by a government for expropriated property ? W e
are not told.
In addition, the Supplemental Agreement requires not merely that an action be found to
be arbitrary and discriminatory. It also requires that an action to interfere with the effective
contro! or management of enterprises, or to impair legai rights and interests, not be an application
of the laws of Italy and the enforcement of those laws.
Now, this dause of the Supplement does not mean, and cannot mean, as a matter of common
sense, that nationals of either Party are free to enjoy unlimited freedoms and liberties of
ali kinds in each other's territories. The control and management of enterprises does not mean
an absolute license to conduct an enterprise without regard to corporate laws, bankruptcy laws,
and the laws and rights of creditors generally.
* * *
Why was this litigation started? One does not know.
From the point of view of Respondent, one would not wish to conceive of a situation where
the Government of Italy would be held internationally liable for insufficiently specific acts or
REPLICA FERRARI lJRAVO 461
omlSSlOns that were neither arbitrary .nor discriminatoty,· tbat are.·.unsupporte.4 by evidence,
other than the most conjectural or vagi.le; and that are not connected with tbe claimed damages
by a direct chain of causation that has not been interrupted, or affected, by otber events or by
the inexorability of the laws of commerciai disasters.
. The façt tll,at J:!:~$1 :was just suçb. a . commerciai disaster an d· tba.t •. :Q,aytbeon was . angered
and deeply t1tlhappy witb its demise, does not mean tbat Raytheon 9-~;~s. a. çlaim inJaw that can
be validly espotJ:~ed }>ythe U~ited .• States. • Tbe lawof .. State respònsibility 1s. not the.same as
free business insurance. Thelòss. in thìs case, to Raytheon, does riòt erea~e remedy Urider a treaty,
just because it happèned abròad; ··Jniiiria non eurat legem; · · · · .·
Far less sbould it create international responsibility whère thai: hii:s riot'been establisbed by
reasonable or persuasive evidence of any kindi and has rtòt been justifìed by legai analysis suffìcient
·• to meet. the minimum standards • of ·.an international· legai claim or • cause of action.
l t might be, Mr .. President, that this .evidence could bave been brought out in local pro•
ceedill8s .· undertabn by .Ra,ytbeon to sa,feguìlrd • its rigbts 1.1nder tbe Treaty ~tnd. the. S:upplement.
It would surely have been the case that the facts tbere would have been winnowed thro1.1gh and
fìltered by courts. orjudicial authorities closet to the scene than The Hague and closer in time
to the events than. 20 years •tater. This would very likely have presented the Chamber ....,_ if tbat
were necesilary __.. witb a better record of developed facts oil wbich · to work, and i t would most
likely have made the work of the Court in this case much easier ..
This case, Mr. President, is thus almost a physical representation: of die importance and
valy_e .. Q~ .t.beJocal. remedies.ry_le. Surely .it d(leS not prevent all Ulll'J:1.eritorÌOUS or unfounded
cases. (roi;n . qeing espoused by States~ . But ai: least i t can prevent some . of them.
IHhe Legai Adviser of tbe Unitèd States is really co~cerned, as .he say11 he is, about tbe
effectof the Co11rt's decision on existillg Friendsbip, Commerce and Navigl;ltiÒntreaties,then
surely one of the rimst important things thl;lt the Court cari do to respond to bis concern migbt
be to reinforce tbe · importance of the local remedies rùle in espoùsal cases sucb · as this · oile, · and
throw . the case out. · · ·
It protectdnternl:ltiona:l tribunals, such a:s i:his Chamber, from having to sort through daims
an, d assertion:s that should have been proved ·an, d tried elsewhere, or discarded. l t protects goveJ."
l;iinents fromthe premature insistence of influential citizeris, likeRaytheon, tbat their claims
agai.nsdoreign sovereign:s must be espoused an:d. brought to internatiònal justice; And it inigbt
even help those governments to resist the more extreme allegations of fact l;lnd conclusoty statements
that those natiotials might, in their anger at tbe treatment they believe to have received,
urge . upon tbeir foreign offices.
Most important: at the end of .tbe. day, the local remedies rule helps us all avoid the kind
of untoward an d uncomfortable situation such .as that presented by this case. Here tbe government
of a friend.and ally is impelled to assert, before this highest. ofcourts, that another friendly
government has indulged in some mysterious l;lnd complex. conspiracy and course of ac.tion tbat
has harmed its nationals, but witbout producing one single element of objective proof or direct
evidence in support.
It is in part in order to prevent this kind of inequity, or embarrassment; that tbe loca:l remedies
rule exists. Tbe Court should apply it here; Mr. President; or at the very Ieast should
dismiss Applicant's case against Italy as being totally unfounded in fact, and wholly unsupported
in law.
Tbank you, Mr. President. If you would kindly cali upon tbe Agent.
Tbe PRESIDENT: Thank yo1.1, Mr. Higbet. I cali upon the Agent of ltaly, Professor Ferrari
Bravo.
Mr. FERRARI BRAvo: Mr. President, distinguisbed Members of the Court, it is my privilege,
pleasure and bonour to read out tbe final submissions for tbe Government of Italy.
The Italian Government makes the following submissions:
« May it please tbe Court,
30
462 RASSEGNA DELL'AVVOCATURA DELLO STATO
A. To adjudge and declare that the Application fìled on 6 February I987 by the United
States Government is inadmissible because local remedies have not been exhausted.
B. If not, to adjudge and declare:
I. That Artide III of the Treaty of Friendship, Commerce and Navigation of 2 February
I948 has not been violated;
2. That Artide V, paragraphs I and 3, of the Treaty has not been violated;
3· That Artide V, paragraph 2, of the Treaty, and the related provisions of the Protocol
to the Treaty, have not been violated;
4· That Artide VII of the Treaty has no t been violated;
S· That Artide I of the Supplementary Agreement of 26 September I95I has not been
violated; and ·
6. That no other Artide of the Treaty or the Supplementary Agreement has been violated.
C. On a subsidiary and alternative basis only: to adjudge and declare that, even if there
had been a violation of obligations under the Treaty or the Supplementary Agreement, such
violation caused no injury for which the payment of any indemnity would be justifìed.
And, accordingly, to dismiss the claim »,
Thank you, Mr. President.
The PRESIDENT: Thank you, Professor Ferrari Bravo. A t this stage of the proceedings, and
before the second round pleadings, some judges want to put questions to the Party. I give the
floor to judge Oda to put a question.
Judge OnA: Thank you, Mr. President. I have some questions for darifìcation. First, I
would like to put the following question to both the Agent of the United States and the Agent
of Itaiy:
Suppose that the decision of the Prefect of Palermo (which was actually given on 22 August
I969) had been given one year earlier, say in August I968. Could the trustee of ELSI, under
ltalian law, have withdrawn the previous petition to bankruptcy which had once been fìled on
9 Aprii I968 and have proceeded to liquidate in spite of the judgment of bankruptcy by the Tribuna!
of Palermo, which was delivered on 7 May I968?
Now, I would like to put the following question to the Agent of Italy:
I. AmI right in understanding that the order of requisition of I Aprii I968 did bar ELSI
from closing the plant in the framework of a liquidation process, but did not, or could not, prevent
its closure in the framework of the bankruptcy procedure ?
2. What kind of management plan did the Sicilian Regional Government have for the
six-month period after issuing the order of requisition on I Aprii I968? In fact the Regional
Government continued to pay wages to some 8oo employees until IS October I968, even after
the judgment of bankruptcy was delivered on 7 May I968. What could have been the intention
of the Sicilian Regional Government in paying the wages after the procedure of bankruptcy had
started in May I968? Thank you, Mr. President.
The PRESIDENT: Thank you very much J udge Schwebel.
Judge SCHWEBEL: Thank you, Mr. President. I have severa! questions, Mr. President, the
fìrst for both Parties.
Let us assume, arguendo, that it has not been proved that the requisition was the cause of
the bankruptcy. Does it follow that ELSI and its stockholders sustained no damage by reason
of the requisition ?
Questions for Italy:
I. Mr. Highet spoke this morning of, I believe it was, 7 billion lire in low-interest loans
extended by Italian governmental authorities to ELSI. May I ask how much lower than commerciai
rates of interest were these low-interest loans, that is to say, what was their real value?
REPLICA FERllARI BRAVO·· 463
2. And much more generally, what in the view of the Respondent were the purposes of the
requisition? W ere those purposes achieved?
3. The Responderit .has pointed out that the Prefect's decision holding.th,e Mayor's order
of requisition to be « destitute of any juridical cause which may justify i t· or make i t enforceable »
depended on his cortclusion that the òrderd.id n:ot, and cotild not, achìeve the goal to which it
wasdìrected. IfOWè\>'et', the··Prefect. alsò ·held that•the order_·wasissued: ... _._. .
. '' u~d~;t; the infl.u(ln!::e ~ftlle pressure createci hy. a~d ofthe remarks made. by the local
press; and therefore we ha ve to hqlcl that the l\tlayor' in orcler to get out. o;f the above and
show the. intent of the. Puhlic ,Acb:ninistration to intervene it< one way. or another, issued the
order of requisiti!:m as a measure mainly (ljrected to empbasi2;e his intent to. ;face the problem
in any way". ·
This holding of the. Prefect appears to mean that the Mayor issued the order not for de~
fensible juridicakreasons but a$ a way of showing the public that he was doing something, whe~
ther thats.oW.ething was lawf~:~l or sensiblf:l . .or not: he issuecl the order << to show the · intent 9f the
Public Adt:ninistration to intervene in, 011Jl way gr. a?Jo,tker >l; the order was issued as a measure
'' mainly>> 4irected to. '' emphasi2ie his. intent >> tp face the problem. « i.n any way », ••-1N ow my questionjs.
Jhis,. is a mflasl,lre taken bY a public 11::Uthority « tQ inter:vene in. one way •. or :another » with
a view not t.owards resolving a problem - and the Prefect. held that the order could not resolve
the prohlem. ~. butin ord,er to app~ase pJ;es~. a1,1d public ,criHcism or wi11 pubUc favour «in any
way >> an arbitrary measure ?
4· In view of the fact that the Prefect found that the requisition by the Mayor of Palermo
of ELSI's factory was " desti tute ofariy • juridical cat.Jse · which· may justify i t or make i t enforceable
>>; ariel undertakeri in order to perinit the Mayor · to show " the intent • of the Public Administration
to intervene in one way or another ))' can i t be maintained that the requisition never~
theless was, in the wòi:'ds of Artide IU of the Treaty, " in çonforfuity withthe applìèable laws
and regulations >> of Italy? Can an actìon which is taken << without juridical cause» in order
" to show the intent ... to intervene in one way or another » be an action not merely under colour
of the la w but " in conformity with the applicable laws an d regulations >> ? · lf riot, ari d if the
position of the Respondent is that these holdings of the Prefect were in error, why was not an
appeal t!!ken from them ? If no appeal was open or was t!!ken, does not that establish that the
requisition was not in conformity with the applicable laws and regulations of Italy ?
s. Italy has stated in its pleadings and oral argument that certain of ELSI's actions or inactions
made its board of directors criminally liable. lf this is so, why is it that no criminal actions
were pursued against them ?
6. Volume I of the Unnumbered Documenta submitted by Italy with its Counter-Memorial
reproduces a translation of the dismissalletter sent by ELSI to its employees. That letter
states: " You will be paid an indemnity in substitution of notice equal to the amount of your
remuneration for the perìod of the notice you are not given. Such period will be counted
for the purpose of calculating your severance benefits and, if such be the case, for the purpose
of any other payments owing to you, ali in accordance with the laws and agreements in force"·
In viewo f the terms of this letter, is there ground for complaining of lack of notice ?
7· The written supplement of the Respondent to the oral reply to my question of 21 February
states that: "The requisition kept the factory open )). Open to do what? Was work performed
in the factory, by whom, and with what results, in the period in which the factory was
requisitioned? In this regard, it may be recalled that the Prefect's decision of 20 November
1969 holds that it was « the fact that the activity of the company >> was not « resumed », that the
plant was « not working)) and that it was occupied by the dismissed employees. Thank you, Mr.
President.
The PRESIDENT: Thank you, judge Schwebel. I would like to put two questiona to both
Parties, as a Judge of the Court.
464 RASSEGNA DELI.1AVVOCATURA DELLO STATO
I want to ask a question about Italian law in regard to a situation described in the Report
of Coopers & Lybrand to Raytheon-ELSI, of 22 March I968.
In that Report, Coopers & Lybrand, who were Raytheon's own auditors, stated of the
position at 30 September I967:
«IO. The adjusted accumulated losses at 30 September I967 exceeded the total of the
paid up capitai stock, capitai reserve and stockholder's subscription account by an amount
of 881.3 million lire. Should this become ' officially' the case (e.g., should the adjustments
made in arriving at this total of accumulated losses be entered in the company's books of
account), under Articles 2447 and 2448 of the Italian C'ivil Code the directors would be
obliged to convene a Stockholder's meeting forthwith to take measures either to cover the
losses by providing new capitai or to put the company into liquidation ».
x. My question is this: if it was decided not to provide new capitai butto put the company
into liquidation, would it be possible, in Italian law, to conduct the liquidation without becoming
bankrupt in law and, if so, under precisely what conditions could bankruptcy be thus avoided?
2. For the purpose of determining whether the requirements of Italian law as to the impact
of losses on the capitai of the Company were satisfied, was the management of ELSI entitled,
as a matter of Italian law or of sound accounting practice, to base itself on the book values in
the September I967 balance sheet (first column) so long as the adjustments (second column)
had not been made in the company's books, or was it obliged for that purpose either to make
those adjustments forthwith in the company's books orto use the adjusted figures (third column)
to determine the Company's financial and legal position?
W e ha ve put several questions to the Parties. I think they could have an opportunity to
reply to them in the second round of pleadings. You will have to work during the weekend,
ladies and gentlemen.
Therefore, we meet again to hear the rebuttal of the American delegation next Monday at
IO o'clock in the morning. Thank you very much.
The Court rose at I p.m.
C S/CB8?/9
1\(~~day 27 F~ruar;r J?~9, atl() a. m.
·.····· .. ···· .... ·.··.: . .: ·.·.· .. ·· .·.·.·.·.· ·:··:-.··::-· .. · · .. ·.·· .....
M:t; MkrimsoN' J 1\>k Cku.iliL'!R ..;;. ME BiscoNh - Judgi{ ScawEBEL
u ... ,.... ••" case,, ' · · · ·
avo1d apy dm.tbt as to wbat the United States is asserting ~ tbe basis forits claìm, I
invite, the . Court to teollll; the .four speoific llctions of. the · Responclel;lt wbich Professar Gardner
listed.m, hts, oral-sta~eme~t.lls, ç()nstituting .the• violations oftbe.FCN, Tteaty 'alleged.by tbe United
Stlltes in thi~KCil$i:; {q a/91\ 8?13>_P>.li3h··· _·. > .· .••. ,,_,
Tbey are: fi~sti -tM'!Jn(àWfulrequìsition of ELSI's plftnt a1;1d.assets; .second, allowing ELSI's
workers to oc~upy the: plant; third,, the unreasoilable Q.elay in ruling on tbe lllwfulness .òf the
requisition; and!our~b-, tbe flaws in the bankruptcy process wbich resulted in tbe acquisition
of ELSl's- assets,fCir less tban.-fair ,value,
Tbese ·a cts a1;1d omissioils ... ,...., and · nothing else .,.._., are, and always bave been, the basis for
tbe Uilited States chtim before this Court. As we have sbown,. these specific acts and omissions
constitute violatiol1$ of tbe Treaty ìn and of tbemselves, witbout the need to establisb tbat they
formed part ofa « conspiracy », a « diabolical plot » or my otber form of « connivance » - and
bere I quote words us.ed by tbe Respondent1 md not by the United States.
' These acts md omissions were by different officials md entities of the Italian Government
at tbe national andlocallevels;. Each·of these-acts and omissions is therefore attributable to tbe
Respondent under the Treaty, as we sball demonstrate at greater lengtb at a later poìnt in our
466 RASSEGNA DELL'AVVOCATURA DELLO STATO
rebuttal. This is true whether or not these various acts or omissions were part of a concerted
plan or any other form of co-ordinate activity.
The sensitivity of the Respondent to the inferences which might reasonably be drawn from
these facts is understandable, but the case of the United States is based on the facts and not upon
such inferences.
These acts and omissions constituted Treaty violations - for which the Respondent is
liable- whether or not the Italian Govemment entities involved knew of each other's actions,
and whether or not they were acting in concert or at cross purposes. Although the Respondent
asserts otherwise (C 3/CR 89/8, p. 437), the obligations of the Parties under the Treaty are clearly
in no way liniited to cases where there is some conspiracy or collusion between the authorities
of the State in question.
The Respondent objects to our use of the terms « Government of Italy " or« the Respondent "
in referring to these various officials and entities, but these references are perfectly appropriate.
The use of these terins is not a disguised allegation of a grand conspiracy, but an affirmation
that each of these acts is legally attributable to the Respondent.
Similarly, the Respondent has argued that none of these individuai acts can be considered
as violating the Treaty in and of itself, but only in combination and only when it is established
that they are ali tied together in a so-called «causai link" (C 3/CR 89/8, p. 437). This is
most certainly not the case.
For example, the requisition alone violated a number of provisions of the Treaty, as we
have shown, and this is true regardless of whether or not the other acts and omissions complained
of by the United States were also violations of the Treaty. The case of the United States in no
way depends on proving that these actions constitute a sequence of events bound together by
a common plot or causai chain, however often the Respondent may insist that this is so.
Likewise, the case of the United States is not based on the assumption that ELSI was a
profìtable enterprise which was expected to survive indefìnitely as a money-making business
in the environment in which it found itself in 1967 and 1968. On the contrary - just to restate
the obvious - ELSI's shareholders fully intended to liquidate the company, and it was the
action of Italian authorities that prevented them from doing this in an orderly fashion.
The question, therefore, is not whether ELSI has suffered losses - obviously it had - nor
whether it would at some point cease functioning as a fully operating enterprise - obviously
it would, given the fact that the Italian Govemment was unwilling to provide an environment
in which it could compete effectively.
The real question is whether, under the circumstances, Raytheon and Machlett had the
ability and the right under the Treaty to place ELSI through an orderly liquidation, as they had
planned to do. At a later point in this rebuttal, we will review in detail the measures that were
being taken, and would have been taken, by Raytheon and Machlett to ensure that such a liquidation
would take place, including their intention to provide the fìnancial support necessary to
avoid any insolvency problems during the liquidation.
Similarly, the case of the United States is not based on the allegation that the failure of the
Respondent to provide Mezzogiorno benefìts, or any other assistance to ELSI, violated the
Treaty, although as Mr. Lawrence has shown (C 3/CR 89/4, p. 340) it is reasonable to take account
of ELSI's expectation of receiving such bene:fits- for which it had applied- in determining
ELSI's value, particularly in light of Artide V of the Supplement to the Treaty.
I t is important that we focus in this proceeding on the acts an d omissions o n which the
United States actually bases its case, rather than those that the Respondent would prefer to talk
about. Only in this manner will it be possible to see clearly what elements must be established
to justify the reparations sought, and what elements are, on the other hand, essentially irrelevant.
I would also note that the case presented to this Coi.trt is based on speci:fic Treaty provisions,
rather than on the application of generai customary international law. For example, questions
about interference with management and contro! of enterprises, about expropriation and compensation,
and about exhaustion of local remedies, all arise in this case in the context of specifìc
provisions of the FCN Treaty, and do not require decisions about customary international law
in generai.
REPLICÀ MATHESON 467
Now, the Respondent has argued that the United States has failed to produce the necessary
evidence of its claims and has instead relied on unfounded assertion and innuendo (C 3/CR 89/8,
p. 437). I t is quite true that the United States has not attempted to introduce evidence to prove
matters which do not form the basis of its case, such as those matters which I have just referred
to. However, we have provided the Court. with an ampie body of evidence to support the assertions
upon which our case does rest.
We have provided the Court with every available docùrnent that we hàve thought to be
significant an d relevant · to this case. Documents have neither been altered nor hidden, notwithstanding
the Respondent's suggestion to the contrary (C 3/CR 89/8, p. 440). Where an interest
has been expressed by the Court or the Respondent in any other document, even during
the course of these oral proceedings, we have immediately produced it. A mass of detailed affidavits
have been submitted as Annexes to the Memorial, and few of the statements in those affidavits
were challenged by comparable evidence in the Respondent's written submissions.
W e have brought before the Court the individuals who were personally involved in the events
of this case more than 20 yeàrs ago. They have testifi:ed from their personal· knowledge of these
events ànd their expert understanding of the circumstances. From time to time the Respondent
has suggested that their testimony is inherently unreliable because of their association with Raytheon.
With ali due respect, this criticism is grossly unfair to these individuals, each of whom
has a long-standing reputation for truth and integrity.
This is not a case of reliance on self-serving pronouncements which cannot be probed or
challenged by this Court. Our witnesses have submitted themselves to questioning by the Respondent
and by the Court, so that their knowledge, competence and credibility could be observed
and. tested first-hand. W e invite the Court to judge for itself, on the basis of what it has seen,
whether it has any doubts about their competence or credibility. The Respondent has .not been
able, or has not seen fit, to rebut the testimony of these witnesses with comparable first-hand
testimony of its own. The Respondent is the party wh:ich has instead relied on unsubstantiated
assertions in this case.
We have also brought before the Court a leading expert in valuation who, together with his
supporting team, has laid out in the clearest mannet possible the essential facts about ELSI's
accounts and the value of its assets. He too has been subject to questioning by the Respondent
and by the Court to probe his expertise and his conclusions.
In the course of our rebuttal presentation today, we will review each of the elements upon
which our case rests and refer to the evidence we have provided in support of each element.
No doù.bt the Respondent will continue to make generai assertions about the alleged lack of
proof in the U nited States case. W e invite the Court to judge for itself whether we have failed
to substantiate any of the elements of our case.
Durward SANDIFER, in his book Evidence Before International Tribunals, states as follows·:
" ... [T]he International Court of Justice has been sparing with its pronouncements
concerning the burden of proof, as well as electic in its approach to the subject. In other
words, the Court appears to be more concerned with ' establishing the facts ' and ' assessing
the weight of the evidence produced insofar as is necessary for the deterinination of the concrete
issue which it finds to be the one on which it has to decide'. Consequently, as Rosenne'
puts it, ' there is litcle to be found in the way of rules of evidence and a stdking feature of
the jurisprudence is the ability of the Court frequently to base its decisions on undisputed
facts, and in reducing voluminous evidence to manageable proportion ' >>. (p. 34).
Given the volume of undisputed facts, of testimony by witnesses and experts, of affidavits
and other documents produced in this proceeding, we have no doubt that the Court will have
ampie basis for, as Sandifer puts it, establishing the facts and assessing the weight of evidence on
the concrete issues it has to decide in this case.
In our rebuttal presentation today, we will focus on the important matters that remain at
issue. I will begin with a brief review of the Respondent's objection on the question of admissibility.
Ms. Chandler will then review the evidence that has been. presented to this Court on·
468 RASSEGNA DELL'AVVOCATURA DELLO STATO
the ability of ELSI to carry out an orderly liquidation in the absence of the requisition, as well
as the evidence of the damage that it suffered because of the Respondent's actions.
We will then call upon Mr. Giuseppe Bisconti, who is counsel to Raytheon and an eminent
practitioner in Italian commerciai and bankruptcy law, to review ELSI's ability under Italian
law to carry out such a liquidation un der the specific circumnstaces of this case. W e will also
call upon Mr. Timothy Lawrence of Coopers & Lybrand to respond to certain questions raised
last week by the Respondent's expert on accountancy concerning the valuation of ELSI. Finally,
I will conclude our rebuttal with a review of the Respondent's arguments on the violations
of the FCN Treaty.
ADMISSIBILITY
I will now turn to the Respondent's objection that this claim is inadmissible because local
remedies have not been exhausted. In our view, the Court could only accept the Respondent's
objection if it were prepared to decide every one of the following points in the Respondent's
favour:
- first, that the local remedies rule is applicable, under generai international law, to the
request of a State for a declaration that its rights under a treaty have been violated, and for reparation
as a result;
- second, that the local remedies rule is applicable to this particular treaty, given its language
and its object and purpose;
- third, that there were in fact effective remedies under Italian law which were not exercisecì
by Raytheon an d Machlett;
- fourth, that Raytheon and Machlett did not exercise all reasonable efforts to exhaust local
remedies;
- fifth, that any remedies allegedly available under Italian law fully addressed all of the
claims of the United States in the present case; and finally;
- sixth, that the conduct of the Respondent does not, under the circumstances, preclude
it from invoking the local remedies rule now.
To prevail on the question of admissibility of the United States claim, the Respondent must
establish each one of these points. W e submit that the Respondent has established none of them.
I will address each of these points in turn.
First, has the Respondent demonstrated that the local remedies rule applies, as a matter
of generai internationallaw, to the request of a State under a treaty fora declaration that its rights
have been violated, and for reparation as a result? In our view, the answer is no.
The local remedies rule is a rule of customary international law developed in the context
of the espousal by a State of the claim of one of its nationals. The Respondent repeatedly asserts
that the present case is simply a matter of diplomatic protection of United States nationals or
« espousal », and that it « does not concern any direct injury allegedly caused to the United States»
(C 3/CR 89/5, p. 364; C 3/CR Sg/8, p. 436).
This is simply incorrect. The claim of the United States is based exclusively on the violations
of a treaty and the rights and obligations of the States that are party to it. That is how the
United States claim before the Court has always been formulated, from the first letter to the
Registrar presenting the application to all the subsequent stages of the case. The case was occasioned
by damage to particular US nationals, but the claim before this Court is an assertion of
broader rights and interests of the United States under the Treaty. The United States seeks
a declaration that the Treaty has been violated, thus vindicating its own rights and interests and
clarifying the obligations of the Parties, as well as seeking reparation for these particular violations.
The Respondent cites the Ambatielos Arbitration for the proposition that the local remedies
rule applies even in a case where a State brings a claim based on its rights under a treaty. But
in that case - which arose under an old treaty that did not contain a compromissory clause -
REPLICA MATHESON. 469
the agreement of the parties · establishing the Arbitrai· Commission specifically called upon the
Commission to decide the local reniedies issue (Ambatielos Arbitration, 12 Record of International
Arbitrai Awards, p. 88). Thus the Commission did not have to decide whether the rule
would apply as a matter of law to a dispute under a treaty, let alone a treaty which contained
a compromissory clause, as the FCN Treaty does.
A more relevant aspect of the Ambatielos case. is the judgment of this Court · which prompted
Greece and the United Kingdom to submit to arbitration the. question of whether local remedies
had in fact been exhausted (Ambatielos, Merits, J udgment; IC] Reports, 1953). Despite the argunient
by the United . Kingdoni that local remedies had not been exhausted, this Court found
that it did not have to pass on that issue when interpreting the treaty in question.
Likewise1 in the Finnish Shipowners Arbitration, the Arbitrator found that the local remedies
issue only applied ·to the principal claim of Finland ---, a claim under customary international
law; and not to the alternative claim ofFinland -a claim based on a bilatera! agreement ( Claim
of Ftnnish Shipowners, 3 Records of International Arbitrai Awards p. 1490).
As we noted in our opening ro\ind of oral presentations, there is clearly no requirement in
international law that a State must. e:x:haust local remedies before it can seek to vindicate its owr
rights through declaratory relief. The Respondent apparently now argues that the local remedies
rule nonetheless applies to a request for such a declaration if the State is also seeking reparation.
The Respondent cites the Inteihandel case for the proposition that i t is not possible, in considering
the application of the local remedies rule, to split off the request for a declaration from
the request for reparationdf the treaty violation is based es$enti,ally on injury to a national (C
3/CR 89/5, p ... 366). This is not a correct reading of the Interhandel case.
In that. case there was no . req\lest. for. a declaration that . a treaty had been violated. The
Swiss Government primarily sought the return to its national, Interhandel, of assets frozen in
the United States pursuant to US law during the Second World War (Interhandel, Judgment,
IC] Reports; 1959, p. 9), andin the alternative sought to implement a decision of the Swiss
Authority of Review based on the 1946 Washington Accord. The Court concluded that while
this alternative part of the Swiss claim allegedly involved an international decision, it was stili
directed at the restitution of assets to Interhandel. I t is in this conte:x:t that the Court found. that
« one interest, and one interest alone, that of Interhandel » was the basis for Switzerland's claim
(lnternhandel, ]udgment, p. 29).
In the present case, the United States seeks a declaration that the FCN Treaty has been
violated, as well as reparation to itself for violati.ons of the Treaty. The United States explicitly
recognized this distinction in the Interhandel proceedings when the US agent stated that the Swiss
claims: ·
'' are not merely requests for declaratory judgments seeking declarations that treaty
provisions have been violated; rather, Switzerland, espousing the case of Interhandel, its
national; seeks specific relief for the benefit of Interhandel>>. (IC] Pleadings, Interhandel,
p. 319; sée also Chorzow Factory case, PC!], Series A, N; 6, p. 20).
I t is also important to note that the criticai element in the Interhandel case was the fact that
a US court was actually considering the lnterhandel claitn at the time the case was before this
Court (lnterhandel, ]udgment, p. 27). Obviously, there are no Italian court proceedings pending
in the current case, and the relevance of the Interhandel èase is accordingly minima!.
W e must conclude, therefore, that the Respondent has failed to show that the local remedies
rule is applicable to claims of the type involved in this case - that is, claims by a State under
a treaty seeking declaratory relief as well as reparation to vindicate its own treaty rights and
interests.
Second, has the Respondent demonstrated that the local remedies rule is applicable to this
specific Treaty? Again, the answer is no.
As we pointed out in our initial argument, there is no reason whatsoever to believe that the
Parties intended such a result. The FCN Treaty expressly states that any dispute as to the interpretation
or application of the Treaty, which is not satisfactorily adjusted by diplomacy, shall
be submitted to this Court. The ordinary meaning of this Artide is clear, and its object and pur470
RASSEGNA DELL'AVVOCATURA DELLO STATO
pose is obvious: 1t IS intended to provide an unfrustratable international mechanism for the
resolution of disputes under this Treaty. W e are aware of no indication in the negotiation and
ratifica.tion history of the Treaty that the Parties expected the local remedies rule to apply to
disputed referred to the Court. Rather it appears that Artide XXVI was considered an " unreserved
» reference to the Court.
A further indication of this is the fact that Artide X of the I 948 Economie Co-operation
Treaty between the United States and ltaly, which was negotiated at the same time and by the
same parties as the FCN Treaty, expressly requires the exhaustion of local remedies. Had the
United States and Italy wanted such a rule to apply to the FCN Treaty, surely they would also
have induded it in the FCN Treaty, which of course they did not.
Further, most of the provisions of the FCN Treaty at issue in this case concem specific
obligations of conduct - such as the duty not to interfere in the management and contro} by
United States companies of enterprises in Italy- which do not provide latitude for the Respondent
to correct violations through decisions of its local courts. This approach has been adopted by
the International Law Commission in its work on State Responsaibility (see Yearbook of the
International Law Commission, I977-II, Part Two, I, p. so, para. 58).
Consequently, whether or not the local remedies rule applies in generai to State daims
under a treaty, it is not applicable in this case to this Treaty.
Third, has the Respondent demonstrated that there were in fact remedies un der I talian la w
that were not exhausted by Raytheon and Machlett? In our view, it has not.
The Respondent's primary contention is that this daim is inadmissible because Raytheon
and Machlett could have sued in ltalian courts bases on Artide 2043 of the Italian Civil Code.
The Respondent asserts that the acts of the Govemment that allegedly affected the rights and
interests of Raytheon and Machlett as shareholders come within the scope of this Artide (C
3/CR 89/5, p. 367).
To support this, the Respondent cites the Talenti decision by the Court of Rome. That
case, however, did not involve shareholder rights at all. Professor Fazzalari described in detail
to this Court why shareholders would not be able to sue under Italian law for the rights and
interests at issue in this case (C 3/CR 89/2, pp. 299-300), a position which is in accordance with
the opinions rendered by both Mr. Bisconti and Mr. La Pergola in I97I.
But even if the shareholders could sue in I talian courts for actions su eh as those a t issue
in this case, Professor Fazzalari explained why Italian courts would not view these provisions
of the FCN Treaty as sufficiently specific to provide a standard for an individuai to bring a daim
for damages against the Govemment of Italy (C 3/CR 89/2, pp. 295-298).
I will only add to Professor Fazzalari's comments by noting that the decision of the Court
of Rome in the Talenti case does not state - as is implied by the Respondent - that an action
may be brought under Artide 2043 on the basis of conduct by the Government of Italy contrary
to the provisions of the FCN Treaty. The court simply found that the plaintiff failed to
specify any wrongful acts committed by the Govemment of Italy in that specific case.
As we have noted, the State Attorney of Rome in that case took the position that the FCN
Treaty provided no additional protection above and beyond that already in existence under
Italian law. The Respondent tries to downplay this by stating that the State Attomey's brief
is " the result of the personal work of the individuai State attomey » and is " never published »
(C 3/CR 89/5); but the fact remains that when United States citizens have sued in Italian courts
under Artide 2043 and the FCN Treaty, officials of the Italian Govemment have argued that
the Treaty cannot provide any added protection. Surely the Respondent cannot have this both
ways.
A criticai issue in considering whether further local remedies were available to Raytheon
and Machlett is the effect of the sui t brought by the bankruptcy trustee. The Respondent argues
that the trustee suit differed materially from a suit that could have been brought by Raytheon
and Machlett as shareholders (C 3/CR 89/5, p. 368). This argument does not hold up under careful
examination.
The trustee's suit in ltalian courts was based on the argument that the unlawful requisition
of I Aprii Ig68 obliged ELSI to go into bankruptcy, prevented even the trustee from taking
REPLICA MATHESON 471
possession of the plant and equipment through 30 September 1968, and thereby caused substantial
damage to ELSI. The trustee also argued that the Prefect of Palermo was late in deciding
the appeal filed by ELSI, and asked the court to order the Government of Italy to pay damages
due to the illegal occupation of the plant and equipment. The trustee identified those damages
as the considerable decrease in the value of ELSI's plant and equipment caused by these various
actions (Memoria!, Annex 79).
The trustee's suit was pursued right up to the Supreme Court of Italy. Except for the award
of a minima} amount of compensation - essentialiy for the six-month « use " of the plant - the
court considered and rejected ali of these claims. It held that there was no causai connection
between the requisition and the subsequent bankruptcy, that damages could not be claimed
with respect to the bankruptcy, and that the actual value of the plant and equipment on the date
of the requisitioning order could not be reliably established (Memoria!, Annex 81, pp. 14-17).
Now there are some differences betwen the claim before this Court and the claim brought
by the trustee. It is clear, however, that the substantive core of the two claims is essentially the
same. Both identify the unlawful requisition as the cause of the subsequent bankruptcy. Both
assert that significant damages fl.owed from the requisition due to the inability to have access
to the plant and equipment and the failure of the Prefect to rule on the appeal.
The Respondent, however, contends that despite this decision of the highest court in Italy,
a lower Italian court might find in a later proceeding by Raytheon and Machlett that the requisition
did cause the bankruptcy and that quantifiable damages can be awarded in favour of ELSI's
shareholders, even though they could not be awarded to ELSI's creditors. In our view, it iswholiy
unreasonable to require that such repetitive and purposeless actions be brought, particularly
where the substantive issues at point have already been decided by the highest national court
(see Panevezys-Saldutiskis Railway, 1939. PCI], Series A/B, N. 76, p. 19). This is especialiy
so since some of the very rights and interests of Raytheon an d Machlett protected by this Treaty
are the same creditor rights that were litigated in the Italian courts.
Ironicaliy, the Respondent argued last week that this Court should piace great weight on
these Italian court cases, precisely because they directly addressed ali the relevant issues before
this Court (C 3/CR 89/8, p. 455). Yet the Respondent at the same time finds the cases so
different that it would bar the United States from pursuing this case because Raytheon and
Machlett did not attempt to re-litigate the matter in Italian courts.
The correct analysis of the matter is, of course, quite the opposite: the decisions of even
the highest national court of a Contracting Party cannot in any way prejudge the decision of this
Court under the Treaty; but the fact that such decisions have been rendered precludes the objection
that local remedies have not been exhausted.
Fourth, has the Respondent demonstrated that the remedies allegedly available under I talian
law could provide an effective remedy for ali of the claims brought under the Treaty in
the present case? W e believe it has not.
The local remedies rule certainly does not bar an action before this Court where the local
remedies aliegedly available could not effectively address ali the claims brought before this Court,
nor provide the relief sought from this Court (see Claim oj Finnish Shipowners, 3 Records of International
Arbitrai Awards, p. 1498). No conceivable suits by Raytheon and Machlett in Italian
courts could result in the relief sought by the United States in this proceeding- a declaration
of this Court as to the interpretation of this Treaty, binding under international law on both
Parties, as weli as a decision regarding the payment of reparation to the United States forviolations
of the Treaty. Therefore, the claim brought by the United States before this Court is
simply not amenable to suit in Italian courts.
Even if it were assumed that the claim before this Court is somehow solely a claim for damages
by Raytheon and Machlett, most of the unexhausted « remedies >> conjured up by the
Respondent could not effectively deal with the claims set forth in this case. For instance, further
appeals of the decisions of the bankruptcy judge would not have resulted in any decision by
I talian courts regarding many of the claims in this proceeding, such as interference with the
management and control of ELSI, impairment of the investment rights of Raytheon and Machlett,
the taking of their property, or protection and security for their property.
472 RASSEGNA DELL'AVVOCATURA DELLO STATO
Fifth, has the Respondent demonstrated that Raytheon and Machlett did not exercise reasonable
efforts to exhaust existing local remedies? W e think it certainly has not demonstrated
this.
As judge Lauterpacht stated in the Norwegian Loans case, the rule only requires exhaustion
of effective local remedies that are available « as a matter of reasonable possibility >> (Norwegian
Loans, IC] Reports, 1957, p. 39). The primary reason for the rule - as the Respondent noted
- is to provide the respondent State with an opportunity to redress the injury within the frameword
of its own legai system.
In this case, the requisition was appealed, the key decisions in the bankruptcy proceedings
were appealed, an d sui t was brought in I talian courts against the Respondent base d on the Prefect's
ruling that the requisition was unlawful. Hence the Respondent was provided ampie opportunity
to redress the injury within the Italian legai system. When none of these actions provided
adequate relief, Raytheon sought the advice of two eminent Italian legai experts, who
advised them that no further remedies were available under the Italian legai system. Nothing
more could reasonably have been demanded of these companies under the circumstances.
The local remedies rule is a flexible rule, subject to various exceptions, and policy has a
significant part to play in determining the scope of the rule (JENKS, The Prospects of International
Adjudication 1964, p. 530). The Respondent's arguments in this case would create a rigid rule
under which a claimant must exhaust all conceivable avenues of redress and all conceivable issues
of fact an d la w. Such a rigid rule would be unrealistic, particularly in light of the complexity
of modern administrative and legai systems. It would effectively preclude resort to this Court
or other international tribunals in most cases where disputes arise among States.
W e believe the rule only requires that a reasonable and good-faith effort be made to exhaust
local remedies after diligent consultation with qualified local counsel. And this is most certainly
the case in this proceeding.
Sixth, and finally, has the Respondent demonstrated that its conduct did not, under the
circumstances, preclude it from asserting the local remedies rule now ? In our view, this is certainly
not the case.
We have shown that the Respondent's conduct ~ right up to the time that a decision was
taken to bring this case before the Court- caused the United States justifiably to believe that
no further remedies were available (C 3/CR 89/3, pp. 306). In 1974 the United States presented
this claim to the Respondent, explicitly asserting that the only legai remedy available to
Raytheon and Machlett in Italian courts had been taken. For II years the United States then
pursued extensive discussions with the Respondent, first in an effort to obtain reparation for the
United States directly and then in an effort to agree on some appropriate means of international
adjudication, and all of this without any assertion by the Respondent that further recourse by
Raytheon and Machlett under Italian law was possible.
Only when a decision was taken to bring the claim before this Court, did the Respondent
object that local remedies had not been exhausted. If, as the Respondent now asserts, any diplomatic
claim by a State based on injury to one of its national is « irreceivable » by another State
if local remedies have not been exhausted (C 3/CR 89/5, p. 364), then the Respondent should have
so stated in 1974 and not caused the extensive diplomatic efforts to piace the claim before an
international forum. We have shown that under international law the Respondent's conduct
precludes or estops the Respondent from now asserting that further local remedies existed,
simply to avoid consideration of the claim by this Court (C 3/CR 89/3, pp. 307-309).
The Respondent has advanced several lines of argument in an attempt to rebut this conclusion.
The Respondent argues that in the 1974 diplomatic Note the United States did not
suggest there had been a waiver or estoppel (C 3/CR 89/5, p. 365). Of course we did not do so,
but this is hardly relevant to the estoppel argument, which is based on the Respondent's conduct
after 1974.
The Respondent also argues that the Italian Aide-Mémoire of 1978 « clearly in no way represented
Italy's final position on the case» and « dealt with only a few aspects of the claim, which
was described as unmeritorious » (C 3/CR 89/5, p. 365). This is the first time we have heard
this. A careful reading of the Aide-Mémoire indicates that this response was indeed a final
473
re~pon,se by tpe Resp<)ilden,t ta the y!~Hdity of the United States · claim, ll!ld was niade on the
baSis that there ha.d been no injlìry t(): Raytheon ll!ld Machlett~ · In any event, the Respondent
!Jdleet:çt limp.eed l Jtn:ò,i ted(o.l $so:t.a tes to· · .·.t h· i·s · ·o ·b Je· ·ç ~· <·>· :··n 9· ver. tM· · .·. ·.· Yea· rs· i· l~·t e·.l " the
the United States to
. .. j/CR89/5,
··When
the . Stàtes,
dfjjl(i:matìc notes of the very
a daìtn Trading wìth the Enemy
P~~~~I;~+~n!;r~~~;!; p; 25 . :i7; US Note of26 July
1948 p; 35; :· .... · . oft:i October response that reasonably
can be expeéted by a gove~ntnerit ìf it b' eli;ev~iìf lociù ]rerijeclìe!ie;ris·(:; . 1t was at this point in the
diplo~atic negotiations between the United States ànd that the litigation by ·Interhandel
in US e9urts beg~~n. ·• ·•
Mt, Pr~sident, the fài1ure ofthe Respondentto establìsh!,IU ofthe sii poìnts I have consideted
Joda:y ll'itist lea.d to a• rejeçtion of the Respondent's • objection .. Even if the)ocal remedies
tule Wet-e aptYUça~Ie .itt Jhis ca.sei tll~ let~èt' arid ptu;p0~é of tlie tule w~s satisfied. ·• lnvocation of
therule ti:» den}!'.access<to<the Courtin thiscase wouldbe•a victory offormalism;· ·We therefore
respectfull'~" st,~;br:nit t}iat.the Conrt should rejectthilrobjectiom ·. •
Mr. PréSident,:this ~ondudes the segmentof ourrebuttal·onadmisSibility; ll!ld I· therefore
now request that you give the fl.oor to Ms. Chandler, who will deal with the evidence hefore this
Court on. the ability of ELSI . to .· carry out an orderly .liqt~idation.
Thè P:RBsiPENT:.l think judge Schwebel wotild like to· ask a questìon.
J udge Scawnii:EL: Mr. President, dh the subjeet · òf Ioca1 remedies: may I· ask ·a qnestion of
theUS Agent at this juncture? In the proèess of the exhaustion of local remedies, did ELSI
rely on the Treaty and Supplemènt at any point? If not, why no t ? An d,. in so far as this is within
the knowledge of .the Applicant, did the trustee in bankruptcy, in his legal actions, invoke the
Treaty ll!ld Supplement? lf, as far as can be ascertained; the Treaty andSupplement were not
invoked. before Italian jurisdictions, what follows,. if anything? Thank you.
474 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. MATHESON: Mr. President, I know the answers to those questions but, if I might, I
would prefer to answer them this aftemoon, after we have thoroughly looked at the record.
The PRESIDENT: Of course you can answer in the afternoon if you wish. I call upon Ms.
Chandler please.
Ms. CHANDLER: Mr. President, distinguished Members of the Court. The Respondent has
not presented any real disagreement on the basic sequence of facts in this case : that Raytheon
and Machlett attempted to commence an orderly liquidation of ELSI's assets, that the illegal
requisition prevented the execution of the liquidation plan, and that ELSI subsequently was
placed into bankruptcy. The essence of the Respondent's argument really goes to a different
issue: whether the bankruptcy an d eunsuing financial damages were caused by the acts an d
omissions of the ~espondent, or were the inevitable consequences of ELSI's financialsituation.
The Respondent's contentions on this point can be summarized into three lines of argument.
The Respondent asserts: first, that there was no realistic plan for the orderly liquidation of assets;
second, that ELSI should have been placed in bankruptcy at some point prior to the requisition;
and third, that even if the requisition did prevent the orderly liquidation, ELSI would have
gone bankrupt anyway.
The United States does not contest the generai principle that there must be a sufficient
nexus between the unlawful act and the injury for compensation to be payable (see Memorial,
p. 59). We submit, however, that the position urged upon this Court by the Respondent fall
very wide of the mark, for the simple reason that we have provided abundant evidence of the
causai relationship between the acts and omissions of the Respondent and the injuries suffered
by Raytheon and Machlett in this case. I shall address each of the Respondent's three basic
contentions in turn.
The Respondent disparages the orderly liquidation plan as «pure fantasy» (C 3/R Sg/8,
p. 455). As the record amply demonstrates, there was an orderly liquidation plan and the orderly
liquidation plan would have worked. To appreciate the dynamics of the orderly liquidation
plan, one must consider the context in which the decision to liquidate the company was made.
In 1967 Raytheon and Machlett recapitalized and refinanced ELSI with 4 billion lire of
new capitai and guaranteed loans, and simultaneously made the decision that no additional capitai
would be provided without some restructuring of the company to ensure its viability. This
decision left several legitimate options. First, they could have negotiated a partnership with an
Italian company that would aid in the growth of sales and jointly provide the additional financial
resources needed. Second, they could have developed a plan for operating profitably by permanently
reducing the number of employees and cutting back on other operating costs, with
reduced new financing requirements being provided by Raytheon.
For a year, Raytheon and Machlett vigorously pursued the first option - a partnership
with an Italian company - with officials of the national and regional governments, including
IRI. They sought an Italian partner and Italian Goverment hacking (including Mezzogiorno
benefits), and an expansion of ELSI's product base. Neither the regional nor national governments
- nor ESPI nor IRI - were willing to participate in ELSI. To correct one of the Respondent's
many factual inaccuracies in this case, ELSI management did pursue every possibility
for securing the Mezzogiorno benefits they had long be.en promised. ELSI's counsel did submit,
and was preparing to resubmit, a claim for 300 million lire in benefits (Memorial, Annex 17,
Exhibit A).
From experience, Raytheon and Machlett were convinced that the second option - large
scale employee reductions in the workforce and operating costs - could not be implemented
in the existing environment. The Respondent has suggested that the excess workforce could have
been paid by the Sicilian Government. This did not present a long-term solution to the problem.
In 1967, after discussions with the President of Sicily and with the unions about the surplus
of the 200 workers, the Sicilian Region provided a 90-day training and wage subsidy programme.
Training was given in the construction of electronic sub-assemblies in anticipation of
new subcontract work. At the end of the year, the subcontract work had not materialized, thus
REPLICA CHANDLER 475
these programm.es did not solve the problein of the excess workforce and therefore did not
afford ELSI long-term relief.
The fact that Raytheon could not make ELSI successful does not mean that a purchaser
of ELSI Would have had the sa:tne problems. It should be remembered that any purchaser
would bave had the opportunity to structure the purchased business in an optimum fashion,
startirig from scratch. The purchaset virould use only the direct labour in supportìng overheads
ne&ssài"y/ If the purchased business was being m:etged into a purchaser's existing business,
then signfficant overhead savings could well be possible. These choices for optimization were
not available to Rltytheon in the then-existing environment at ELSI.
The oruy acceptable alternative that rei:nained .was the orderly liquidation of ELSI's assets.
Raytheon and Machlett formulateci a specffic plan for the execUtion of the liquidation. To guarantee
the plan's· ~uccess· Raytheon and Machlett made the coinmitment to back the pian both
financìally and techllically. It Was dearly understood that timely financiàl assistance would be
requiréd from Raytheon. Raythéon, the principal owner, was a major publicly-held US eorporation
with ampie finandal resources. l t àlso had a responsibility to its shareholders to handle
the n:ffilirs of ELSI in a manner that di d not adversely a:ffect the shareholder' s interests. Raytheon
thérefore would ·provide.whatever was• needed in money and manpower to execute the .orderly
liquidation successfully. They also had an economie incentive to fund the liquidation. It is
without question that a financiàlly"-'baeked1 company-controlled sale or liquidation avoids the
substantiai·Iosses that would otherwise occur in bankruptcy.
I wiU return to this financial·commitment at various titrtes over•the ·course of the next severa}
minutes, because it is an essential element of the liqUidation plan and an element completely
ignored by the Respondent. ·
The commitmeht by Raytheon and Machlett in 1968 to fund the orderly liquidation is not
inconsistent With its decision a year earlier notto invest further in ELSI without certain restructuring.
· The decisi o n to fund the liquidation · refiected the firm belief that sale of ELSI's assets
in ariorderly liquidation would recover the maximum amount possible. Moreover, funds provided
to ELSI during the orderly liquidation would likely be recovered after payinent of all
creditors.
The success of the orderly liquidation plan was further assured by the commitment of highleve!
mahagerial and techllical expertise that Raythéon lent to impfement the plan.
As a large multinational company, Raytheon has had considerable experience in selling
- .at book vàlue or better - subsidiary companies, divisions, and product lines, some of which
had consistently recorded losses. . This was possible because. of the important intangible assets
which went with these operations. because of Raytheon's worldwide reputation and its access to
superior technology and networks of customers and suppliers.
lri 1971,. for example, in England, Raytheon sold for book value a company called "Best
Products ", a smallloss company selling electric kettles andi rons, in direct competition with very
large companies such as Philips and GEC.
Raytheon also sold Sorensen A.G., a Swiss power supply company, at book value to Chan
lndustriàl Holdings A. G., a· paper. products company, seeking to diversify its product lines.
In France; Sorensen S;a.r.l., another company manufacturing specialized power supplies
for the French Arme d Forces suddenly lost all of its order intake when generai De Gaulle issued
an edict that such equipment was not to be bought from an American company. As a result,
Raytheon commenced an orderly liquidation of Sorensen's assets. Discussions with the unions
and the Ministry of Industry in Paris ultimately led to the sale of Sorensen at book vàlue to a
French power supply company.
These are just a few of the more than 30 examples in which Raytheon, at book vàlue, has
sold subsidiary companies both in the United States and Europe that had su:ffered consìstent
losses. In each of these cases, the sale of enterprises and product lines, and the orderly liquidation
of assets, were a sensible response that minimized damage to the communities involved and losses
to the creditors and stockholders. In each case, these actions were far preferable to the chaotic
results of bankruptcy.
476 RASSEGNA DELL'AVVOCATURA DELLO STATO
The keystone of the plan was the sale of ELSI or ELSI's productlines as going businesses
with intangible assets intact. To retain ELSI's value as a business, ELSI would maintain 130
workers to complete work-in-process and to fili orders from inventory in order to preserve
customer relationships. ELSI would also be sold with established markets for its products, with
experienced suppliers of raw materials and components, and with ali of the technological expertise
and know-how that had accumulated during ELSI's operations. To enhance ELSI's
value, Raytheon and Machlett also made the decision that they would continue to supply patents,
licenses, trademarks, know-how, and other technical assistance to any buyer of ELSI's product
lines. lndeed, as Mr. Adams testifìed, Raytheon had made the commitment that it would funnel
any new business from the Improved Hawk programme into ELSI (C 3/CR 89/1, p. 261).
The Respondent sweepingly concludes that because ELSI's stockholders had decided to
liquidate the plant, it was « dead and obsolete » and had no value or «scrap value» (C 3/CR 89/5.
p. 379). The Respondent's assertion of the obsolescence of ELSI's product lines is simply unfounded.
There is substantial and persuasive evidence in both the written and oral proceedings
that ELSI's product lines utilized top-of-the-line technology, that they enjoyed solid markets
throughout Europe, that they would be sold with customers and suppliers intact, and that Raytheon
and Machlett would support potential buyers with patents, trademarks, licenses, technical
assistance and indeed new business.
The mere decision to seli these product lines did not render them valueless overnight. The
commerciai and technological features of each and every product line remained intact. I should
note that ELSI was seliing and shipping products to customers right up until the date it was
unlawfuliy requisitioned by the Respondent.
The distinction between sale of ELSI as one or more businesses, and the sale of ELSI's
tangible assets as a defunct company - as it was at the end of the bankruptcy proceeding - is
stark. A sterile sale of the assets of such a defunct company would basically recover the value of
each asset as a separate item, and not the value of ali of the assets or business lines in the aggregate.
Raytheon and Machlett took specifìc steps to insure that ELSI's product lines would be
sold as businesses, rather than in a piecemeal fashion.
The Respondent expresses only vague and conclusory doubts as to the sale of ELSI's product
lines, but offers no documented evidence of the saleability of ELSI as a whole or by product
line. I must, therefore, briefl.y review the evidence on the record with respect to ELSI's
product lines.
Cathode·ray tubes. First, the cathode ray tube line, that is, the television tube line. Mr.
Clare delivered powerful testimony with regard to the saleability of the cathode ray tube line.
With its up-to-date technology, this line, started under license from an American company,
constituted more than one half of ali of ELSI's sales. ELSI was using licensed, up-to-date
technology to produce implosion-proof tubes. The Respondent itself recognizes in its CounterMemorial
that the quality of the television tubes was « quite good » (Counter-Memorial, Annex
44, p. 2).
In the two years preceding the requisition, ELSI cleared out a large amount of bad inventory
and improved yield by establishing a reclaim section to rework fl.awed tubes. The manufacturing
output was improved by the industriai engineering provided by the experts sent from Lexington.
As a result of ali of the improvements instituted by the ELSI management team, production
and sales increased from a prior level of 3o,ooo-3s,ooo tubes per month to so,ooo tubes per month
in December of 1967. These qualities earned ELSI a substantial share of the market in both
Southern and Northern Europe. ELSI's picture tubes account fora fuli2o per cent of the ltalian
market; 40 per cent of ELSI's output was exported to countries such as Germany, France and
Holland (C 3/CR 89/2, pp. 28o-z8x).
I should point out that ELSI bought no glass tubes from Russia as was asserted by the
Respondent (C 3/CR 89/5, p. 373). Tubes were purchased only from Germany and Franceanother
of the Respondent's many inaccuracies.
The future for these products was excellent. There was a substantial market in Europe
for black-and-white television tubes, both for originai and replacement tubes. Colour television
asserticmwith resp~ctto the semhri~n.ductorline is that it
utilized ger:manium technology which had been ob~olescent for n:t~Y years (C 3/CR 89[5, p.
373). The Re~pon.dent's assertiòn com,plet~ly ignores Mr. Clare's ~pec$c testùnqny that he and
his management team. had. çomrerted the line from rnanufaçturing ge,mlfil'!illm prod1lc:ts. to ma~
nufacturing silicon products many months prior to the requisition (C 3/CR 89/2, p. zSz).
3!
478 RASSEGNA DELL'AVVOCATURA DELLO STATO
Microwave tubes. In its oral pleadings, the Respondent made no mention of the microwave
tube line whatsoever. ELSI was manufacturing high technology, low-noise power devices for
the Hawk missile system. As both Mr. Adams and Mr. Clare testified, the quality of these tubes
was unmàtched worldwide and was backed by Raytheon license and know-how (C 3/CR 89/1,
p. 26o; C 3/CR 89/2, p. 281). This line also produced magnetron tubes, the power sources
for big radars, an d · they could ha ve produced the magnetron tube used in microwave ovens.
As both Mr. Adams and Mr. Clare testified, microwave ovens, based on the commerciai, technological
and manufacturing know-how of the wholly-owned Raytheon subsidiary, Amana,
would have provided a gold mine of business for any purchaser of the line.
Surge arresters. Mr. Clare also testified to the viability of the small surge arrester line, which
the Respondent again did not even mention in its oral statement. This was a highly profitable
line capable of supporting signi:ficant new sales into the STET -PTT area. Thus, there is substantial
documented evidence on the record, product line by product line, that demonstrates
the unique qualities of each that made them readily saleable.
The Respondent declared in its oral presentation that the orderly liquidation plan was sheer
fiction- or a «legend» to use the Respondent's own words (C 3/CR 89/8, p. 455). I would hardly
refer to the record before this Court as fiction or legend. The team designateci to sell the assets
in liquidation identified three possible alternatives. The first possibility - and the first step the
management team would pursue- was to sell ELSI as a total entity. The most obvious purchaser
for ELSI as a whole was an IRI company. The second alternative was to sell the television
tube plant and the other product lines as two separate businesses. The third likely scenario
was sale of the individuai product lines.
The liquidation team planned to approach ELSI's major competitors and major distributors
for each product line. They would also target companies seeking to ad d to their own production
and companies that might seek to expand or diversify their product lines.
Mter the decision of the shareholders on 28 March 1968, the liquidation plan was put into
motion. Dismissal notices were sent to the employees and Raytheon transferred 150 million
lire to start the payment of small creditors. The management working groups assembled to
implement the liquidation prepared to contact potential purchasers with the aim of locking in
commitments from purchasers within two to three months.
The Respondent expresses scepticism as to why contacts with potential purchasers had not
yet been made (C 3/CR 89/6, p. 402). As previously stated, Raytheon and Machlett delayed the
orderly liquidation for as long as possible to give the negotiations with the Respondent the
maximum chance of success. There is no evidence of specific contacts with purchasers only
because the Respondent's unlawful requisition intervened only three days after Raytheon and
Machlett voted to proceed with the orderly liquidation. The Respondent cannot now exploit
the unavailability of specific contacts, as it effectively prevented such contacts from being made
with the intervening requisition. However, even after the requisition, Raytheon received unsolicited
inquiries from companies in the United States, Japan and Greece (Counter-Memorial,
Unnumbered Documents II-24 to II-28; C 3/CR 89/2, p. 283). Inquiries such as these, and
those made directly to the bankruptcy trustee - which carne in even without the efforts Raytheon
had planned to make- underscore the immediate marketability and saleability of ELSI's
product lines.
Judge Schwebel has asked whether it would have made sense for Raytheon and Machlett
to have sold ELSI at an earlier point intime (C 3/CR 89/2, p. 275). The answer, in an economie
sense, is yes. The reason Raytheon and Machlett waited as long as they did to commence the
orderly liquidation was to allow the Respondent every possibility to become involved in ELSI
and thereby avert the orderly liquidation. It was only when no concrete agreement had materialized,
and the 4 billion lire investment was nearly depleted, that they reluctantly decided to
proceed with the orderly liquidation.
John Clare accepted Mr. Highet's statement that the company at this point was << bellyup
», This does not mean that ELSI was bankrupt or even insolvent under Italian law, but merely
that the prior year investment was nearly gone and the time had come when a liquidation
was necessary.
REPLICA CHANDLER 479
Thus, there was a specific pian for a liquidation, financially backed by Raytheon, that was
destined to recover maximum value for ELSI's assets. Mr. Adams and Mr. Clare have both
testified that in their business judgment in the orderly liquidation that was planned, ELSI's
assets would have brought at least the valuè shown for those assets on ELSl's books. Mr. Lawrence
has also provided you with his expert opinion that sale of ELSI's as~ets would have recoyered
x7,I32.7 billionlire. This amount would have been sufficient to discharge all of ELSI's
obligations, inclt~ding Raytheon's cutrent accounts with ELSl.
The Respondent has presented a second calcwation of ELSI's value which, on examination
is surprisingly similar to ours. Mr. Lawrence will deal with these caiCulations in detail this afternoon.
I would only note at this point that the Respondent makes virtually no reference to the
judicial valuation of the fixed assets in the bankruptcy proceeding ~ Mr. Puglisi's valuation.
The record fiJrther demonstrates that if, for any reason, the sale of ELSI's assets had not
realized sufficient funds to pay ali creditors in full, several alternatives were available to Raytheon
and Machlett -'- alternatives which could never be implemented because Respondent's
precipitous and unlawful requisition intervened.
This brings me to the second of the three centrai issues which continue to separate the Parties:
whether ELSI was obligated as a matter of Italian law to be placed into bankruptcy at some
point prior to the requisition. As Professor Bonelli has demonstrated in some detail,
The PRBSIDENT: I am sorry to interrupt you. Perhaps this is a good time to ha ve our break ?
Ms. CHANDLER.: Mr. President, I have only about another three minutes before a natura!
break in the presentation.
The PRBSIDENT: You can continue then.
Ms. CHANDLER: Thank you. As Mr. Bisconti will cònfi.rm in a moment, no provision of
Italian law obligated ELSI to file for bankruptcy at any point prior to the requisition.
The Respondent asserts that when a company faces great losses or even financial disaster,
the consequence is that Italian law does not permit any sort of liquidation other than the bankruptcy
procedure. Professor Bonelli has demonstrated the contrary: that un der Italian la w a
company may proceed with an orderly liquidation under one of several procedures under I talian
law - and is not obligated to file a petition in bankruptcy - even if its liabilities may appear to
exceed its assets. One possibility was that Raytheon and Machlett cowd have deferred their
own credits to ELSI. Another possibility was that Raytheon and Machlett could have settled
some or ali of ELSI's debts. For example, Raytheon and Machlett were committed to paying
off the small creditors and the secured loans in full, negotiating the settlement of other unsecured
loans, and paying the balance of the guaranteed loans. Professor Bonelli has demonstrated
that in Italy settlements with creditors are not only legally possible, but desirable. Creditors
in . .ltaly and elsewhere have an economie incentive to settle their credits in a negotiated settlement,
rather than accept little or nothing in a protracted bankruptcy proceeding. In addition,
creditors typically agree to settle their credits in light of the requirement that a bankruptcy
trustee cancel ali payments which were made within one year of the declaration of bankruptcy
(C 3/CR 89/2, p. 291).
Willingness of the unsecured, unguaranteed creditor banlts to settle is further evidenced by
events that transpired in the fall of 1968, when the Italian Government actively pursued negotiated
settlements with the banks as part of its efforts to acquire ELSI's assets. AH but one
of the seven creditor banks agreed to accept 30 to 40 per cent of their unsecured claims. One
bank decided that it would accept so per cent (Memoria!, p. x6). These negotiations were never
completed because of the decision by the Italian Government to purchase ELSI's assets in the
bankruptcy process (Memoria!, p. x6).
The Respondent does not take issue with Professar Bonelli's detailed statement of Italian
law, and announces instead that it is «irrelevant» (C 3/CR 89/6, p. 400). Curiously, the Respondent
then devotes most of its argument to United States bankruptcy law. ELSI, however, was
governed by Italian law, not US law, and US law is therefore completely irrelevant to the proceedings
before this Court. Mr. President, I will therefore ask Mr. Biscanti to discuss ELSI's
rights and obligations under Italian law.
480 RASSEGNA DELL'AVVOCATURA DELLO STATO
Tlie PRESIDENT: Judge Schwebel would like to put some questions to Ms Chandler.
Judge ScHWEBEL: I should like to ask you, as counsel, the following: it was stated that
ELSI had in fact applied for Mezzogiorno benefits. Can the Applicant provide documentary
support for this statement ?
Another question, of a more generai kind, is this: could the Applicant tell the Court, or
supply to the Court, figures on the total sales and profits of Raytheon and its subsidiaries worldwide
for the years 1967 and 1968? And in that regard it would be helpful, if it is feasible, to
indicate where among the electronic manufacturers of the world in those years Raytheon ranked.
Thank you.
The PRESIDENT: I would also like to put two questions.
In the course of the pleading of the Italian delegation, they have maintained that Raytheon
charged ELSI for the patents, licences, and technical assistance given; and they say that ELSI
had to pay a lot of money to Raytheon for this assistance. In your statement, Ms. Chandler,
you said that Raytheon had decided, in the liquidation, to provide these licenses, these patents
and this technical assistance to the new buyer of the whole business or the buyer of the product
lines. My question is: was Raytheon going to charge the new buyers the same amount as they
had previously charged ELSI ?
The second question is the following, on another matter. I wanted to put this question
before but it went out of my mind. On 28 March dismissalletters were sent to some 8oo workers,
if I remember correctly. How much was the amount of money, in Italian lire, that ELSI
would have had to pay, according to the labour law of Italy, for the dismissal of these workers?
Thank you very much. You do not need to reply now.
Ms. CHANDLER: Mr. President, judge Schwebel: we willlook into these questions and provide
you with our answers.
The PRESIDENT: Thank you very much.
The Court adjourned from II.JO a.m. to II.45 a.m.
The PRESIDENT: Please be seated. Ms. Chandler. You have been working during the break?
Ms. CHANDLER: That is right. Mr. President, in just one momentI would like to ask Mr.
Bisconti to discuss ELSI's rights and obligations under Italian law. Mr. Bisconti will demonstrate
the shareholders' entitlement to place ELSI in orderly liquidation as a matter of Italian
law, he will respond to the Respondent's statements with regard to Italian bankruptcy law, and
he will demonstrate the legality and feasibility of creditor settlements in Italy. Mr. Bisconti
is the senior partner in the law firm of Studio Legale Bisconti with offices in Rome, Milan, London,
and New York. He is a member of the Italian Bar Association, an Honorary Member of
the American Bar Association, and a Fellow of the American Bar Foundation. In September
1988, in Buenos Aires, Mr. Bisconti was elected the Vice-President of the Intemational Bar
Association. Mr. Bisconti was counsel to Raytheon during the orderly liquidation plan, the
intervening requisition, and the ensuing bankruptcy. He is therefore thoroughly familiar with
Italian law as it relates specifically to the plan to liquidate ELSI's assets, with the intervening
illegal requisition, and with the decision to place ELSI in bankruptcy. I now ask the Court to
in vite Mr. Bisconti to come forward.
The PRESIDENT: I call upon Mr. Bisconti, please.
Mr. BxscoNTI : Mr. President an d distinguished Members of the Court, i t is a distinct honour
and privilege for me to appear before the Intemational Court of J ustice in this case on behalf
of the Applicant, the Government of the United States.
I have been asked to address the question whether the stockholders of ELSI could have
legally carried out an orderly liquidation of the ELSI assets at the end of March 1968. I have
also been asked to respond to arguments raised by the Respondent that ELSI was obligated
under Italian law to file a petition in bankruptcy prior to the requisition.
CONSULENZA BISCONTI 481
With regard to the first of these two issues, there can be no question that Raytheon and
Machlett, as stockholders in ELSI, had a right under Italian law to proceed with an orderly
liquidation of assets for whatever reason they deemed fit.
As counsel to the stockholders and to ELSI's Board of Directors at the time, it was my
responsibility to see that there be an orderly Iiquidation of ELSI in full compliance with the law.
One of the most important factors in the pre-requisition period, which assured the effectivity
of the orderly lìquidation and made bankruptcy an unthinkable event, was the fact that ELSI
had the hacking of its stockholders. As Mr. Clare has testified and as I know from my own personal
knowledge in the aforementioned capacity as counsel, the stockholders had guaranteed
the cash flow necessary to make the orderly Iiquidation work. This should be distinguished from
making more funds available to ELSI for continued operations. The record will show that
ELSI's parent corporations had stated in early 1967, and had repeated to the Respondent throughout
the remainder of 1967 and the early part of 1968, that they would not fund ELSI's operations
beyond the period such operations could be carried by the 4 billion lire they had invested
in 1967. As the record will show, the stockholders had already transferred funds for the purpose
of paying off the small creditors. I t makes no sense to speak of a subsidiary of financially stable
parent corporations in the sàme way one speaks of an entirely independent corporation. As
long as the parents back the subsidiary, it may accomplisy an orderly liquidation in situations
which would be much more difficult for a corporation not having such hacking. With the hacking
of Raytheon and Machlett, ELSI was assured of the funds and the cash flow and whatever other
assistance, financial or otherwise, might have been needed to effect an orderly liquidation.
In addition to the funds and the cash flow, ELSI also needed to make an advantageous
sale of its assets and to reach a settlement with its creditors. Mr. Lawrence, an eminent evaluation
expert; has testified that the realizable value of ELSI's assets was over 17 billion lire. If
a sale for this price could have been achieved, ali the creditors could have been paid in full. An
agreement would have been necessary with the large unsecured creditors to await the outcome
of the sale for full payment. Under the circumstances, had a freely operated sale of assets been
assured, it would appear entirely reasonable for the few large creditors to await the results of the
sale, and in such circumstances they could have been counted on to àssist ELSI in making an
advantageous sale of its assets to a new owner, or severa! new owners, of the various business
lines. The record shows that ELSI initiated this process on I Aprii 1968 meeting with the
creditor banks but that the process was brusquely interrupted by the requisition.
The PRESIDENT: Something about.
Mr. FERRARI BRAvo: Mr. President, a small point of order. It seems to me that, at least
in the first part of his statement, Mr. Bisconti appears to be giving evidence from his own personal
experience. So I would suggest that the Applicant qualify him as a witness so that he can
come forward for cross examination, if necessary on Thursday, on this testimony which is being
offered only at the rebuttal stage. Thank you, Mr. President.
The PRESIDENT: I was looking over the rules precisely on this point. I have also the impression,
Mr. Bisconti, that, at the beginning of your statement, you made some assertion of
facts, something that you had known when you were assisting as a lawyer to ELSI. Therefore,
I think that if the American delegation has no objection to this, I think that for this part of the
statement I will take you as a witness, because you are testifying on something that you know
from your own personal knowledge. Therefore you can continue with your statement now; a t
the end of it, I will ask you to take the declaration made by witnesses and you will be submitted
to cross-examination by the Italian side. You can continue, Mr. Bisconti.
Mr. BrscoNTI: Thank you, Mr. President. This brings me to my second point. Respondent
alleges that Italian law should have prevented the orderly liquidation and that ELSI should instead
have filed a petition in bankruptcy at some point prior to the requisition. It is my considered
opinion that ELSI had no obligation under I talian law to file a petition in bankruptcy
at any point prior to the requisition. I have studied the affidavit and ora! statement of Professor
Franco Bonelli and agree that he has correctly stated the Italian law as it applies to this case. I
482 RASSEGNA DELL'AVVOCATURA DELLO STATO
have also reviewed the affidavit of Professar Jaeger annexed to Respondent's Counter-Memorial
and the oral statements of Professors Libonati and Bonell and respectfully disagree with their
conclusions.
First, Professor Libonati finds that ELSI had an obligation to file a petition in bankruptcy
derived from Artide 5 of the Italian Bankruptcy Law. He concludes that a company is required
to file a petition in bankruptcy if it is in default of payments due or if there are other external
facts which would demonstrate that it is no longer in a position to satisfy its own obligations in
a regular manner. ELSI was not in a such a position prior to the requisition and Respondent
has not and cannot document a single bill that was due prior to the requisition that ELSI was
unable to pay. Even Respondent's own expert, Mr. Hayward, is incapable of stating that ELSI
was in fact insolvent and concedes that ELSI was merely on the << verge of insolvency ». From
this ensues the conclusion that prior the requisition, Artide 2I7 of the Italian Bankruptcy Law
was totally inapplicable to ELSI.
Respondent also asserts that ELSI was bankrupt by virtue of Articles 2447 and 2448 of
the Italian Civil Code. It is true that ELSI would have been considered dissolved as a matter
of law if its capitai were depleted below the statutory minimum amount. At the relevant time
the statutory minimum was I million lire. As the United States Memoria! demonstrates, ELSI's
capitai, as reflected in the statutory accounts prepared in accordance with Italian law, even after
taking into account losses, was always well above the statutory minimum. I should also note
that Respondent takes no issue with Professar Bonelli's conclusion that ELSI was under no
obligation to file a petition in bankruptcy under Artide 2446 of the Italian Civil Code.
Respondent further queries whether at some point during the planned liquidation ELSI
would have been obligated to file a petition in bankruptcy under Italian law, particularly with
regard to the 8oo million lire payment to Banca del Lavoro in late Aprii of Ig68. The answer
is no. Raytheon and Machlett had made the commitment to support fully an orderly liquidation,
including the payment of small creditors and any other notes and bills that carne due during the
period before proceeds from the sale of ELSI's assets could be obtained. With this hacking,
ELSI would not have had any obligation to file a petition in bankruptcy.
Respondent makes much of its conclusion that ELSI's liabilities in March of I968 exceeded
its assets. I do not agree with Respondent's conclusion. Raytheon, Machlett and ELSI's Board
of Directors- and I as their counsel- had every confidence that ELSI's assets could be sold
for book value and all creditors in any event of the course of an orderly liquidation would have
been paid in full.
Professor Bonell declares in his statement that ELSI nearly committed a crime of so-called
abusive recourse to credit un der Artide 2 I 8 of the I talian Bankruptcy Law by accepting the stockholders
financial hacking in order to satisfy small creditors. I greatly respect Professor Bonell
and have read with great interest severa! of his writings and books, noting in particular the thoroughness
of his documentation in the footnotes. I am utterly surprised that Professor Bonell
refers to Artide 2I8 in such an incomplete manner. Artide 2I8 punishes as a crime the fact of
an << entrepreneur exercising a commerciai activity who has recourse or continues to have recourse
to credit concealing his economie situation » (my translation).
One need no t be a scholar in bankruptcy or criminallaw to conclude that there is no recourse
to credit in accepting a contribution from stockholders who are fully aware of the company's
financial conditions.
I am equally surprised that Professor Bonell - to whom I wish to express again my high
esteem and respect- refers in a significantly incomplete manner to Artide I6o of the Italian
Bankruptcy Law. Under said Artide, as one of the alternative conditions to be admitted to the
procedure of judicial settlement, the debtor must show the court that he can offer serious guarantees
- << real » or << personal » - that he is able to satisfy the unsecured creditors with at least
40 per cent of their claims, within six months from the homologation of the settlement or, in
the case of a more extended period, that such guarantees cover interest at the legai rate for the
excess period. Having the hacking of the stockholders, ELSI could have easily satisfied the
conditions of Artide I6o.
CONSULENZA BISCONTI 483
As to the repeated allegations by Respondent that ELSI or its directors had violated provisions
of the criminal law, I beg leave of this highest Court to state most emphatically that by
filing a petition in bankruptcy ELSI not only opened its books to the Court, but submitted to
the Court's scrutiny all its activity as · it may have been relevant. An excerpt of the judgment
declaring the bankruptcy must be sent by the Court to the public prosecutor to enable him to
exercise a criminal action under Articles 17 and z38 of the Bankruptcy Law. Under Artide 33
of the Bankruptcy Law, the cutator is requii:ed to submit to the court a report covering also the
responsibility of the debtor in the bankruptcy under the criminalJaws .. Had the court had any
doubt about possible breaches of the criminal law by ELSI's directors, or had the curator in
bankruptcy had any doubts as to the directors' responsibility under the criminal provisions of
the Italiari Bankruptcy Law, these would have been reflected in criminal charges against ELSI's
directors. N o such charges were ever made.
Moreover, during 17 years of.extenuating litigation brought in Italy by the banks against
Raytheon and Machlett, the behaviour of the stockholders and of ELSI's board were under
the eyes of the Italian courts. Not only no criminal charges were ever made or intimated, but
Raytheon and Machlett were fully vindicated by the Italian courts.
But let us assume for one moment that Respondent were correct. As Professor Bonelli has
demonstrated - and I fully agree - under Italian law a company is entitled to proceed with
an orderly liquidation of its assets ev:en if its liabilities may appear to be greater than its assets.
Professor Bonelli described severa} alternatives available to a company in this position. One very
real possibility available to ELSI was settlement with creditors, either by private or judicial
settlements. As Professor Bonelli correctly concluded, any one of these alternatives would have
placed ELSI and its creditors in a far more favourable position than did the sale of ELSI's assets
in bankruptcy.
Both Professor Bonelli and Professor Jaeger (two leading experts in Italian commerciai and
bankruptcy law) agree that creditors in Italyhave substantial economie incentives to settle their
credits in an orderly liquidation rather than receive little or nothing in a protracted bankruptcy
process. I t is a notorious fact, and it has been my experience as a practicing lawyer, that creditors
in I taly are willing to . settle credits for. much less than · face value.
I t is criticai to note that Professor Bonell did not dispute any of the alternatives described
byProfessor Boiiélli, nor did he dispute the principle stated by Professor Bonelli and Respondent's
own counsel, Professor Jaeget, that creditors have substantial economie incentives to
settle their debts. Pròfessor Bonell's argument in this regard is thàt « there is no evidence whatsoever
that, prior to the requisition, the banks were willing to accept the proposal of a 30 to
50 per cent payment ». Respondent has not presented any credfble evidence why ELSI's creditors
would not have been willing to settle their loans. There is no evidence of bank negotiations at
the time ofthe requisition because, at the time, the stockholders were fully confidentthat ELSI's
assets would have recovered book value, and there was no need at the time to start any such
negotiations. What the stockholders and ELSI's board were seeking at the time was an understanding
with the banks on the manner and timing of an orderly liquidation. Bank settlements
would have remained as a very viable alternative for ELSI, but only an alternative.
However, the requisition of ELSI's assets prevented any of the alternatives described by
Professor Bonelli from becoming reality. The requisition prevented ELSI from proceeding with
an orderly sale of assets, prevented ELSI from completing work in process, and even prevented
ELSI, had it so chosen, from proceeding with creditor settlements. If Respondent does not
find satisfactory documentation of creditor settlements on the record of this case, it is precisely
because Respondent's illegal requisition of ELSI's assets made any legitimate alternative impossible.
Thank you, Mr. President.
The PRESIDENT: Thank you vex:y much. As I sai d before, we interpret the first part of your
statement, Mr. Bisconti, as expressing things that you know as a lawyer for the firm, and facts
that you know as a lawyer for the firm: therefore, as you know, the Italian delegation has asked
that you be treated as a witness. I have decided to consider you, if the American delegation does
not object, as a witness as regards the first part of your statement. Therefore I have to ask you
484 RASSEGNA DELL'AVVOCATURA DELLO STATO
to take the solemn declaration under Artide 64 of the Statute. Could you put it in the past tense
please.
Mr. BISCONTI: I solemnly declare, Mr. President, upon my honour and conscience, that I
have spoken the truth, the whole truth and nothing but the truth.
The PRESIDENT: Thank you very much, Mr. Bisconti. Does the Italian delegation wish to
put some questions now - only on the part of the statement relating to facts ?
Mr. FERRARI BRAvo: It is difficult to consulta big delegation. I am sorry, Mr. President,
but I think perhaps this aftemoon, if it is convenient to the Court.
The PRESIDENT: You can do so at the beginning of the afternoon, but judge Sir Robert
J ennings would like to put a questi o n to you now, Mr. Bisconti.
Judge }ENNINGS: I have a simple question of fact- I am not sure whether it is addressed
to Professor Bisconti orto the United States delegation; probably the United States delegation
will decide how the question should be answered and when. I t is simply this: did ELSI succeed
in selling any of its assets in pursuance of the orderly liquidation before the requisition
intervened in the process, or, indeed, did i t manage to sell any of its assets after the requisition,
and before the bankruptcy ?
The PRESIDENT: If you want to reply in the afternoon, Mr. Matheson, you may. Judge
Schwebel, do you wish to put a question to Mr. Bisconti ?
Judge SCHWEBEL: Please. Did I understand Mr. Bisconti to say that ELSI's plan to pay
off small creditors in full was lawful under Italian law, and tltat there was no merit to the contention
that such payment would have been an unlawful preference ? That is my first question.
My second is this: I understood Mr. Bisconti to maintain that the fact that an instalment
on a bank loan was due in late Aprii of some 8oo million lire, - I believe the figure - did not of
itself indicate that bankruptcy a t that juncture was inevitable, because the stockholders of ELSI
were prepared to meet such a loan if doing so was pursuant to a sale of assets which would have
realized, by the proceeds of the sale, funds which presumably would have repaid the stockholders
for advancing funds to meet the loan payment. Now I had earlier understood, from argument
of the Applicant, that the stockholders had transferred a sum of money sufficient to pay small
creditors. Had any steps been taken by the stockholders, which evidenced the further intention
of the stockholders to act in the fashion I have just referred to with respect to the loan payment
due in late Aprii ?
The PRESIDENT: You ma:y reply, Mr. Bisconti.
Mr. BISCONTI: If I may, Mr. President, I will reply in the early aftemoon. Thank you.
The PRESIDENT: Thank you very much. Are there any other questions from the Bench?
No. Therefore I relieve you. Thank you very much.
Mr. BISCONTI: Thank you, Mr. President.
The PRESIDENT: I now call upon Ms. Chandler again.
Ms. CHANDLER: Mr. President, the Respondent's finalline of argument is that even if the
requisition did prevent the orderly liquidation, the requisition caused no damage because ELSI
would have gone bankrupt anyway. As Mr. Bisconti has shown, ELSI would not have filed the
petition in bankruptcy had the Respondent not illegally requisitioned ELSI's assets. The Respondent
does not d1spute that the requisition prevented the sale of ELSI's assets, that the requisition
prevented ELSI from resuming lirnited operations, and that the requisition effectively
prevented settlement with creditors. In this posture, orderly liquidation was simply out of the
question. Without cash available to meet bills as they carne due, the only practical alternative
open to ELSI was bankruptcy. The requisition barred ELSI from closing the plant in an orderly
liquidation. After its imposition, the only way to dispose of ELSI's assets was through the protracted
bankruptcy process.
REPLICA CHANDLBR 485
The Respondent, by contrast, argues that ELSI was insolvent or at least. on the « verge of
insolvency », In considedng this contention, it is worth bearing in mind at the outset the testimony
that was presented Iast week by the Respondent's accounting expert, Mr. Hayward. The
issues raised by Mt\ • HayWard wili be dealt with by Mr. Lawrence this aftemoon, but a t this point
I wish to focus the Court's attention on one significant point; ·
In response to questions;. Mr. Hayward stated that he believed ELSI was « on the vetge of
insolV.ency » òn 31 March.1968 •. •• He weilt on to eJtplain that he meant that ELSI was on the verge
of a • situation where i t could .no t pay its liabilities as they would fall due. But he made clear that
even ·thiswould· not prevent ELSI from coritinuing.to··dobusiness. As Mr. ·Hayward put it,
« tintil one ha& gone to the court an d actually declared that the company is insolvent, the company
can still continue business - which I think was the case of ELSI » (C 3/CR 89/7, p. 435, [italics
added]);
As we have showni the «business » that would be proceeded - if the requisition had not
intervened ..,._. was the business of the orderly liquidation, which ELSI was actively planning in
March.of 1968., •. That liquidatiòn would have workéd; Raytheon stood behind i t and would ha ve
made certain that it worked. The liquidation would have realized for ELSI an amount at least
equal to the• book value of ELSI's assets.
The Respondent has made much of the predictionby John Clare, in a meeting with Italian
officials~ that ELSrs fu:nds would•tun out in early March. This statement reflected the depletion
ofthe. 4 billion lire investment from the prior year. I t cannot be concluded that fundswere
not. available · from Raytheon · to successfully .·complete . the orderly liquidation.
ELSÌ was not insolvent~ At the time of the requisition, ELSI had paid every single bill
that had cofue due, ìnèluding the Matéh 1968 payroll. The Respondent asserts (C 3/CR 89/5,
p. 359) that the salaties of the ELSl workets were paid by the Sicilian Region in March 1968
because ELSI could not make its March payroll. This is simply wrong. The Respondent's
complaint concerning notice and payment given to the workers in March of 1968 is entirely
unfounded;
And · ELSI · would have remained fully solvent through the orderly liquidation period.
During the liquidation period, ELSI would have generateci funds of its own by establishing an
aggressiv~ programme to collect the 2,400 million lire. in accounts receivable an d the 400 million
lite in xwtes ~~Cl aççrued receivables. . They. would have also sold the finished goods of I ,8oo
rnillicin lire. to existing customers and others. These proceeds would ha ve been used to pay the
following:
. - wages an d benefits of 30 million lire per month for the I 30 retained workers;
- severance pay of SIO rnillion lire .to terminated employees;
- 283 million lire in accounts payable to those other than Raytheon;
- I ,ooo million lire of other accrued liabilities; an d
- all current but greatly reduced operating expenses (including telephone bills, utility bills,
and the like).
l)uring this period.·they would have .negotiated with the creditor banks for extension of
guar!inteed debt and foJ,' new arrangements on unguaranteed debt. All interest charges, however,
would have been paid on time.
Most important of all: if, for any reasons, the collections were insufficient to meet the case
requirements during the period, funds would have been provided by Raytheon. • In addition,
all salaries and expenses of the Raytheon personnel handling the liquidation would have been
paid by Raytheon.
Raytheon's commitment to advance all funds needed to provide the necessary liquidity for
the orderly liquidation had been shown in the affidavits of Mr. Clare, Mr. Schene and Mr.
Scopelliti (Memorial, Annexe 13, para. I4; Memorial, Annexe IS, para. 53; Memoria!, Annexe I7,
para. I4; Reply, p. 129) and in these oral proceedings (C 3/CR 89/2, pp. 279-280). This very
criticai aspect of the orderly liquidation plan has been completely overlooked by the Respondent
both in its written pleadings and in its oral statements last week.
486 RASSEGNA DELL'AVVOCATURA DELLO STATO
In arguing that ELSI was insolvent and would have gone into bankruptcy in any event,
the Respondent has also suggested that ELSI was being exploited by Raytheon - squeezed
like a lemon, to use the Respondent's phrase. l t is difficult to see the relevance of this argument
because even if it were true, Raytheon and Machlett were stili entitled under Italian law to liquidate
ELSI's assets. The Respondent's accusations, however, cannot pass without comment.
The Respondent repeatedly asserted that ELSI always made only losses, and twice set
forth the figures - year by year, from 1963 to 1968 (C 3/CR 89/5, p. 374). ELSI's losses
as such have never been in dispute. That was exactly why Raytheon ultimately determined to
liquidate the Company. But in considering ELSI's financial situation, it is important for the
Court to have a picture that is complete and accurate. For that purpose, the figures cited by
the Respondent are ill-suited, for they do not tell the whole story.
The loss figu~;es that have been cited are drawn from Schedule B3 of the Affidavit of Mr.
Arthur Schene, which is contained in Annex 13 of our Memorial. Those figures represented
net loss. A dose examination of that schedule reveals, however, that ELSI actually generated
an operating profit in 1964, 1965 and 1966. The net losses resulted only after the interest expenses
were taken into account.
The substantial interest expenses, which are reflected in the schedule and which tumed
profits into losses, resulted from a deliberate choice made by Raytheon with respect to the financing
of the company. Specifically, Raytheon had to decide whether to finance ELSI with large
amounts of equity, which would have required borrowing in the United States, or whether to
finance it primarily with secured and guaranteed bank debt in ltaly. Raytheon chose the latter
approach, for two very good reasons. First, interest rates were no t significantly different; in
fact, certain interest rates in Italy were lower. Second, the approach chosen avoided the impact
of foreign exhange rate adjustments on Raytheon's income statement. In deciding to finance
ELSI with Italian debt rather than equity, Raytheon was following a worldwide practice common
among companies with foreign investments.
Moveover, ELSI's apparently poorer financial position in 1967 actually reflected very legitimate
steps taken by ELSI management to take a more conservative view of ELSI's assets.
These included:
- a 100 per cent screening of all customer accounts receivable which resulted in the deletion
from the books on 30 September 1967 of 6oo million lire of sales which had been erroneously
recorded in prior years;
- a review of all inventory which made certain, for example, that old style cathode ray tubes
and germanium semi-conductors were valued a t minimum recoverable value or no value;
- finally, starting in 1963, a full annual charge for depreciation was recorded on all fixed
assets.
In view of the continually increasing conservatism resulting in the out-of-period adjustments
referred to above, the average annual operating loss may reflect a more accurate summation
of ELSI's operating performances during that five-year period.
In any event, the operating loss in the fiscal year ended 30 September 1967 is totally distorted
and gives the erroneous illusion of significantly increasing losses towards the end of ELSI's
operations.
Moreover, there were other factors unrelated to ELSI's management and assets which distorted
the final six-month period of ELSI's financiallife. There were the series of earthquakes
which devastated Palermo. These earthquakes polluted the water supply and caused an epidemie
of spinal meningitis. These occurrences, which are common knowledge, disrupted ELSI's operations
during this period and temporarily increased its losses. In addition, no new products had
been found to re-employ the workers who were enrolled in the training program. Their layoff
caused a series of random, unannounced walkouts of employees further disrupting operations
and temporarily increasing ELSI's product costs. All of these disruptions were temporary and
one-time occurrences and should not be interpreted as having any permanent deleterious effect
on the value of ELSI assets.
REPLICA ·CHANDLER 487
The Respondent's glib characterization of ELSI as a lemon is thus unfounded in fact and
cannot withstand a genuine analysis of the events that transpired in the year before the requisitio;
n,
To evidence. its position that Raytheòn and Machlett were « squeezing » - or exploiting -
ELSI, the .. Respondent relies .exclusively on the s~alled Mercadante Report. The data in the
Report.of Dr. Mercadante is replete with errors an d statistica! distortions. I willlimit my remarks
today to three of the. mor~ illustrative issues mentioned in the Mercadante Report: royalties,
management fees, and techn:ical consultancy fees.
From 1960 through 1967; royalty rates averaged less than 3 per cent of sales, but almost
none of the royalty payments that . accrued were actually ever paid.
Exhibit C to Mr. Deitcher's Affidavit, which is contained at Annex 14 of our Memoria!,
shows cleatly that a total of almost US$5oo,ooo in royalties ___;:_ the vast bulk- remained unpaid
on 31 March xg68; This amount WaS ìricluded in the tl open accounts" that Raytheon never
recovered because of the bankruptcy.
Next, management fees. During the period after 1962, ELSI was assessed by Raytheon a
noritlal management fee, to cover costs, that averaged about x per cent of sales. But again, most
of thèsè fees wete accrued but riever paid. · Mt. Deitcher's exhibit shows management fees for
Raytheon ànd Raytheon Service Coinpimy totallitig US$521,753- again the vast bulk- remaining.
unpaid on • 3 r March · x g68. Together with · the other open accounts, they were lost as a
result of the banki:'uptcy.
The expenses for technical consultanciès, to which Dr. Mercadante also referred, represented
reimbursement of out-of-pocket costs for the services of Raytheon's technical specialists who
worked on ELSI's problems. The story here is exaccly the same. As Mr. Deitcher's exhibit
reveals, most of the « specialist's billings" -ari amount of US$143,763- remained unpaid on
31 March 1968. They were never received byRaytheon. Thus, to suggest that ELSI was a
lemon that was being squeezed by Raytheon is to present a picture that is wholly distorted.
One final point. The Respondent contends that an orderly liquidation was impossible because
the workers « had been in and out of occupying the plant for some weeks" (C 3/CR 8g/8,
p. 456). Contrary to the Respondent's assertion, the Judgment of ;the Court of Palermo does
not establish that the occupation began on 13 March 1968 and continued through to the date of
the requisition. Rather it is after the requisition that the local police did nothing to prevent
ELSI's former employees from occupying the plant. The Respondent itself gives great weight
to a document that states that the requisition began on I Aprii (C 3/CR 8g/6, pp. 387-388). W e
will discuss the legai arguments set forth by the Respondent in our discussion of the Treaty
section. At this point, I will simply note the Respondent cannot plead the various provisions
of its internallaw to contravene its Treaty obligations. Thus, despite all of the Respondent's
attempts. to portray ELSI as a poor subsidiary bilked by its greedy parents, nothing could be
further from the truth. ELSI's financial picture was improving substantially and ELSI or its
product lines would have been a positive additional asset to many potential buyers. Backed by
ampie Raytheon financial resources there is nothing to suggest that ELSI was or would become
insolvent at any point durìng the orderly liqu:idation.
I would like now to turn to the issue of compensation. · As we have demonstrated, the Respondent
should make reparation for all of the financial losses flowing from its wrongful acts
and omissions, including the illegal requisition. These losses include the loss of Raytheon and
Machlett's financial investment, the loss of Raytheon's open accounts, the payments by Raytheon
of the guaranteed loans, and payments by Raytheon of various legai and related expenses.
Of course, even if the Court were to find that the requisition were not the cause of the bankruptcy,
a position with which we firmly disagree, Raytheon and Machlett suffered direct and substantial
losses arising from the other acts and omissions by the Respondent.
I will address the key issue of valuation shortly. Before I do, however, I would like to focus
briefly on two other aspects of compensation raised by the Respondent last week: reimbursement
of legai expenses and interest.
488 RASSEGNA DELL'AVVOCATURA DELLO STATO
The Respondent has contested our inclusion of legai and related expenses in the claim for
compensation. As we have shown, however, the legai costs that we claim in this case arose as
a direct and foreseeable consequence of the unlawful acts and omissions by the Respondent.
None of these expenses would have been necessary if ELSI had been permitted to proceed with
the orderly liquidation; the proceeds of the liquidation would have been sufficient to pay ELSI's
creditors in full. These expenses became inevitable, however, once the Respondent intervened
with the requisition, which predictably drove ELSI into bankruptcy (case of Cerruti, summarized
in MooRE, Arbitrations, Vol. 2, pp. 2121 et seq. [Government of Colombia required to pay litigation
costs incurred in by Cerruti in defending against creditor actions]).
The Respondent's reference to the practice of the Iran-US Claims Tribuna! on the issue
of costs is beside the point. Costs awarded by the Tribuna! are those related to the arbitration
proceedings, and in awarding such costs the Tribuna! operates within the framework of its own
rules (see especially Art. 38 of the Tribuna! Rules). In this case, by contrast, the United States
seeks no compensation for the costs of the proceedings before this Court. The expenses for
which we do seek compensation are ali expenses for which reparation should be made in accorciance
with fundamental principles of international law. We have proven that the Respondent
has engaged in wrongful acts and omissions which gave rise to those expenses. As the Permanent
Court stated in the Chorzow Factory case, the reparation which is due « must, as far as possible,
wipe out ali the consequences of the illegal actand reestablish the situation which would, in ali
probability, have existed if that act had not been committed » (Chorzow Factory, Merits, PC!],
Series A, N. I7, p. 47 [1928]). It is on the basis of that principle that Raytheon and Machlett
should be reimbursed for the legai and related expenses we have described.
Let me turn briefly to the question of interest. In that connection, only one contention of
the Respondent merits attention, The Respondent cited the Wimbledon case (SS « Wimbledon
"• PC!], Series A, N. I, [1923]) for the proposition that an award of interest should accrue
from the date of judgment. This does not, however, represent the generai rule in the present
state of the law. Professor Lillich, while noting some exceptions, states the generai practice in
the following terms:
« Interest generally has been held to commence on the date of taking in expropriation
claims, and on the date of wrongful interference or nonperformance (when the respondent
State is a party) in contract claims ....
International arbitrai tribunals allowing interest ... generally assess it from the date
the claim arose, i.e., the date property is taken, contracts breached, or other deprivations
occur "· (LILLICH, « Interest in the Law of International Claims "• Essays in Honor of Voitto
Saario and Toivo Saino SI, ss-s6 [1982]).
In this case, interest should accrue, on a compound basis, from the date of the injury until
the date of payment of the award. This is what is required to compensate fully for the loss of
use of the funds that should have been paid to Raytheon and Machlett many years ago.
I turn, finally, to the issue of valuation. While the Respondent has argued that the requisition
caused no loss, it has not contested the basic methodology we bave proposed for the calculation
of damages. The Respondent has produced its own accounting expert, Mr. Hayward,
who has provided the Court with an alternative value for ELSI. Mr. Hayward drew the Court's
attention to ELSI's financial statements of 30 September 1967, and he noted certain adjustments
reflected in those statements. He concluded that the book value we had proposed was incorrect
and that the book value should properly be reflected at a corrected figure of 12,822.6 million
lire.
The chief difference between Mr. Hayward's figure of 12.8 billion lire and Mr. Lawrence's
figure of 17 billion lire is the amount of 3·5 billion lire attributed by Mr. Lawrence to the intangible
value of ELSI's assets that could have been realized in an orderly liquidation. Mr. Lawrence
will discuss this matter further, but for present purposes, the point I wish to stress for the Court
is the fact that the gap between Mr. Hayward and Mr. Lawrence is remarkably narrow. Even
the Respondent's own accounting expert has made clear in his testimony his view that the figure
REPLICA CHAN:ÒLER 489
of 12.8 billion lire represented the real substance of ELSI as an economie enterprise. Mr. Hayward's
words merit quotation:
« Many companies in Italy, France and Spain, at that time,. had two books of accounts.
One was the official books of account for fiscal monetary ex.change reasons, and the other
was the propriet()r's set of accounts which reflected the true economie substance of an enterprise.
I t z$ my viei,v that the audited balance sheet which was presented. to Raytheon is the equivalent
of the proprietor' s set · of accounts in tMs èontext, and does truly represent the substance
of the economie enterprise >>. (C 3/CR 89/7, p. 432, [italics added]).
W e presented to the Court las t week a detailed explanation of the compensation we ha ve
claimed in this case. In order to ascertain the generai financial losses suffered by Raytheon
and Machlett, we compared the position they would have. been in had they been permitted to
proceed with the orderly liquidation with the position in which they actually found themselves
as a result ofthe requisition and bankruptcy. In financial terms, the difference between those
two positions amounted to 7,322.4 million lire, or US$x 1,73g,2oo, and that is the figure that representa
the. United States daim for reparation for this category of injury. It will be recalled
that wealso consideredwhat the losses of Raytl:leoi'l and Machlett wouldhave been if only the
« quick-sale value » of ELSI's assets had been realized in an orderly liquidation. In that case,
we showed that Ra',Yt:heon and Machlett would still have been bej;ter off, as compared with what
actually happened in the bankruptcy, by a margin of 3,137·8 million lire, or US$5,031,ooo.
Even if we were to accept Mr. Hayward's proposed value - which we do not - Raytheon
and Machlett would have fared substantially better than they did as a result of the sale in bankruptcy.
If the Court will hear with me for one brief moment, I will summarize the distribution
of funds based .on Mr. Hayward's hypothesis. Recovery of 12,822.6 million lire would have
been sufficient to pay all preferred creditors in the amount of 1,036.8 million lire. It would have
been sufficient to pay. all secured creditors in full, in the amount of 3,819.5 million lire. The
amount would also have been sufficient to pay the administrative and liquidation costs of 370
million lire.
The funds remaining would then have been used to pay the claims of the unsecured creditors.
h we have indicated previously, Raytheon and Machl(!tt had planned to pay the small
creditors' claims in full in the amount of 520.6 million lire. This would have left balances due to
the other unsecured creditors of 10,915.6 million lire and available funds of 7,075·7 million lire
which would have permitted a pro rata distribution of 64.82 per cent to the remaining creditors.
The banks with unguaranteed loans would have received 2,632.0 million lire, the guaranteed
bankloans 3,702.5 million lire, and Raytheon itself 741.4 million lire. Under this scenario, Raytheon
would have had to pay the balanèe of the guaranteed bank loans and interest in the amount
of 2,009.2 million lire. Raytheon would also have had to write off the uncollected balance of
402.4 million lire of its accounts receivable. All of this would have resulted in a cost to Raytheon
of 2,41 1.6 million lire. Thus, even if the liquidation ha d brought in only the book value proposed
by the Respondent's own accounting expert, Raytheon and Machlett would stili have been significantly
better off than they were in the actual bankruptcy- indeed, by a margin of 4,519.8
million lire, or US$7,I73,ooo. Of course, Mr. Hayward's proposed value should be rejected because
it makes no provision whatsoever for the very real value of ELSI's intangible assets.
The Court now has before it, and must decided between two figures supplied by the Respondent's
accounting expert and our own valuation expert, with the principal difference between
them relating to the value of ELSI's intangible assets. It is in this light that we invite
the Court this afternoon to consider the testimony to be provided by Mr. Lawrence. Mr. President,
this concludes my statement. Our remaining presentation will last over an hour, so I
suggest that this may be an appropriate time for a break.
The PRESIDENT: Yes. Thank you, Ms. Chandler. Mr. Matheson.
Mr. MATHESON: Mr. President, as Ms. Chandler said, our presentations for this afternoon
will take something over an hour. Perhaps in light of the number of questions we have been
given this morning, would it be possible to do either of two things ? Either to begin this after490
RASSEGNA DELL'AVVOCATURA DELLO STATO
noon's session a little later than 3 o'clock, say at 4 o'clock, or else to provide the answers to the
questions in writing tomorrow morning - whichever the Court prefers.
The PRESIDENT: I think that i t would be better if we begin a t 4 o' clock this afternoon.
You have the fioor, Mr. Ferrari Bravo.
Mr. FERRARI BRAVO: Mr. President, just to facilitate the proceedings I shall not wlÌit till
the afternoon to say that we have no objection to the document introduced this morning by the
United States. W e have just a curiosity. As this document is a list of clients without heading,
perhaps the Applicant would tell the Court what is its source ? Where does it come from ? Thank
you, Mr. President.
The PRESIDENT: Thank you. Okay, in this case, in the afternoon you will be provided with
the source of the document. I think that judge Schwebel would like to put a question. Judge
Schwebel.
Judge ScHWEBEL: Thank you, Mr. President. I should like to put this question following
upon Ms. Chandler's argument: is it the contention of the United States that since ELSI actually
operated at a profit - but for its obligations to pay loans to it - buyers could have been
found for ELSI or for its product lines since they could have been purchased free of this debt
burden, a burden to be lifted by settlement with the banks and by payment by ELSI's stockholders
on those loans pending settlement- is that a correct formulation of what the United
States is contending on this point ? Thank you.
The PRESIDENT: Thank you very much. Judge Oda also would like to put a question.
Judge ODA: Thank you, Mr. President. AsI wanted to ask the United States Agent a question
quite similar to whatjudge Schwebel asked early in this morning's session in connection
with the exhaustion of local remedies, I would like to add just a supplementary question to the
United States Agent for clarification. The question is whether the attorney of Raytheon-ELSI,
deliberately made no reference to the FCN Treaty before the District Court of Palermo in 1969,
the Court of Appeals of Palermo in 1973 and the Supreme Court of Appeals in 1974, in the
belief that the FCN Treaty, as a non-self-executing treaty, need not be mentioned or relied upon
before the Italian domestic courts; or, on the contrary, was he simply unaware that international
law, or more particularly the FCN Treaty, might be relevant. Thank you, Mr. President.
The PRESIDENT: So, this afternoon we are going to begin at 4 o'clock and will start with the
cross-exaxnination of Mr. Biscanti by the Italian delegation on the facts that have been put forward
by him at the beginning of his statement this morning. Then we shall proceed with Mr.
Lawrence, as an expert, an d then I understand that Mr. Matheson is going to close the American
presentation. Thank you very much.
The Court rose at I2.50 p.m.
C 3/CR 89/10
Monday 27 Fehruary 1989, at 4 p. m.
Mr. BxscoNTI - Mr. HIGHET - Mr. MATHESON
The PRESIDENT: Please be seated. Is the Italian delegation ready to cross-examine Mr.
Bisconti on his statement of fact from this morning ?
Mr. FERRARI BRAvo: Yes, Mr. President. We are ready and the cross-examination, which
I hope will not last very long, will be conducted by Mr. Highet, assisted by Mr. Libonati.
The PRESIDENT: I want to stress again that the cross-examination will ha ve to be on the
points of fact. Therefore I call Mr. Bisconti, please.
Mr. BISCONTI: Mr. President and distinguished Members of the Court: may I ask for your
permission to make a statement? It is a statement of principles and I consider i t very important
- indeed essential.
As an individuai lawyer, as an active member of the organized Bar, as past Chairman of
the Committee òf Professional Ethics of the International Bar Association, I have a rooted conviction
that it is not appropriate, it is not desirable - and should be avoided - that lawyers
be witnesses in proceedings affecting, directly or indirectly, their client's interests. For this
reason, had the Applicant asked me to be a witness here - even though I may possess knowledge
of facts which might be considered useful to Applicant's case- I would not have agreed to do so.
I ha ve today submitted to this Court a statement regarding certain aspects of I talian la w.
Therein I stated knowledge of certain facts on my part that formed the basis in part - but an
essential part - of the opinion I expressed today an d of the opinion I expressed to the shareholders
of ELSI in March 1968. These statements of fact did not purport to be- neither directly nor
surreptitiously- evidence, in any sense of the word. However, without these facts being stated,
the opinions I gave would not be understandable or supportable. A lawyer's opinion cannot be
given in a vacuum.
In over 35 years of practice I have believed, and continue to believe profoundly and withou
qualification, in the independence of the lawyer and of the legal profession. Independence int
all its aspects is the essence of the legai profession. Independence is the only true justification
of the continuing existence of the legal profession. Privilege- a lawyer's privilege and not only
the client's privilege - is one facet of the lawyer's independence. The rules of conduct that
apply to me as a member of the ltalian Bar apply to me wherever I am. This I believe is a widelyrecognized
principle and it is also refl.ected in the draft Code of Ethics that the CCBE has recently
adopted. A lawyer should not waive, and should not lightly, waive his privilege. He has an obligation
to the public not to do so.
I respectfully submit that Respondent, in asking that I be heard as a witness, did not take
into due account the rules of the Italian Bar. I respectfully submit that without a waiver of privilege
this highest Court could not today dispose or consent that I be examined as a witness.
However, after weighing carefully my obligations to the Bar, as well as my obligations to this
Court- in order that there be no doubts in the Court's mind - I have asked and have obtained
Raytheon Company's waiver of privilege and hereby declare that I waive my lawyer's privilege,
and consent to being examined as to facts that have been stated in the oral statement that I delivered
this morning.
Mr. President and distinguished Members of the Court, thank you for allowing me to make
this statement of principles.
The PRESIDENT: The Court takes note of your statement, Mr. Bisconti, an d we thank you
very much for your co-operation in waiving the privilege that you have mentioned. Therefore,
492 RASSEGNA DELL'AVVOCATURA DELLO STATO
I think in order to be practical on this question, we will begin with our cross-examination. Thank
you very much. Mr. Highet.
Mr. HIGHET: Thank you, Mr. President, Members of the Court. Avvocato Bisconti, let
me say as a preliminary matter that we are fully aware of the dual position in which you find
yourself and appreciate certainly the concerns which you have just advised the Court and ourselves
of by your statement, and I will do my very best not to trespass in any sense upon a sense
of professional honour or commitment that you may feel. And, Mr. President, if I may say, I
have three lines of questions for Avvocato Bisconti and each of these, to the very best of our
ability, has been constructed on the basis of questions of fact as to which Mr. Bisconti testified
this morning, not on his legai argumentation or legai conclusions derived from it. So, without
more, with your permission Sir, let me enter the first line of questioning. I will make this as
brief as I can. It probably will not be as brief as I hope but I will do my best, Sir.
This morning you testified that, as you knew from your own personal knowledge, « the stockholders
had guaranteed the cash flow necessary to make the orderly liquidation work » (C 3/CR
89/9, p. 48r). Tben, you also testified that « As long as tbe parents back the subsidiary, it may
accomplish an orderly liquidation in situations which would be much more difficult for a corporation
not having such a hacking» (p. 48r). And you continued to say that << With the hacking
of Raytheon and Machlett, ELSI was assured of the funds and the cash flow and wbatever
other assistance, financial or otherwise, might have been needed to effect an orderly liquidation >>
(p. 48r). In a part which admittedly was a different one of your statement but stili did contain,
I submit to you, Avvocato Bisconti, statements or conclusions of fact: you testified (p. 482) that
« Raytheon and Machlett had made the commitment to support fully >> - I take it that it is a
fact that they had made the commitment to support fully - « an orderly liquidation, including
the payment of small creditors and any other notes and bills that carne due during the period
before proceeds from the sale of ELSI's assets could be obtained », And you added again, right
there, that « With this hacking, ELSI would not bave had any obligation to file a petition in
bankruptcy >> (ibid.). Finally, (p. 483) you said one sentence: « Having the hacking of the stockholders,
ELSI could bave easily satisfied the conditions of Artide r6o >>,
You therefore referred, Avvocato Bisconti, in your testimony, to a« guarantee » to «hacking»
(ibid.), to « assurance >> (ibid.), to « commitment >> (p. 48r) and once again, to «hacking>> (p. 483).
Let me go back (p. 48r) to the quotation which I read before: « with the hacking of Raytheon
and Machlett, ELSI was assured >> - was assured- « of the funds and the cash flow and whatever
other assistance, financial or otherwise, might have been needed to effect an orderly liquidation
>>.
My first question is: would you say that this testimony can be read to mean that without
the hacking of Raytheon there could have been no such assurance ?
Mr. BrscoNTI: Mr. President, may I respectfully submit that counsel is asking me not to
testify on fact, but to express a judgment, in the way that tbe question is formulateci. I will state
the facts as known to me.
The person in charge of the liquidation of ELSI in the period was Mr. Joseph Oppenheim
- the late J oseph Oppenheim - a Vice-President of Raytheon Company an d w ho ha d been
elected to be Chairman of ELSI. I had, from some time in March 1968 or Aprii, over several
months- in that criticai period- daily contacts with Mr. Joseph Oppenheim. Mr. Joseph Oppenheim
was reporting directly to Mr. Thomas Phillips. Morè than once I was on the telephone,
with Mr. Joseph Oppenheim, to Mr. Thomas Phillips- then President of Raytheon Company.
Mr. Joseph Oppneheim (we were discussing plans for an orderly liquidation) had relayed to me,
and assured me, that Raytheon would give the hacking, be behind with funds and other assistance
- let me use the expression « us >> - in carrying out the plan of an orderly liquidation.
This statement by Mr. Oppenheim was without qualifications. I do not believe lawyers must
make acts of faith, especially when they are asked to take the responsibility of advising clients
in a difficult situation. I heard the statement from Mr. Phillips himself, at the time and after
the sad events of the requisition and so on. On the r6 May 1968, in this very city, I met with
Mr. Thomas Phillips to discuss the situation as it had developed and at that meeting Mr.
CONTROINTEnROGATORlO BISCONTl 493
Phillips, expressing great regret and sorrow and perhaps even rage at what had happened, reconfirmed
what he had told Mr. Oppenheim, what I had heard, that Raytheon would have given
all necess;:u:y financial support in order to enable us to carry out an orderly liquidation.
Mr. HìcHIIT: Mr. President; if l may, I Would like to put the question again. I asked you,
Avvocato Bisconti, you testified this morning, you said with the hacking of Raytheoil and Machlett,
ELSI was assured of the funds and the cash flow. My question can be answered yes or no.
Would you say that this testi.rnony m(')ans that without that hacking there could ha ve been no such
assur11,nce ? . . . .. ·•· . · · .•.. ·.. . . .·• ·.·. ·
Mr. BxscoNTI: That hacking was an essential part of ourliquidation plan.
Mr. HIGHET: So you would agree that without that type of assurance, that you referred to
in your statement this morning, ELSI could not definitively plan on paying her debts ?
Mr. BrscoNTI: I aro sorry I cannot make that statemeni:, we are entering the range of the
world of hypotheses. I would have to make any number of possible hypotheses.
Mr. HIQH:ET: Avvocato Bisconti, your statement this morning was that, with the hacking
of Raytheon an d Machlett, ELSI was assured of the << funds and ... whatever might have been
needed to effect an orderly liqtiìdation ì>, arid surely this is in the future· conditional, and this is
thetefore a hypothesis. My qtiestion to you i.s limìted to the scope, typé, tenor and qualification
of your testimony. My question is: would kbe fair to saythat without this hacking ELSl would
have had a difficult time, if not an impossible time, paying its debts ?
Mr. BISCONTI: I aro saying that I believe I aro expressing a judgment and no t testifying as
to a fact. ELSI or any company, asI have saidi11 my.stateme11t, would have had a difficult time
without this hacking. In fact it is in writing there.
Mr. HIGHET: All right, let me carry you further, if I may, Mr. President. This. morning
youalso testified that (C 3/CR Sgfg, p. 481) « as I know from my own personal knowledge ... the
stockholders had guaranteed the cash flow necessary to make the orderly liquidation work >>.
W ould you agree, Avvocato Bisconti, that this testimony is to the effect that, without the guarantee
of such cash flow by the shareholders, orderly liquidation would not work?
MI:~ BiscoNTI: Without thìs assurance or guarantee, however you wish to call it, by the
stockholders, that orderly liquìdation would have been very difficult.
Mr. HIGHET: Very welL Thank you. Let me turn if I may, Mr. President, to my second
line of questions. I referred earlier to your statements this morning of a « guarantee », a « hacking
», an « assurance >> and a « comrnitment », 1md I gave the citations. Now, Avvocato Biscanti,
are you aware or do you know, today, or di d you then know, whether any of these ideas: guarantees,
hacking, assutance or commitment were expressed? Now were i:hese ideas expressed?
Mr. BzscoNTI: They were expressed to us.
Mr. HIGHET: May I ask you who us was ?
Mr .. BxscoNTI: I. aro going on .to,. if. I may, sin ce I aro speaking about knowledge given to
me by. ;M:r. Oppenheim and by Mr. Thomas :Phillips, President of the Raytheon Company.
Mr. HIGHET: Do you know if these ideas, and I aro using the word « ideas » to avoid· having
to repeat this every time, Mr. President, were these ideas communicated to anyone outside the
group you have just mentioned? Including, of course, Mr. Adams and his senior Raytheon
officials,
Mr. BISCONTI : I would ha ve to assume that a t a very high level in the company these commitments/
assurances were equally known, I do not know how far down the Iine, but I would
assume that it was perhaps limited at a certain level of the company.
Mr. HIGHET: Would you say- do you have any knowledge as to- whether these ideas
were communicated to the Italian national Government prior to 31 March 1968?
Mr. BISCONTI: I have no knowledge of that.
32
494 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. HIGHET: Do you think that they were?
Mr. BISCONTI: I don't know, I have no knowledge, I don't know even of the circumstances
in which they might have been communicated since, as I read on the record the ongoing discussions
with the Italian Government were not keyed on how to effect a liquidation of ELSI, but
how to find another solution to make ELSI a viable company or enterprise maintening employment.
Mr. HIGHET: But the assurance of which I believe you agred with me a few minutes ago,
the assurance of the hacking of Raytheon and ELSI, but for which an orderly liquidation would
be at least difficult to conceive of; that assurance was not conveyed to anybody before I Aprii
or 3 I March in the Regional Government ? Do you know if i t was ?
Mr. BxscoNTI: I don't know.
Mr. HIGHET: Do you think it was?
Mr. BISCONTI: I repeat I see no reason why. I had a meeting, I believe, on 30 March, with
the representative of the Regional Government, called by the Regional Government on the assurance
that now they would join Raytheon and ELSI and so on, I remember we were asked to
go there to finalize the shareholders agreement and other agreements; the context of that meeting,
which 1asted unti.l late that evening, was not liquidation. It was not liquidation at all.
Mr. HIGHET: It was not liquidation ?
Mr. BISCONTI: It was whether there was a possibility to proceed in another direction. Certainly
there was no reason to speak about liquidation.
Mr. HIGHET: So there would have been no discussion that you recollect at that time or at
any other meeting shortly before that, with the local authorities, the Mayor of Palermo's office,
the regional authorities, the national authorities or any authorities of the Italian Government
that Raytheon and Machlett would stand behind ELSI in the case of an orderly liquidation?
Mr. BISCONTI: I have no knowledge of any such thing. May I add, on I April, I participated
at a meeting with the Italian ereditar banks at Banca Nazionale del Lavoro at which we
started outlining to them our plans for an orderly liquidation, including the proposed payment
to small creditors and how we would go about this and so on. That would have been the appropriate
place to talk about this, and we would have, had we not been told that very afternoon,
and we heard its as a rumour during that meeting, that the Mayor of Palermo had requisitioned
ELSI's plant.
Mr. HIGHET: It was a few days before that, was it not- it was the preceding Fridaythat
to your recollection the dismissal notices were in fact mailed, or early Saturday morning, is
that correct ?
Mr. BISCONTI : It was some days before, I do not remember the exact date.
Mr. HIGHET: The third line of questioning, Mr. President. This ties into your testimony
this morning. In yoilr Affidavit which was submitted as Annex 26 to the United States Memorial,
the Affidavit of II December Ig86, let me refresh your recollection. You stated that « beginning
in the Spring of I968 I was involved with ELSI on behalf of Raytheon on a more or less daily
basis ». And, in para 2 at p. 4 of that Affidavit, you indicated that « beginning in March I968,
you had been consulted by Raytheon officials regarding the possible liquidation of ELSI ».
And you added « you had been advised at that time that ELSI's shareholders had made a business
judgment, that unless they found an Italian partner, or made other satisfactory arrangements
for ELSI's future, that they were not prepared to infuse any more capitai into the company
».
One more reference to refresh your recollection before I put my questions. In the affidavit
of Mr. Adams, which was Annex 9 to the Memoria! para. 32, pp. 9 to Io, Mr. Adams stated
CONTROINTERROGATORIO BISCONTI 495
that « we could notjustify to our stockholders the investment of additional funds in ELSI ». And
under cross-examination on 14 February, Mr. Adams also testified:
« The clear decision that Raytheon management made was that we would put no more
money in, and as we. began to approach the date at which the money would run out ...
we began to consider what to do ... » (C 3/CR 89/2, p. 271).
In your testìtnony this m.orning, you indicated that the guarantee of << cash flow necessary
to make · the orderly liquidation work » should be « distinguished from making more funds available
to ELSI fcir continued opéta:tions » (p. 481). How would that distinètion have been made
clear, Avvocato Bisconti? The distinction between the guarantee of « cash flow necessary to make
orderly liquidatìon work » from « tnaking more funds available to ELSI for continued operations
>> ? Y ou drew the distinction, I just wish you would explain it a bit more.
Mr. BrscONTI: I respectfully submit that the distinction is clear in the words that were used,
and the purpose of one would have been to continue the operations of ELSI regardless of the
form; the more normal form is to infuse equity, capitai, it can be otherwise. The purpose of the
funds, the hacking, or wh1tever, that we had been assured we would have from Raytheon was
for the purpose of having a liquidation of the Company, of not feeling the pressure in time - in
the method - of liquidation. I respectfully submit that the purpose of one or the other are so
clearly separable that ...
Mr. HIGHET: Do you believe that this quite obvious separation- or a clear separationwas
also obvious to persons outside Raytheon, say, members of the regional government, the
local authorities, the Mayor of Palermo; the labour force, the labour unions?
Mr. Brsco:ro<n: Ido not knowand I do not see any reason why they should even consider
the difference or whether. the matter should be known to them, or be of any interest to them.
Mr. HIGHET: One last question. I referto Exhibit B, to Annex 15, which is John Clare's
Affidavit. It is the Exhibit to that, and some minutes of a meeting amongst Messrs. Adams,
Cla:re, Hillyer and Profomo and the Honorable Vincenzo Carollo, on 21 February xg68. The
typewritten version records, and I would like to read two sentences to refresh your recollection
of the documentary record, the · following:
« C.F.A. [Mr. Adams] stated that while our interests do coincide with those of the
Region, as a private company, we do have obligations to our stockholders. While we can
continue to provide ELSI with management and technology, he [that is, Mr. Adams] reaffìtmed
the Raytheon intention of not investing further · money in Raytheon ELSI 11 (Memoria!,
Annex 15, p. 2).
Would you think, Avvocato Bisconti, that this might have conveyed the ìtnpression to Mr.
Carollo that Raytheon was not going to invest any more money in ELSI ?
Mr. BrscoNTI: I should conclude from hearing the text that you have courteously read to
me, Counscl, that this should have made clear to the Honorable Carollo that Raytheon was not
going to invest any money, capitai funds, however one may wish to call them, to continue the
operations of ELSI.
Mr. HIGHET: But, referring to you words this motning, Avvocato Bisconti, would you be
surprised to be told that Mr. Carollo would have concluded that Raytheon would still have guaranteed
the cash flow necessary to make the orderly liquidation work?
Mr. BrscoNTI: I am not in a position to express any such judgment, guess, or whatever;
l'm sorry.
Mr. HIGHET: Thank you very much. Mr. President, we have no further questions of the
witness.
The PRESIDENT: Thank you very much, gentlemen, to both of you. I now call on Mr.
Lawrence. Mr. Matheson, do you wish to take the floor?
496 RASSEGNA DELL'AVVOCATURA DELLO STATO
Mr. MATHESON: That is correct. Mr. Lawrence is returning and I believe he has already
made the declaration as an expert.
The PRESIDENT: Mr. Lawrence, please.
Mr. LAWRENCE: Mr. President, distinguished Members of the Court. The question was
raised by the Agent for Italy concerning the listing of customer accounts receivable at 22 Aprii
Ig68, which was placed before the Court this morning. This document has been taken from
Raytheon's files. It was prepared under the direction of Mr. DominicA. Nett (then Controller
of ELSI), who had responsibility for the Company's accounting records up to the time of the
bankruptcy.
At p .. 2 of Mr. Nett's Affidavit (Annex 30 to the Memoria!), he states that, together with
Raytheon and ELSl personnel, he performed « shipping, billing, collection and payment functions
» until 24 Aprii Ig68.
Note IO to the I967 financial statements.
I. It has been suggested by the Respondent that Note IO to the financial statements of
ELSI made up to 30 September I967 implies that ELSI should have been placed in bankruptcy
before the time when its plant was requisitioned by the Respondent. In my view, this is incorrect.
Page 3 of the I967 financial statements shows three columns of figures in Italian lire
with the right-hand column converted into US dollars. The first of the lire columns is the book
value as it appears in the official accounts of ELSI drawn up in accordance with Italian legai
requirements. The middle column shows the adjustments that were required to be made to
bring the figures in the official books into line with United States generally acéepted accounting
principles, which was the basis required by Raytheon. The adjusted figures are shown in the
final lire column.
2. It was perfectly norma! experience for clients of Coopers & Lybrand Italy, which were
subsidiaries of foreign holding com pani es, to p re pare balance sheets summarized in this way.
The Institute of Chartered Accountants in England and Wales has published a book entitled
European Financial Reporting - ltaly, which was written by my partner Mr. M.l. Stillwell,
in conjunction with the Italian firm of Coopers & Lybrand. This book is, of course, in the
public domain. It records that:
« the official accounts of an Italian company must be prepared and submitted in compliance
with tax regulations. It is therefore common in the case of Italian subsidiaries of UK groups
for such accounts to differ from the accounts prepared for submission to the parent company
in compliance with the group accounting policies ». (p. 40, para. g).
The same would, of course, be true for subsidiaries of United States groups.
3· Whether the capitai of an Italian company fell below the legai minimum provided by
Arti cles 244 7 an d 2448 of the I talian Ci vii Code was a matter to be determined by reference to
the official accounts of the company drawn up in accordance with Italian legai requirements.
Those official accounts showed that ELSI, at 30 September 1967, still had stockholder's equity
of I,318.7 million lire and a taxed reserve of 862.4 million lire which, under Italian law, was a
legally distributable reserve (ibid., p. gi, para. 6g).
4· United States generally accepted accounting principles and the accounting policies of
Raytheon required provisions to be made on a more prudent basis than was either required under
Italian law or permissible for Italian tax purposes. I have reviewed with Mr. Stillwell the composition
of the items in the column headed « Company's adjustments ». He has confirmed that
these were all typical of the type of adjustment that was made for items that the Italian tax authorities
treated as not deductible for tax purposes. Such items were therefore retained in the
official Italian accounts at a value higher than would have been appropriate in accounts preCONSULENZA
LAVVRENCE 497
pared under United States generally accepted accounting principles. This is consistent vvith
my ovvn experience of the Italian subsidiaries of United Kingdom companies with vvhich I have
been concerned.
5· Note 10 carried noimplication that the provisions of Articles 2447 and 2448 of the Italian
Civil CQde were applicable at 30 September 1967. It merely drevv attention to a situation that
might arise a t some time in the future. If the auditors had been of the vievv that those provisions
vvere of immediate applications, the note would have made this clear.
Going concern values.
6. When counsel for the Respondent cross-examined me after my previous evidence in
this case he said, in introducing a question, that I had severa! times referred to the fact that my
figures were based on the assumption that the balance sheet related to a going concern. This
vvas simply not true, as reference to the transcript vvill shovv. He vvent on to put to me a hypothetical
question in.vvhich he asked me whether I could imagine a qualification in an audit report
relating toa company's being .and remaining a going concern, I vvould like to make it clear that,
in. ansvvering this question in the affirmative, I vvas de~:~ling only vvith the hypothesis that had been
pu.t to i:ne, without reference to the specific circumstances of this case. In addressing valuation,
the issue is not vvhether ELSI vvas a going concern on 31 March 1968, on 30 September 1967,
or on any othe~; date, !md my evidence relies on no· such premise. The issue is to determine vvhat
value couldhave been realized upon a disposal of ELSI's assets, and that is exactly the exercisè
that I carried out for the purpose of my evidence. If a company is in liquidation, it does not
follovv that its book values are irrecoverable, nor does it follovv that it cannot be disposed of as
one or more businesses.
Fixed assets.
7· In considering the fixed assets of the company, I relied not only on the evidence of Raytheon
officials vvho were familiar with the operations of ELSI at the relevant time but also upon
the independent appraisal of Professar Puglisi, carried out on the instructions of the· curator in
bankruptcy. I vvould remind the Court that this appraisal vvas carried out after the plant had
been closed for nearly six months and that even then he regarded it as appropriate to consider
« the current market value of ELSI as a whole, if sold to a third party which intends to operate
the facility without substantially changing the nature of its products or mode of manufacture »
(Unnumbered documents submitted by Italy, Vol. III, p. 91). Clearly Professar Puglisi vvould
not have adopted such a basis if he had not regarded it as realistic. Professar Puglisi's appraisal
took into account the effects of obsolescence and the physical condition of the assets. The evidente
set out in the affidavits of Mr. Cavalli, Mr. Ravalico and Mr. Cammerata is quite inconsistent
vvith the vievvs arrived a t by· Professar Puglisi. The differences may to some extent be
attributable to the fact that their affidavits were produced some 20 years later whereas Professar
Puglisi's appraisal is a contemporaneous document.
8. Allovving for differences betvveen the position at 31 March 1968 and the time of Professar
Puglisi's appraisal, that appraisal substantially supports the recoverability of book value at
31 March 1968. His views of the values attributable to the fixed assets are consistent vvith the
evidence regarding the substantial expen,diture on nevv fixed assets in the previous fevv years
(Memoria}, Annex 13, p. 3). ·
Inventories.
Turning to the company's inventories, my evidence has been that the book value of inventories
could reasonably have been expected to be recoverable on the footing that, in an orderly
498 RASSEGNA DELL'AVVOCATURA DELLO STATO
liquidation, it would have been possible to dispose of ELSI's business either as a single operation
or as a series of product lines to purchasers who would continue to manufacture the Company's
products. This is a similar assumption to that made by Professor Puglisi in valuing the
fixed assets and its reasonableness is confirmed by the evidence of Mr. Clare (C 3/CR 89/2, pp.
28o-283). Clearly a forced sale in bankruptcy of the inventories of a company that has been closed
for over r6 months must produce a very low value for that company's inventories, a value far
lower than would be obtained in a properly conducted liquidation.
Accounts receivable.
ro. The net book value of accounts receivable was clearly regarded by Coopers & Lybrand,
Milan, as recoverable at 30 September 1967 notwithstanding the apparently low level ofthe bad
debt provision. Mr. Clare's evidence shows that the reason why that provision was so low was
that a major exercise had been carried out to write off bad debts in the previous two years, leaving
in the books only those that were regarded as good (C 3/CR 89/2, p. 283). Professor Libonati
has referred to the suggestion in Dr. Mercadante's Report that a debt of 246 million lire due from
Noya Alfred Enachtemer was irrecoverable (C 3/CR 89/5, p. 380). I have seen a document, a copy
of which has now been made available to the Court and to the Respondent, listing the accounts
receivable from customers on 22 April 1968, just before ELSI was placed into bankruptcy. This
list includes, in the middle of the second page, a balance described as << Noya Alfred Enachtemer
» from which an amount of r 1.5 million lire is shown as due. There is no other balance that
bears any resemblance to the name referred to by Dr. Mercadante. It therefore appears to me
that he was mistaken in suggesting that a balance of 246 million lire formed part of ELSI's customer
accounts receivable.
II. I would also remind the Court of the evidence given by Mr. Clare to the effect that
Raytheon were so confident of the value of the accounts receivable that they would have been
prepared to guarantee the full book value of them (C 3/CR 89/2, p. 279). It may also be worth
noting that even the quick sale value, which was a deliberately pessimistic assessment of what
might have been achieved in the planned liquidation, shows that the full value of accounts receivable
from customers was expected to be recovered.
Evidence of Mr. Hayward.
12. Mr. Hayward presented to the Court last week a summary of the adjustments which
he considered needed to be made to the book value at 31 March 1968 to arrive at the figure of
12,822.6 million lire which, in his view, represented the substance of the economie enterprise.
Most of these adjustnients were also made by me for the purpose of my evidence in arriving at
the realizable value of the tangible assets which I put at 13,632.7 million lire. There are three
exceptions to this. One is an adjustment by Mr. Hayward for an amount of 453·3 million lire
which was an additional provision against the value of inventories regarded by the auditors as
necess1ry to comply with United States generally accepted accounting principles. This refl.ected
a difference of view between the Company and its auditors about net realizable value. I understand
that, in preparing its accounts, ELSI calculated the provision necessary to reduce the
book value to net realizable value by considering each product group separately. In effect the
question that they were seeking to answer was << Will the inventory of this product group, taken
as a whole, realize at least its aggregate book value ? » The auditors on the other hand considered
each separate line in the inventory of each product group and considered the question << Will this
item, considered on its own, realize at least its book value ? »
13. Whilst I believe the question considered by the auditorsto be a normal approach in caleulating
such provisions for the purposes of United States generally accepted accounting principles,
it undoubtedly does have the effect that the net figure arrived at after deducting those
CONSULENZA LAVVRENCE 499
provisions vvill be lovver than the net realizable value of the inventory taken as a vvhole. I conclude
that such a further adjustment is inappropriate in considering vvhether the net book value
of ELSI's inventories at 31 March 1968, taken as a vvhole, could be realized.
14. The second adjustment made by Mr. Hayvvard vvith an amount significantly different
from that made by me refers to a price adjustment of 25 x.6 million lire on the sale of klystrons.
The audìtors said that they had been unable to see evidence of an agreement vvhich had been
reached betvveen ELSI and the relevant military authorities. This is not to say that no such
agreement vvas reached but merely records the difficulty of evidencing i t at the time of the audit.
To make some allovvancé for the possibility that this item might not be fully recoverable, I rounded
the book value of 25 x;6 million lire dovvn to 200 million lire.
15. The third main difference betvveen my evidence and that of Mr. Hayvvard in relation
to tangible assets concerns my inclusion of 300 million lire in respect of grants expected to be
received under the Mezzogiorno legislation. My inclusion of this amount is consistent vvith the
evidence submitted on behalf of the Applicant.
z6. The principal difference betvveen me and Mr. Hayvvard in our assessment of vvhat might
have been recoverable concerns the expectation that an amount of at leafjt 3,500 million lire could
be recovered in respect of ìntangible assets. I have poìnted out in my previOU!l. statement that
the company's financial statements included various intangible balances totalling I,72I.I million
lire to which no specific separable value could be attributed. Mr. Hayvvard has interpreted the
adjustment made to eliminate the book value of intangible balances in order to comply vvith United
Statés generally accepted accounting principles as implying that no value could be attached to
ELSI's intangible assets. This does not follow. The accounting treatment of intangible assets
is entirely irrelevant to a determination of their realizable value.
17. It was of course inevitable after the plant had been closed for z6 months that the actual
sale concluded by the curator in bankruptèy could obtain no value for the Company's intangible
assets. Thé actual outcome of the bankruptcy could hatdly have been worse. Enormous damage
must have been clone to the realizable values by the effects of the requisition of the plant, leaving
its assets idle for 16 months, subject to deterioration, depreciation and pilferage. This resulted
in the dissipation of the va1ue of the intangible assets that made up the goodwill of the business,
including its customer connections; its supplier relationships, its market share and its manufacturing
know-how. On the basis òf the evidence of Raytheon's officials who were familiar with ELSI's
operations and activities at the time, it is my view that an orderly liquidation in which the business
was sold as .an entity or as a number of product lines to purchasers who would obtain the
benefit of its intangible assets was a realistic expectation and I confirm the evidence that I gave
in my previous statement that I would expect a value of at least 3,500 million lire to be achievable.
I 8. The achievement of the values that I have arrived a t relies on the premise that there
would have been an orderly liquidation. In approaching the valuation on this basis I have in
mind the evidence before the Court that Raytheon would have supported ELSI to enable an
orderly liquidation to be achieved. This expectatioh was entirely consistent vvith my ovvn experience.
19. During my 35 years in the accounting profession, I have had considerable experience
of international groups of companies, including many groups controlled by United States parent
companies. I have knovvn many of those groups liquidate or dispose of overseas operations from
which they wished to vvithdraw, but in all of my experience I have never known any of them to
allow an overseas subsidiary to go into bankruptcy unless it was forced down that route by external
factors totally beyond its contro!.
20. My firm has extensive experience in the administration of receiverships and liquidations
and it is invariably the preferred method of maximizing the values realized in such administrations
that the business of a company should be sol d as a complete operation or, failing that, as
500 RASSEGNA DELL'AVVOCATURA DELLO STATO
a number of self-contained operations. The breaking up of a business and the sale of its assets
by public auction is a last resort and will almost inevitably produce the worst possible result.
Mr. President, distinguished Members of the Court, that concludes my evidence.
The PRESIDENT: Thank you very much, Mr. Lawrence. Does the ltalian delegation want
to examine the expert now ?
Mr. FERRARI BRAvo: Mr. President, first of all I should note that the interesting statement
just delivered by Mr. Lawrence seems to me to have gane far beyond what one expected to
listen from an expert witness, some sort of « plaidoyer "· But anyway he has offered tetimony
this afternoon relating to the interpretation of the 30 September 1967 audited financial statements
of ELSI, and in particular Note 10 thereto. This again, this testimony or statement, went much
beyond the direct testimony offered by the same Mr. Lawrence in the first round.
Now, I think we regretfully feel that we should be afforded the opportunity to consider Mr.
Lawrence's evidence today with our financial adviser, Mr. Hayward, who is not present today
in Court as he is out of town, actually in Paris. This is not because of lack of respect to the Court,
but for the simple reason that we had no notice that Mr. Lawrence would be called for further
testimony today until this morning, when Mr. Hayward had already left The Hague. So I would
be prepared to notify the Registry by noon on Wednesday whether we might find it necessary
to cali Mr. Lawrence for cross-examination on Thursday; but we are not in a position now to
put any question to the expert. Thank you, Mr. President.
The PRESIDENT: So, the Agent of Italy wants to consult his financial expert before examining
Mr. Lawrence. As you know, the Court is very flexible about the procedure and therefore if, in
this case, you can have the advice before Thursday, that will help the Court very much. Therefore
I relieve Mr. Lawrence for today, but he will have to be at the disposal of the Court fora
meeting, in principle on Thursday, to be cross-examined. Yes, Mr. Matheson.
Mr. MATHESON: Excuse me, Mr. President. I understand that it will be difficult for Mr.
Lawrence to come back on Thursday. I would like to make the following suggestion: obviously
the debate here is not between Mr. Lawrence and counsel for Respondent, but between Mr.
Lawrence and Mr. Hayward, the two experts on these issues. May I suggest that if there are
points in Mr. Lawrence's statement that they wish to rebut, they simply ask Mr. Hayward to
appear, as we have done in our rebuttal. In this respect I must say that I have to disagree with
what has just been said by the Agent to the Respondent: what Mr. Lawrence had to say was in
rebuttal of what had been said by Mr. Hayward. That is the function of this statement and it
was perfectly pro per. Thank you.
The PRESIDENT: Excuse me. I don' t follow the purpose of your intervention.
Mr. MATHESON: It was to say that it would be difficult for Mr. Lawrence to appear on
Thursday, but perhaps the same function could be served by Mr. Hayward appearing on Respondent's
behalf to make whatever points they wish to rebut about Mr. Lawrence's presentation
today.
The PRESIDENT: I see. In these circumstances I think that the best thing would be, after
this sitting, to get in touch with the two Agents and then to settle when the two experts can be
before the Court, in order to give the best assistance to the Court. So, after this sitting, the
Registrar will meet with the two Agents, and then we will work out a schedule which permits
the two experts to be before the Court at the same time, in arder to help us. Are you in agreement?
Mr. MATHESON: I think we first need to know whether it is necessary to have the experts
present simultaneously. I believe Respondent is going to study what Mr. Lawrence has said
and then we can perhaps discuss that question.
The PRESIDENT: W ell I think for the Court it would be a very good opportunity to have
both experts before it, so therefore after the sitting there will be a meeting of the two Agents
with the Registrar to work on this point. Thank you very much. Mr. Matheson.
REPLICA MATHESON 501
Mr. MATHESON: Thank you, Mr. President. I would like to mention first that we have
prepared written answers to ali the questions which we have been asked by the Court, and they
are ready for submission. They are on stack, so it may be that the Court would accept the
written submission in lieu of reading them ali out, but of course. we are quite prepared to answer
any questiona that Members of the Court may have about our answers.
The PRESIDENT: Mr. Matheson, you have the right to submit your replies in writing, a:tid
by doing soyduhave saved the Court's time. We will accept your replies in writing. They will
be · transmitted to the other Party.
Mr. MATHESoN: Thank you, Sir.
I come now to the question of the violations of the FCN Treaty alleged by the United States.
In a few moments I will deal with the arguments made by Respondent last week concerning the
specHìc provisions of the Treaty. Before doing that, however, it seems useful to make a few
points concerning what Respondent has said about the Treaty regime in generai.
First, the Respondent objects to our assertion that the primary object of the post-war FCN
treaties was to improve and strengthen the protection of foreign investment (C 3/CR 89/3, p.
3 II) an d notes that various types of other provisions exist in these treaties. Whether the protection
of investment is the primary objective or only one of the objectives of these treaties, it
is stili clear that the provisions of the 1948 Treaty which deal with the ownership rights offoreign
companies in enterprises and property must be interpreted in the light of this objective. I believe,
in fact, that the two Parties share a community of interest on this point. .
This objective of the 1948 Treaty to protect investment is not diminished, as the Respondent
from tìme to time suggests, by the fact that the Parties signed a Supplement to the 1948
Treatyin !951. The preamble of the Supplement itself states that the parties are, and I quote:
<< desirous of giving added encouragement to investments of the one country in useful undertakings
in the other country, and being cognizant of the contribution which may be made
towards this end by amplification of the principles of equitable treatment set forth in the
Treaty ».
In other words, the Parties clearly saw the Supplement as adding to and amplifying the
fundamental protections for investments already contained in the 1948 Treaty, and not as creating
a new regime for protection of investment where before there was nothing. In any event,
there is no doubt that the objective of protecting investment is a centrai purpose of the Supplement,
which constitutes an integrai part of the Treaty (Supplement, Art. IX).
Second, the Respondent questions the propriety of attributing to the Respondent certain
of the acts and omissions on which the claim of the United States is based. The Respondent
has not and cannot deny that the acts of the Mayor of Palermo, the Prefect of Palermo, the local
police and its Government Ministers are ali attributable to the Respondent. Likewise, the actions
of .the Bankruptcy Judge, a public official exercising public functions under the sanction
of ltalian law, are clearly actions attributable to the Respondent under established rules of State
responsibility. The United States does not allege, as the Respondent seems to suggest, that the
actions of potential purchasers of ELSI assets in declining to attend the bankruptcy auctions
are attributable as such to the Respondent. Rather, we attribute to the Respondent the actions
of Italian authorities and instrumentalities which had the effect of discouraging the participation
of other bidders, and this includes the actions of the bankruptcy authorities in structuring the
auctions.
Moreover, the actions of IRI and its subsidiary EL TEL are also attributable to the Respondent,
since IRI is not only owned and controlled by the Respondent but is an arm and agent
of the Respondent. A basic criterion for attributing conduct of a State-owned enterprise to the
State is whether that enterprise serves State purposes, thus becoming a part of the State's apparatus
(G.A. CHRISTENSON, << The Doctrine of Attribution in State Responsibility >>, International
Law of State Responsibility for Injuries to Aliens, p. 333 ([R. Lillich, ed. 1983]). As we have shown,
this was clearly the case with respect to the actions of IRI and EL TEL in acquiring the plant
and assets of ELSI.
- --· .,-
502 RASSEGNA DELL'AVVOCATURA DELLO STATO
Third, the Respondent argues generally that its acts did not rise to the level of « interference
with management and contro! » or « expropriation » or loss of « protection and security >> (C
3/CR 89/7, pp. 412,415,417, 4I8). Yet the acts of requisitioning the plant and then not overturning
that requisition in a reasonable time stripped Raytheon and Machlett of their ability to
piace ELSI through an orderly liquidation, a right to which they were entitled under the Treaty.
The occupation of the plant prevented any chance of showing the plant and assets to prospective
buyers. The fl.aws in the bankruptcy proceedings ultimately resulted in acquisition of ELSI by
the Respondent for well below what it was worth. These acts were not mere ephemeral exercises
of police power, as Respondent suggests; they were serious and irreversible intrusions into the
essential rights and interests of Raytheon and Machlett in the contro! and disposition of ELSI.
It is no t enough for the Respondent to state that the requisition was « only for six months »;
given the circumstances surrounding ELSI as of I Aprii 19~8, the e:ffect of the requisition was
immediate and definitive.
Fourth, the Respondent argues generally that these acts were directed against ELSI, an
Italian corporation, and not against Raytheon and Machlett. The Respondent maintains that
only in limited circumstances, where specific language allows one to « lift the corporate veil »,
should these acts be considered to have been taken against Raytheon and Machlett (C 3/CR 89/7,
p. 4I3).
This argument is incorrect and, at best, it is one of form over substance. The true effect
of these acts struck at rights of US nationals specifically protected by the Treaty; the ability
to manage and contro! companies and enterprises, the ability to dispose of property, the right
to receive compensation in the event of a taking of property, and the protection and security of
that property. These are rights granted directly by the Treaty to Raytheon and Machlett, and
are not merely the derivative claims of shareholders to rights granted to ELSI. Therefore,
there is no need to « lift the corporate veil » as the Respondent claims.
More generally, the Respondent argues that there is in e:ffect a generai presumption in
intemationallaw against protection of the foreign shareholders of locally incorporated enterprises
and that there is therefore a presumption against interpreting specific treaty provisions to provide
such protections (C 3/CR 89/7, p. 413). Whatever the merits of this argument with respect to
intemational law generally, it is certainly incorrect with respect to the interpretation of a treaty
which is designed specifically to provide protection for foreign investments.
As with ali treaties, each specific provision must be interpreted in accordance with the ordinary
meaning of its terms, in their context and in light of the treaty's object and purpose, and
recourse may be had to supplementary means of interpretation to confirm this meaning. In
the case of the FCN Treaty, there is no basis whatsoever for any presumption that foreign shareholders
are not protected by the particular provisions at issue in this case. On the contrary, as
we have shown, the Treaty language and its ratification history clearly show a positive intention
to protect the interests of foreign shareholders in locally incorporated subsidiaries. As Professor
Gardner explained, one of the major features and purposes of this new Treaty was to protect
foreign investment through local enterprises which had become a major vehicle for foreign
investment (C 3/CR 89/3, pp. 3II-316).
Let me tum now to the specific provisions of the Treaty which the United States alleges
to have been violated.
Management and contro[.
First, the United States alleges that the Respondent violated its obligations under Articles
III and VII of the I948 Treaty and Artide I of the Supplement to protect US corporations
from interference with management and control of their enterprises in Italy. The specific acts
and omissions that caused these violations were the requisition of ELSI on I Aprii I968 and the
delay in overturning that requisition. There is no dispute that these acts and 1omissions occurred:
the order of requisition by the Mayor of Palermo on I Aprii I968 is on file with the Court and
its authenticity is not challenged; this is also the case with respect to ELSI's petition of I I Aprii
REPLICA MATHBSON 503
to the Mayor of Palermo to lift the requisition, ELSI's formai appeal of the requisltron order
to the Prefect of Palermo on · r 9 April, an d the ruling of the Prefect on zz August I 969. Accord•
ingly, there is no issue as to whether thefacts upon which the United States bases this allegation
have been established. The question is · only whether these facts constitute, a violation of the
Treaty.
Let rne stress this point-"'in light. of the arguments rnade repeatedly by the Respondent last
week. The · r~quisition · oonstituted; in an d of itself, a· violation · of the · above..;.rnentioned provisions
of the Treaty; ,.. And this is the' case regardless' of whether or· no t there was 'any collusion
between various entities of the ltalian Govemrnent to produce this result, arid regardless of
whether there was .any causai chaìn between the requisition and any of the other acts or ornissions
which the United States alleges to be Treatf violations. The sarne is true with respect to
the subsequent delay in overturning the requisition; which constituted a separate violation.
Further, this violation of the Treaty occurred when the requisition order was issued on
I Aprih968; regardless ofthe financial state 6fELSI atthat point. We have shown that ELSI
was not irisolvent or barikrupt as of that date, arid had no obligation to file in ba:rikruptcy.
But even if one were to take a different view of ltalian law, the Italian authorities, which
wete fully aware ofELSI's finandal circurnstances, ha:d taken no action whliitsoever to institute
barikruptcy proceedings; Therefore; Raytheon. and Machlett enjoyed fulhights of management
and eoritrol as of t Aprii 1968 under Italian law a:nd under the Treaty. l t is only the requisition
which obliter~tted the exercise of those tights.
In his oral presentation, Professor Gardner. explained a t some .length why the Respondent' s
actìons constiwted violations of the Treàtyi / To · sumtriltrìze hìs> explanation · very briefly, these
aétions violated the tequirement of Artide III, paragra:ph 2, of the I948 Treaty that nationals
and corporations of either party be perrriitted to otganìzé, control and rnanage corporations of
the other party to engage in commerci~tl, manufacturing> and · other activities. These actions
violated · the requirement of Artide I of the Supplement that the nationals ·an d corporations of
either party not be. subjected vvìthin the territory of the other part to arbitrary or discriminatory
measures; resuliing particularly inpreventing their effective contro! ahd management of
enterprises vvhich they have been permitted to establish or acquire.
Thése àctions also violatéd the requirenient in Artide VII, paragraph x (a), of the 1948
Treaty that. the • naticinals an d. corporations of eithei party be perniittéd to acquire, own an d
dispoSe of imrnovable property or interests therein iri the territocy of the other party.
Now, the Respondent ~trgues that Artide 1U, paragraph 2, of the 1948 Treaty grants US
coll'orations rnerely the '' faculty >> or the formaf right to organize, manage and contro! Italian
corporations (C 3/CR 89/7, pp. 414_.415) but gives no ongoing or <c operatìonal >> protection to the
parent corporation from any interference with those rights (C 3/CR 89/8, p. 459). Such an interpretation
would be contrary to both the ordinary meaning and evident purpose of this provision.
The language itself states that the foreign parent is not only entitled to organize a local
corporation, butalsoto controland manage it, words which necessarily irnply a continuing right
to direct the enterprise and dispose of its assets. Limiting the rights of the foreign shareholder
to the basic formai rights ofotga:nization would deprive foreign investors of the entire purpose
oftheir investment, an d wo:ttld thètefore defeat one of the basic objects of the Treaty. W e therefore
conte!ld that the Respnden:t's interpretation is untenable. . ...
On the Clther hand, the Respondent apparently accepts that Artide I of the Supplement
does protect the right of the foreign parent to exercise continuing effective control over their
enterprises in ltaly (C 3/CR 89/8, p, 459). Here, however, ~he Respondent argues that the requisition-
although admittedly unlawful under Italian law ,.- was not an arbitrary measure and
therefore could not give rise to a violation of Artide l. Specifically, it was argued that this action
was not cc arbitrary n because the Mayor of Palermo was acting under the colour of ltalian law
- that is, his authority to requisition property in certain circumstances - even though the
exercise of the requisition power in the ELSI case exceeded his authority (C 3/CR 89/7, pp.
422-423).
With all due respect, such an interpretation would eviscerate the protections of. Artide l,
and would be wholly contrary to its dear rneaning and purpose. If the Respondent's argument
504 RASSEGNA DELL'AVVOCATURA DELLO STATO
were correct, then no misuse of a governmental power would be considered " arbitrary » so long
as the official in question had that power in some other circumstances under Italian law.
No doubt there are Italian officials who have the power of arrest, or the power of taxation,
or the power of deportation; but could there be any doubt that the exercise of these powers for
politica! reasons unconnected with the legitimate public purposes for which they are granted
would be" arbitrary >>? Would there be any doubt that such actions would violate Artide I of
the Supplement if used to prevent United States corporations from exercising effective control
and management of their enterprises in Italy? By the same token, the unlawful requisition was
also a clear violation of the FCN Treaty.
No legitimate public purpose was served by the requisition. In its written answer of 22
February to a question asked by judge Schwebel, the Respondent conceded that the requisition
was nota precondition for the payment by Italian authorities of the salaries of the ELSI workforce.
Further, as was pointed out in Judge Schwebel's question on 23 February, the Prefect of
Palermo, in upholding ELSI's appeal against the requisitìon order, held that "the order ìs destitute
of any juridical cause which may justify it or make it enforceable ». The Prefect observed
that the order neither caused activity at the plant to be resumed nor created more favourable
conditions in the company. He stated that the requisition did not in any way avoid the public
disturbances which were the asserted basis for the order. lnstead, the Prefect held that the
order was issued under the pressure created by the local press, and that its only purpose was to
deal with that public relations problem.
In other words, the Prefect held that the Mayor's order was not based on any legitimate
public consideration, but was simply designed to relieve local politica! pressure. If this does not
fit within the meaning of the prohibition on " arbitrary » actions in the Supplement, it is hard
to see what content that provision could have.
Finally, the Respondent argues that the requisition was not arbitrary because there was a
right of appeal under Italian law, and the action could not be considered arbitrary until
officially pronounced as such under Italian law (C 3/CR 89/7, p. 423). This line of argument
is clearly incorrect and contrary to the whole purpose of the provision. Artide I is a prohibition
on certain actions, not simply a requirement for procedura! review. Further, such an interpretation
would mean that there would be no Treaty constraints on arbitrary action so long as a theoretical
right of ultimate appeal existed. The current case illustrates the total inadequacy of such
an approach- the rights of appeal offered by Italian law resulted in a I6-month waiting period
before a decision was reached, by which time ELSI had long since been forced into bankruptcy
and the whole purpose of the Treaty protections had been defeated.
Impairment of investment rights.
Next, the United States alleges that these same actions violated the separate requirement
in Artide I (b) of the Supplement that corporations of one party not be subjected to arbitrary
or discriminatory measures within the territory of the other party which impair legally acquired
rights and iriterests in enterprises which they have been permitted to establish or acquire. This
provision is quite broad, in that the text defines such investments as funds (loans, shares or otherwise),
materials, equipment, services, processes, patents, techniques, or otherwise.
The Respondent advances the same argument that I have just rebutted regarding Artide I
(a) of the Supplement and repeats that the acts of the Respondent were not atbitrary or discriminatory
(C 3/CR 89/7, p. 424). For the reasons I have just stated, this argument is simply
untenable.
Taking of property.
Next, the United States alleges that the requisition and the delay in overturning it constitute
violations of the Treaty provisions against the taking of property interests without just compensaREPLICA
MATHESON 505
tion. Again, to summarize briefl.y Professar Gardner's more lengthy argument (C 3/CR 89/3, pp.
321-326), these actions violate the provision ofArticle V, paragraph 2, of the 1948 Treaty that
the property of corporations of either party not be taken without the prompt payment of just
and effeotive compensation. . They also violate the requirements of paragraph I of the Protocol,
that the provisions of Artide V, paragraph 2, providing for the payment of compensation, shall
extend to interests held directly or indirectly by corporations ofeither party in.property which
is ·taken ·within· the territoty: of the other party.
The application of these provisions to this case are dear. The requisition of ELSI's plant
an d assets was anunreasonable interference in their disposal and a taking of property. The failure
to overturn the requisition and the acquil';ition of ELSI through the fl.awed bankruptcy proceedings
allowed the Respondent to acquire ELSI at far less than ELSI's true value.
Now, the Respo.ndent grasps at alleged differences in the meaning of the English and ltalian
texts òf Artide V; patagraph 2, and the Protocol to deny that a Treaty violation occurred. Artide
33, paragraph 4, of the Vienna Convention states that where there is a difference in meaning
between authentio texts which is not resolved by Artides · 31 and 32, the meaning which best
reconciles the texts, having regard to the object and purpose of the treaty, shall be adopted~
Where we disagree is .in the Respondent's conclusion that a signifioant difference in meaning
actually exists between .thése texts, •· an d that such a difference must be resolved in accordance
with the · more restrictive of. the. tWo texts.
In fact, as Professor Gardner demonstrated (C 3/CR 89/3, p. 324), there is no real difference
between the English and Italian versions. A careful review of these terms, in light of
their object and purpose, results in the interpretation that they protect property from any unreasonable
interference in its use, whether this be characterized as a « direct taking "• « indirect
taking " or << expropriation "·
Notwithstanding the Respondent's creative argument to the contrary (C 3/CR 89/7, pp.
419-42o), the Protocol clearly relates back to the entirety of Artide V, paragraph 2, and was
devised to extend Artide V, pitragraph 2, to exactly the type of rights or interests at issue in
this case (Memoria}, p. 44). If there remains any ambiguity in meaning, Artide 32 of the Vienna
Convention calls for reference to supplementary means of interpretation, which the United States
has shown of suport in our interptetation, whether this is considered as << functional interpretation
» or an interpretiìtion based on the intention of the parties (C 3/CR 89/7, p. 4II).
The Respondent continues to see significancein the fact that the requisition ofELSI's plant
and assets allegedly would not be· considered a taking of property or an expropriation under
Italian law. The question, however, is not one of Italian law, but whether under the terms of
this · Treaty a taking or expropriation has occurred. The United States in its pleadings (Memoria!,
pp. 44-47; C 3/CR 89/3, pp. 3ZI-:J22) has provided ampie evidence that under international
law the acts and omissions of the Respondent in this case constitute a taking or expropriation of
property.
Protection and security.
Finally, the United States alleges that the Respondent violated the Treaty provisions on
protection and security by tolerating the occupation of ELSI's plant. Specifically, the Respondent's
inaction violated the requirement of Artide V, paragraphs I and 3, of the 1948 Treacy
that corporations of either party receive the most constant protection and security for their property
required by internationallaw. The Respondent argues that a company cannot be the object
of a property right of its shareholders (C 3/CR 89/7). This would come as quite a shock to
shareholders around the world- particularly those with xoo per cent ownership in a company.
This is an untenable proposition, and cannot refl.ect the intention of the Parties who. specifically
intended to protect the rights of foreign parents in their local subsidiaries.
The fact of the occupation is not disputed and is established in the affidavit of ELSI's
Director of Planning (Memoria!, Annex 21). Once again, the failure to provide protection
against this occupation constitutes a violation of the duty owed by the authorities of the Res506
RASSEGNA DELL'AVVOCATURA DELLO STATO
pondent, whether or not there was any collusion between Italian authorities at various levels,
and whether or not there was any causai chain connecting it to other acts and omissions complained
of by the United States.
The Respondent asserts, however, that the occupation actually began prior to the requisition,
and points to an Italian court's statement that some workers had occupied the plant premises
for a couple of days in mid-March (C 3/CR 8g/6, pp. 387-388). The Respondent apparently asserts
that by not calling upon the local police for assistance, ELSI acquiesced in the occupation
of the plant.
In fact, prior to the requisition of the plant, the local Carabinieri were called in, they did keep
order, they did not permit the workers to occupy the plant premises (Memorial, Annex 2I, para.
20). During this period, there were some strikes and sit-ins of temporary duration, butthe police
prevented the workers from occupying the plant or barring access to the plant by management.
After the requisition of I Aprii, however, the local police did nothing to prevent ELSI's former
employees from occupying the plant grounds, nor from entering the plant after ELSI had been
forced to declare bankruptcy. ELSI representatives were confronted several times by these
workers (Memorial, Annex 2I, paras. 20-23).
But even if the Respondent were to show that the workers occupied all or parts of the plant
and the premises up until I Aprii, this would not justify a continued occupation after the local
government had wrested control of the plant from ELSI. Once the requisition occurred and the
keys to the plant were handed over to the Respondent, the Respondent was in control of the
plant and had a responsibility to prevent the former ELSI workers from occupying the plant
and obstructing the orderly disposition of its assets.
Conclusion.
Mr. President, you have now heard the United States rebuttal of the primary arguments
made by the Respondent in its oral presentations. At this point I would like to offer an overall
summary of the case as it has emerged during these proceedings.
As you have seen, ELSI's shareholders faced the necessity of taking hard decisions in early
Ig68 due to ELSI's inability to become a self-sufficient enterprise. They concluded, as they
had a right to do under Italian law and under the Treaty, that they could not justify further
capitai contributions or loan guarantees to ELSI beyond the 4 billion lire which they had advanced
to maintain it through the first quarter of I968. They made every effort over a considerable
period of time to make it possible for Italian authorities to participate in ELSI if they
wished to make the financial contributions necessary to accomplish this.
Now, no one suggests that the Government of Italy had some legai obligation to participate
in ELSI on this basis. But by the same token, in the absence of such action, Raytheon and
Machlett had the right under Italian law and under the Treaty to liquidate ELSI in an orderly
manner. This is the option that ELSI's shareholders reluctantly chose.
This decision was not, as the Respondent has suggested, an irresponsible action taken in
disregard of ELSI's creditors, its workforce and the community in which ELSI operated. As
we have already shown in considerable detail, Raytheon had already made the financial commitments
necessary to ensure that ELSI's obligations would be paid as they carne due, including
the payroll of the workforce and the full amounts owed to the small creditors and the secured
and preferred creditors.
Contrary to the Respondent's repeated allegations, Raytheon did not throw ELSI's workers
onto the street without notice or compensation, but agreed to pay them full salary throughout
the required noti ce period. W as there then any purpose in keeping them idle a t the plant during
this period, rather than being able to seek new employment ?
Contrary to the Respondent's assertions, the ELSI plant had not been seized by its workers
prior to the requisition. As we have shown, the worker's demonstrations were outside the plant
and did not cause major disruptions inside the plant or in access to the plant by ELSI's management.
REPLICA MATHESON 507
The orderly liquidation t>lanned by Raytheon would have made the rnost productive use of
ELSI's assets, and would have preserved for the economy and workers the maximum possible
benefit from viable product lines and business operations. W e bave demonstrated in considerable
detail tbe product lines tbat could and would bave been sold as viable enterprises, and we bave
given other examples of how this process works asa sensible and norma! adjustment of business
relationsbips in such a situation. This would in turn bave allowed the greatest possible satisfac~
tion of ali of ELSI's cred.itors - according to our calculations of ELSI's value, 100 per cent;
and even according to tbe calculations .• of the Respondent's expert, 100 per cent to tbe secured
and preferred creditors and as mucb as 65 per cent to tbe unsecured creditors- wbicb is a per~
fectly norma! result in such liquidation circumstances.
TheRespondent bas asserted that ELSI sbould have been placed in bankruptcy long before
tbe requìsition, an d would shortly bave fallen into banktuptcy in any event. W e bave sbown in
considerable detail tbat this is simply not tbe case. There was no requirement under Italian
law tbat ELSI be placed in bankruptcy under tbe circumstances prevailing before tbe requisition,
or under tbe circumnstances tbat would bave prevailed had tbe requisition not been ordered.
Contrary to the Respondent's assertions, ELSI was making payment of its obligations as tbey
carne due, and would bave continued to do so but for tbe requisition.
Now, letus compare thìs situation witb wbat actualiy occurred as a result of tbe Respondent's
actions. The requisition solved none of tbe problems of ELSI or its ltalian creditors or
tbe Iocai community. It did not save ELSI - it quickly destroyed it. Its product Iines and
assets couid no longer be transferred to other buyers wbo wouid make productive use of tbem.
Productiofi • wa:s • not resumed at tbe p1ant and the workforce was not rehired.
Tbe interests of tbe creditors were devastated. The Itaiian smali creditors were not paid
promptly, as bad been pianned by Raytheon. Tbey and the unsecured creditors received essentialiy
notbing, instead of the substanciai or full recovery tbey would bave received under tbe
liquidation pian. Tbe Italian Government acquired ELSI's piant througb ELTEL aimost a
year later, but even there it was a ghost of its former self by tbat time.
And ali of this · is without reference t() the losses suffered by Raytbeon and Macblett as a
result of tbe liquidation, wbicb we bave estabiisbed in detail. Tbese Iosses included tbe loss of
recovery of a portion of tbeir investment Ìh ELSI. Tbey included the necessity of paying in
fuliloahs to E:LSltbat bad been guaraiiteed hy Raytbeon, or wbich would otberwise have been
satisfied from tbe sale of ELSI's product lines a:nd otber assets at their true value. Tbey included
tbe non-payment to Raytheon of debts due to it from ELSI which would bave come from the
proceeds of these sales. They included tbe expehses of Raytheon in connection witb tbe bankruptcy,
the defense against lawsuits by ELSl's creditors, and tbe presentation of tbe claim to
the Respondent. Tbey included the rea} and substantial cost of the loss of use of tbese sums
during tbe intervening decades, represented by compound interest from the date of the Respondent's
actiorts.
The Respondent has characterized these events as an attempt by Raytheon to drain ELSI
of ali it could extract, to dump ELSI's problems on the ltalian Government and the Palermo
community, and to wasb its hands of tbe wbole affair. With ali due respect, this explanation
simply makes no sense.
Prior to the requisition, as we have sbown, Raytheon was not making money on ELSI's
operations - it was losing money. It had advanced 4 billion lire to sustain ELSI's operations
for tbe year prior to tbe liquidation. It bad already arranged to pay ELSI's smali creditors. It
bad made firm commitments to pay ELSI's workforce and to previde any assistance necessary
to meet otber obligations as they carne due. Far from bleeding ELSI, it was continuing to expend
money on ELSI's behalf.
Why was Raytheon doing this ? Precisely because it knew that its losses - and tbe losses
of ali the otber parties involved - wouid be far greater under bankruptcy tban under orderly
liquidation. I t had a very strong financial incentive to sustain the liquidation process an d to
avoid a simple coliapse into bankruptcy.
Under these circumstances, what sense does it make to conclude that Raytbeon was just
trying to find a convenient excuse for dumping ELSI into tbe lap of tbe Respondent, and chose
508 RASSEGNA DELL'AVVOCATURA DELLO STATO
the requisition order as the convenient excuse ? Raytheon paid a heavy price for the requisition,
and so did all of those who had done business with ELSI. It was far from a welcome event or
a convenient scapegoat.
Let us look carefully again at the precise legai case which the United States has brought
before this Court. We have alleged that certain specific actions and omissions of ltalian authorities
violated the Treaty. Each act or omission alleged is a separate and independent violation.
In no case is it an element of the violation that Italian authorities and entities at various levels
conspired to produce the result. In no case is i t an element of the violation that ali of these events
were linked one to another in a single causai chain.
For example, let us look at the requisition order. It dearly interfered in a fundamental way
with the management and contro! of ELSI by Raytheon and Machlett, and also with their rights
and interests in ELSI. In fact, it totaliy obliterated their ability to dispose of ELSI and to direct
its operations during the criticai period in the spring of 1968.
The requisition was plainly unlawful under Italian law - this is not disputed. It was also,
by any reasonable definition of the term, arbitrary. As the ltalian authorities specifically held,
the requisition had no lawful justiflcation whatsoever, no purpose other than to mitigate local
politica! pressure. How can such an action be termed anything other than arbitrary ? Therefore,
the requisition order was plainly a violation of Artides III and VII of the 1948 Treaty andArtide
I of the Supplement.
The same is true of the failure to overturn the order untillong after its fatai results had occurred.
It is not necessary to impute or prove any particular motivation to the Italian authorities
charged with processing and deciding on the appeal of the requisition. The plain fact is that the
16-month delay prolonged the effect of the requisition well past the time at which ELSI was
forced into bankruptcy, past the time at which its product lines and assets might have been profitably
sold, and even past the time at which EL TEL acquired the plant and assets for far less
than their true value. As we have shown, this period of delay was completely unreasonable under
the circumstances, and wholiy out of line with the comparable practice of Italian authorities in
similar cases.
We have also shown that the requisition and subsequent sale of ELSI's assets to ELTEL
through the bankruptcy process constituted a taking of the property of its shareholders without
the prompt payment of just and effective compensation. And this was in plain violation of Artide
V of the 1948 Treaty. W e have demonstrated in considerable detail that the amounts realized in
the bankruptcy process fell far short of the real value of ELSI's assets- and this is true whether
one accepts the calculations of our valuation expert or the Respondent's accountancy expert.
As we have shown, this occurred (among other reasons) because the terms of the bankruptcy sale
exduded sales of product lines - which were by far the most attractive possibilities to potential
buyers, and because i t had already publidy been announced by Italian authorities that EL TEL
would acquire the plant. Under these circumstances none of the buyers to whom Raytheon might
have sold ELSI's assets had any reason whatsoever to appear at the auctions.
The terms of the auctions, the announcement of the Government's intent to take over ELSI,
the creation of EL TEL for this prupose, EL TEL's possession of ELSI's plant at the time of
the auctions, the amount realized in the final sale in bankruptcy - these are ali facts, weli documented
in the record and not disputed. They establish a violation of the Treaty. No allegations
or proof of conspiracy or causai chains are necessary in any way.
Now, the Respondent insists that, even if ali this were true, the daim of the United States
is inadmissible before this Court because of an alleged failure to exhaust local remedies. We
have shown that, for the Respondent to succeed with this objection, it must demonstrate each
one of a series of propositions concerning the law and the circumstances of this case. The Respondent
has failed to demonstrate any of them. l t has not demonstrated that the local remedies
rule should apply in this case at ali. It has failed to show why the extensive efforts undertaken
before Italian administrative and judicial authorities to find appropriate relief were not sufficient.
l t has in particular not explained why any further actions were necessary after the highest courts
of Italy had specificaliy rejected precisely the same contentions that form the core of the present
dispute. c
REPLICA MATHESON 509
The Respondent has failed to demonstrate why it is proper for it to maintain thls objection
now, after many years of remaining quiet in the face of the assertion by the United States that
local remedies had been exhausted and that recourse to international settlement was therefore
necessary. The Respondent's objection would be a triumph of forttralism. It would-be a denial
of the recourse to this Court which the Parties had specifically agreed to in the Treaty, ali in the
name of exhausting local remedies which could never have provided an adequate means for the
United States to vindicate the full scope of its rights and interests under the Treaty.
The Respondent suggested in its final presentation last week that the United States had
brought this dispute to the Court because of pressure brought to bear by a large and infiuential
national, notwithstanding thealleged inadequacy of this case. Mr, President, and distinguished
Members of the Court, I can give you personal assurance that this was most certainly not the
case.
Of course, we wanted to vindicate the rights of our nationals and we certainly thought that
these particular nationalshad not been fairly or lawfully treated. But in deciding to bring this
matter before. this Court, we were focusing on broader interests of the United States. W e were
concerned about the integrity and e:ffectiveness of the protections .for foreign investment contained
i~ this and other FCN tr~aties, and we wanted to be certain that no precedents were set
for inadequate interpretation and application of these protections. W e believed that a judgment
of this Court would be by far the strongest reaffirmation of these provisions. Above ali, we
wanted to demonstrate in a vìsible and concrete way our contìnuing conuriitinent to the criticai
role of this Court in the adjudication oflegal disputes bet\Veen States.
In short, the United States comes before you on its own behalf, in the hope that this case
can be an important step - at a difficult time - in the advancement of the cause of peaceful
settlement of international probletn.s· W e ask you to take an d decide the merits of this case. W e
ask you to give the Parties a· just result as you best see i t.
Mr. Président, and Membérs of the Court, I confirm the final submissions of the United
States in this case as they were stated in our initial oral presentations, and as they have been submitted
in writing today. And I know that I speak for ali ofthe 111embers of the United States
team when I say that we thank you • ali for the honor of appeàring before you, for your consideratioi:
i ofour case and for your kindness to all of tis. Mr. President, this concludes the presentation
of the United States in thesé proceedings. And I thank you, Sir.
The PRESIDENT: On behalf of the Chamber I thank you very much for the assistance received
from the American delegation. We shall continue on Thursday morning at IO o'clock to hear
the second round of pleadings of the Italian delegation. Thank you very much.
The Court rose at s.so p.m.
33
C 3fCR 89/11
Thnrsday 2 March 1989, at 10 a. m.
Mr. FERRARI BRAvo, Mr. HIGHET, Mr. LIBONATI, Mr. CARAMAZZA, Mr. CAPOTORTI
The PimSIDENT: Please be seated. I have received a few minutes ago a letter from the Agent
of Italy with the written replies to the questions put by Members of the Court. I understand
that the Registrar has transmitted a copy of these replies to the United States delegation. One
of the replies has annexed to it some new documents. I would ask the Agent of the United States,
if possible, to · read these doctU:llents an d then to let me know a t the beginning of this afternoon's
session if he has any objection to the production of these documents.
We begin now with the second pleading of the Italian delegation. Je donne la parole à
l'agent de l'ltalie, Monsieur Ferrari Bravo.
Mr. FERRARI :BRAvo: Thankyou, Mr. President. Before I begin, I have just passed to my
distinguished American colleague two !jmall typing corrections on page 30 of our written replies.
There are two mistakes in figures - I am sorry but figures are always a big problem in typing
-in the middle of page 30, there is a figure 4·7 million. This should read 407.8 instead of 4·7·
And three lines below there is 1053 million; that should read 1.653 million. I hope the Registry
will take care .of this. That is ali, thank you. I apologize for this.
Mr. Presidcmt, distinguished Members of the Court, we come now to the end of our pleading
and it is the turn of Italy to rebut the. other Party's argument. Our rebuttal will be structured
as follows: first, Mr. Highet will describe the changes in direction that have occurred in Applicant's
case including the abandonment of the theory of conspiracy, the assertion of a fragmented
case. and the emergence of the bail out commitment by Raytheon. Then, Professor Libonati
will illustrate the fortunes and prospects of ELSI as a manufacturer in the electronics field and
Mr. Caramazza will return to the acts of the Italian authorities which allegedly cause the bank
ruptcy of ELSI. The United States contentions on.the interpretation of the relevant international
instruments will then be rebutted by Professor Capotorti, followed by Professor Gaja on the
problem of prior exhaustion of local remedies. And, finally, I shall make some remarks of a more
generai nature and, of course, I shall present to the Court the fina! submissions of the ltalian
Government. Therefore, Mr. President, I would like you to request that Mr. Highet take the
fl.oor. Thank you.
The PRESIDENT: I give the fl.oor to Mr. Highet.
Mr. HIGHET: Thank you, Mr. President. Mr. President, Members of the Court, ora!
proceedings under the Rules are, as you of course know, supposed to be << directed to the issues
that stili divide the parties(1) )). One hopes that this process will help the Parties to streamline
and to refine their cases, to make the job of the Court somewhat easier.
But in these proceedings, in this case, there really has not been a « streamlining )) of Applicant's
case. I t has been radically altered since the beginning of the oral proceedings themselves.
And there has not been a refinement of Applicant's case, there has been a significant abandonment
of major portions of that case since Respondent's first round of arguments only two and
a half weeks ago. In addition, two wholly new lines of argument have been invented and introduced
in Applicant's closing arguments. It has been a very interesting three weeks.
It is also noticeable, Mr. President, that the submisswns ot the United States have also
suffered a sea-change. They no longer specify - even generally- the acts and omissions that
could give rise to the violations asserted in their paragraph x.
(l) Rules, Article 6o, para. 1.
REPLICA HIGHET 511
Now, it is no exaggeration then that Applicant's case has suffered a drastic revision. The
conspiracy theory has been dropped, or said to have been dropped. Causation or logica} nexus
is dismissed out of hand. The claimed injuries themselves, in this case, have been reworded
so that they are smaller separate components rather than a unified whole. And now the submissions
have also followed suit. They have been altered to seek evanescent declaratory relief
and almost as if it were to avoid using the words « Raytheon and Machlett " lest attention be
drawn to their possible failure to pursue local remedies.
The part of Applicant's case, Mr. President, that has been wholly jettisoned from the proceedings
is of course the « conspiracy" theory. However, this was certainly a major component up
until the beginning of the second round of pleadings, when it met a sudden and premature demise.
In my pleading to the Court on zo February I took considerable pains to illustrate this
element of Applicant's case and devoted, as you will remember, no fewer than ten pages of
argument to citing chapter and verse throughout the pleadings of where the conspiracy, the
concerted action, occurred in Applicant's pleadings (2).
But Applicant in the rebuttal arguments has not really dealt with this point at ali (3). Applicant
will just not admit that its previous case against Italy was really based, it really was based,
on a series of interlocking acts by Italian Government officials acting in concert (4). l t was clearly
and emphatically described this way, as a « series of concerted actions >>, in the Memoria} (5) -
as a « national government plan" by my friend, Mr. Matheson, in the first round (6)- or as
« the Respondent's plan to take over ELSI through its State-owned conglomerate "• by Professor
Richard Gardner (1).
Now I am-I reassure the Court- not going to go through Applicant's written and oral
pleadings again. The record speaks for itself. But it is very important to keep this in mind,
because it colours the approach that really should be talten to Applicant's case- also and to
its submissions.
Now the remaning case has shrunk in size and it has also been split up into little bits. Now
we predicted this quite accurately, last week (B). W e said this was going to happened and how
and behold it has. The complaint of the United States in this case is now shrunken, it shrunk
down to only four actions, or incidents, and that we are asked to consider each one of these separately
and as if unrelated to the others.
And they were set forth by Mr. Matheson on Monday as follows:
« They are: first, the unlawful requisition of ELSI's plant and assets; second, allowing
ELSI's workers to occupy the plant; third, the unreasonable delay in ruling on the lawfulness
of the requisition; an d fourth, the flaws in the bankruptcy process which resulted
in the acquisition of ELSI's assets for less than fair value (9) "·
True, Professor Gardner also listed these four specific acts (1°). Yet even he was unable to
avoid linking two, at least two, out of the four « specific acts " cited, the asserted « unreasonable
delay " and interference with the bankruptcy proceedings, to the strong suggestion of an overall
composite pian of which at least those two components, the delay and the interference, formed
composite parts (11). He was quite naturally impelled by the logic of the US case, and this was
( 2) C 3/CR 89/8 of 23 February 1989 at pp. 438-441 14-23.
( 3) See C 3/CR 89/9 of 27 February 1989 at pp. 465-466.
(4) See, e.g., Ms. Chandler at C 3/CR 89/3 of 15 February 1989, p. 317, 3rd. alinea.
(5) P. 102. See C 3/CR 89/8 of 23 February 1989 at p. 439 [ltalics added.]
( 6) C 3/CR 89/1 of 13 February 1989 at p. 252; see also C 3/CR 89/8 of 23 February 1989 at p. 442 [Italics
added.]
(7) C 3/CR 89/3 of 15 February 1989 at p. 315; see also C 3/CR 89/8 of 23 February 1989 at pl 442
[Italics added.]
(B) C 3/CR 89/8 of 23 February 1989 at p. 439 [Emphasis added.]
(9) C 3/CR 89/9 of 27 February 1989 at p. 465.
(lO) C 3/CR 89/3 of 15 February 1989 at p. 313.
( 11) C 3/CR 89{3 of 15 February 1989 at pp. 314-315.
512 RASSEGNA DELL'AVVOCATURA DELLO STATO
in their first round, Mr. President, when he said: << Through the ensuing bankruptcy process the
Respondent's plan to take over ELSI, through its own State-owned conglomerate, was brought to
fruition (1 2) ». It is a pian.
In his crescendo of the conclusion of his argument in the first round, Professor Gardner
put the whole picture together for us. And he also, in my submission, gave the whole show away,
when,he connected the << specific acts » as follows:
<< Beginning with the unlawful requisition, the Respondent embarked on a course of activity
that resulted in the acquisition of the bulk of ELSI's assets for far less than market value. The
Respondent stripped Raytheon and Machlett of their ability to dispose of ELSI's palnt
and assets promptly in an orderly fashion, took over the plant, delayed providing a decision
on the legality of its actions, forced ELSI to go into bankruptcy since it could not pay its
bills, and theri obtained ELSI's assets in a piecemeal fashion during the bankruptcy process
:for far lower thàn they were worth at the time of seizure by the Respondent (13) ».
Now in fact, what Professor Gardner was doing was not really stating four << specific acts»
as separate issues or separate injuries; he was engaged in breaking them down as separate components
of an alleged conspiracy to relate each one analytically to one section or another of the
US case or of the Treaty or Supplement (14
).
Moreover, Applicant has also apparently not understood the whole issue which supports
or underlies the other horn of the dilemma that I mentioned in the first round.
That dilemma stili besets Applicant's case and it was not resolved by its rebuttal this Monday.
Last week, I said that Applicant has now << conceded that it can no longer rely on establishing
that connection of will or purpose » sufficient to link the disparate actors and elements in
the case together, and I then added:
<< That is the dilemma. The only other way in which these actions or omissions can be linked
one to the next is by a disciplined and cogent chain of causation - one that admits of no rupture
- one that will satisfy the traditional and respected requirements of the international law
of State responsability (15) ».
Mr. President, this dilemma is stili- unhappily for Applicant- alive and well, and its
horns are very sharp indeed (1 6).
It is a commonplace that an action or omission must be connected to the damage asserted
for there to be an injury in international law (17). Yet Applicant brushes this aside, as if it were
merely descriptive, or superfl.uous. I t states that it << is most certainly not the case ... that » these
acts must be (( tied together in a so-called ' casual link' (18) », and Applicant also stated (quite
categorically too) that:
<< The case of the United States in no way depends on proving that these actions constitute a
sequence of events bound together by a common plot or causai chain, however often the Respondent
may insist that this is so (19) ».
Which is just what we are doing right now.
Yet the case that Italy has had to answer, from the filing of the Memorial through Applicant's
second round of pleading, that is the case that was in existence from 15 May 1987 until 27 February
1989 (almost 21 months) has really depended overtly on the idea, expressed and implied,
(12) C 3/CR 89/3 of 15 February 1989 at p. 315 [Emphasis added.]
(13) C 3/CR 89/3 of 15 February 1989 at p. 322-323 [Emphasis added.]
(14) See for example C 3/CR 89/3 of 15 February 1989 at pp. 313-317.
(1 5) C 3/CR 89/8 of 23 February 1989 at p. 437 [Emphasis added.]
(16) C 3/CR 89/3 of 15 February 1989 at pp. 309-310; C 3/CR 89/8 of 23 February 1989 at pp. 437
and 443·
(17) See C 3/CR 89/8 of 23 February 1989 at pp. 437-438.
(18) C 3/CR 89/9 of 27 February 1989 at p. 466.
(19) Ibid. at p. 466 [Emphasis added.]
REPLICA HIGHET 513
of a conspiracy or unified action. And once one removes that, once one takes i t out of the picture
- either by abandonment or refusal to admit that it ever existed - how then are the various
incidents in the scenario before the Court going to be linked? As our Agent stated last week:
« Has the United States requested the Court for relief ... based on the conduct of or publicity
for the first bankruptcy auction ... [o]r the second, or the third? No. Has the United
States specified the claim for relief based on the actual sale to EL TEL? No » (20).
In fact, the Court must simply throw out at least three of the four alleged « specific acts »
or" actions » as soon as they are considered «in and of themselves ». For example, Mr. President:
the occupation of the plant by the workers - the second alleged « specific act '' - has no damage
related to it when it is taken by itself. I t has to be linked to something else. One must be able
to prove convincingly that, as a direct result of the occupation of the workers, Raytheon-ELSI
was unable to shop around, for example, to obtain interested purchasers in an « orderly liqui~
dation ».
Now, if Applicant is talking about the occupation by workers before I April, then it has
to prove precisely what the effects were on the increasing discomfiture of ELSI. And we would
suggest that even if some proof existed - and there is not a shred of evidence in the record -
ELSI's long-standing financial problems stili dwarfed any occupation by the workers. One
would also like to ask the Applicant what was clone about the occupation. Who did what, to
whom, and who said what, to whom, when and how is it recorded? W e do not know. Mr. President,
one cannot establish or base a serious international claim just by stating the problem,
which is what Applicant has clone.
If one is talking about occupation by workers after I Aprii, then of course there are similar
questions to be asked. There is no exact evidence of any sort as to what the result of that occupation
was. More critically, there is no evidence as to what the necessary effect was of the occupation
taken as a "case» in itself. Was it discouragement of buyers? Was it pilferage? Was it
damage ? What in fact was i t? Applicant has not said. But it must be specified, at least to a minimum
level of proficiency, to stand on its own as an international claim under a treaty.
The third « specific act » - is the « unreasonable delay » in ruling - and that is really in
the same category. If the requisition was lawful, the delay - even if inconvenient or even if
unreasonable - was harmless. And if the requisition was unlawful, then unless Applicant can
carry the burden of proof that there was direct and substantive consequences to the delay, there
stili is no iniuria. The « delay » is, by its very nature, such a conjectural element, in this case,
that it can hardly support the burden of proof. The direct and substantive consequences have
not been convincingly proven - far less specifically indicated.
And the same is true, Mr. President, of the fourth « specific act »: the asserted « fl.aws in the
bankruptcy process ». These are only actionable, one would think, if one could prove that they
were really attributable to an official Italian act. And moreover, one must prove concretely that
the results of the bankruptcy sales were poor, or were in fact inferior to what would have been
the result under an « orderly liquidation ».
The only << specific act » that really remains then is the first: the assertedly unlawful requisition.
But in order to prove that this is a violation of the Treaty or Supplement, Applicant has
again to prove that, but for this requisition, damage would not have occurred to Raytheon and
Machlett. Otherwise, this would be a case of iniuria sine damnum. And this might well comport
with Applicant's new theory that it is now seeking a « declaratory judgement », but it does not
comport with much else in the last two years of these proceedings.
The requisition also raises some other difficulties when it is dealt with all by itself,
particularly in the context of Artide I of the Supplement. It would behoove Applicant, or it
would have behooved Applicant, to have proved, and here again by a preponderance of convincing
evidence, that the Mayor of Palermo and the other local officials were either really seeking to injure
ELSI and its shareholders Raytheon and Machlett, or were acting with such a reckless disregard
(20) C 3/CR 89/5 of 20 February 1989, p. 362.
514 RASSEGNA DELL'AVVOCATURA DELLO STATO
jor the consequences, with such a high degree of negligence, that the equivalent of unlawful inteht
can be attributed to them under normal standards of interpretation. They have either got to
try to hurt ELSI and its shareholders or they are so negligent and disregardful of the consequences
that I taly could be held liable. An d Respondent says that this has not been clone or shown.
The evidence is all over the piace. One inference can be drawn one way; another in another.
But this is a case brought by application, and Applicant therefore stili has the burden of
proof and the burden of persuasion. The result is that, if a judge cannot make up his mind whether
there really was such an intent or not, then the benefit of the doubt must, in law, be given
to the defendant, to the Respondent, because the plaintiff has not proved his case by a preponderance
of evidence.
If there are reasonable or substantial doubts-or even better, if there is confusion or a total
lack of clarity in t4e situation - i t is too bad but the burden stili has not been carried.
Now if Applicant denies both the conspiracy and the need to link and follow cause and effect,
then it really has nothing left but independent fragments of a case, and these do not comprise
an answerable claim upon which relief may be granted.
This is what our Agent meant last week, Mr. President, when he stated that «the case of
the United States begins to dissolve at its far end)), Three out of four « specific acts)) have dissolved
before our eyes. As to the last remaining « act )) or « action )) - the requisition - it is
nevertheless essential that Applicaht sustain the burden of proof on this issue and not leave it
more or less in equipoise. T o have it not resolved clearly one way or the other must mean a victory
for the Respondent on that point.
I should stress, of course, Mr. President, that Applicant cannot avoid the logical imperatives
of its dilemma. In his closing arguments on Monday, Mr. Matheson slipped right back into
the natural refl.ex of accepting the interconnection of « separate acts )). He said that:
« the acts of requisitioning the plant and then not overturning that requisition in a reasonable
time stripped Raytheon and Machlett of their ability to place ELSI through an orderly liquidation
•.. The occupation of the plant prevented any chance of showing the plant and assets
to prospective buyers. The fl.aws in the bankruptcy proceedings ultimately resulted in the
acquisition of ELSI by the Respondent for well below what it was worth (21) )),
There was precious little recognition, it seems, in Applicant's arguments on Monday of
the problem of satisfying the burdens of proof and persuasion (22). It is particularly important
that the burden of proof on the illegality of the requisition be established by a preponderance of
the evidence, and not merely left, as I have just said, in a state of equipoise.
Yet Applicant has virtually nothing to say on this vital issue. Instead, only a relatively bland
p~ragraph from Sandifer was read aloud and the subject was quickly abandoned, with the invitation
to the Court « to judge for itself whether we have failed to substantiate any of the elements
of our case (23
) )) - an invitation that Respondent would warmly support. Only i t is Applicant,
and not Respondent, that has the burden of proof on each of these issues. And, as I have just
said, Applicant seems to be somewhat unconcerned about where that burden has come to rest.
A wholly new case has also emerged, or a t least a good part of a new case. I t can be referred
to for convenience as the new idea of the << Raytheon bail-out )) of ELSI.
This idea is that Raytheon had always been committed to keep ELSI out of bankruptcy,
and the hands of its creditors, until the end of the so-called << orderly liquidation )) and, to this
end, that Raytheon had .made a << commitment to advance all funds needed to provide necessary
liquidity for the orderly liquidation ... )),
Applicant in its closing arguments stated that « [t]his very criticai aspect of the orderly liquidation
plan has been completely overlooked by Respondent ... (24) )). Well it was easily overlooked.
( 21) C 3/CR 89/10 of 27 February 1989, p. 502 [Emphasis added.]
(22) C 3/CR 89/5 of 20 February 1989, pp. 360, 363; C 3/CR 89/8 of 23 February 1989, p. 443·
(23) C 3/CR 89/9 of 27 February 1989, at p. 467 [Emphasis added.]
( 24) C 3/CR 89/9 of 27 February 1989 at p. 485 [Emphasis added.]
lt: w~li rìlenttoned in ()ne unqu!Ìlified statement in tbe Schene ·Affidavit (written ~o· yearslatei:') to ~he• e:ffect that <i ·RaYtlieòn· allo 'inàicated.that•it Would••furhish ··any a.dditionat·· mone'ys •hecessary
to ma.intain the requisite cash flow for an ordeHy liquidation (2~) ))~
.•·•••<···• An.·it ·was· 6nt:Y·•teally· mentiòned·•in the Wtitten••·pleadings On:e••.other time;···squarely; in•••one
pa!!sàge of the Repiy, to .. the·•effect that <cRa'y1:heon also made the commitmentto advance any
funds: to flh~vide ~hti> necessatfl~quiqitj' fò#the o~deHy lìqtiidation (2~) >i; But to Whom was this
~:;:;fW~~~~EVt?:s~;!~ ~ots~i~; ~%••W%f~\.irasi~·~yi~e~r~d•?VJe do· notkri~:·.····~~eq a~~·it
··.·. <A'\lt<!çà#fl:li~ç():tlt~ iii hts d:~re<:t eVi<feMe; Moriday; refe:rted. tò a" gua:rantee"';.as••yotiwiU
recall, he ieferred to a ci b11ckìng », he • refe~:ied. to << assur110ce >>, to à <~ commitmertt »; · and then
onc~ l!lgain t.() a i< hatikì.rtg (27)>>• An d yet he was u:ritlble to info:r:m tbe< Coutt how or whether
tho~e «Jd~as >i had eyer bt:e.n. communicated toanyone outSìde the top echelons of .Raytheon
exeç~ti'\f~ (lls); / · ..•. ·· .. ·· .. · . · · . . .·. . .. . · . . .
· Wbé~étja ~o eviderl(:e ~~ the record; other than self~erving statèmérits; thàt RaYthéon was
J>l'~p~ted Qt w~lling to tlìake pay:IJ1ents · to anyorie that it was not strictly and tightly legally ohli'"
g~t~d: t61!rt~éii Wtbe wo~:ds of Mr. · Adams: '' we do bave obligations to o:u:r stockholdet's (29
) ».
Iijdée(l; R11Yt1le()ri has atways sttoiìgly rilaintl:dned béfore tbe · Italian coui:ts,. · ih the non;.;;;gua.~
rapté~(];.•li)#~~··AA~~si••tbi:it; .• it}#g Iì9 •• 9J?ligati().rt• w11at('lver •. to· ELS~'s• (fredìtots l1fll~ss ìt had acfually
executé(J.•'aJégaily••.l>ffi.dirig•·•guarii.ntee···or·•.pr()'iiidM··•otli,er leg@y•·•sufficient···.se(:(itity.
. Th;:s · M~fàct •••·••· igAP.t>lic!lht's. W~,>rds, that B,a'Yf:hC:Jori. h.~d thé « iriteri#Q:ti t(i pròvide . the fin~
tncial stì.t>l?t>ft ne<:esàì!ey to àvoicl any irisohi'ency ptoblel!rts duririg the Hquidatkin (3n) >i - is
nC)'!f>W(M;~d••!tS)•··the·•·keystqnè•••t~f·•a•·•tatìòìl;il;larid·ordèrlylì(J:uidatìòn••ptocieeding;•··. ·Great··stress
is ~lJ:ddeil~ly<lai(l ()n it, )'"et it :WiiS only in.~#§;O.ed on<ie· ffi.. Jèstlm:ony in .1\pplicant'lr first · round,
when Mt•; Clarè $ai d · (cònsiste.rtti by thé . wày, with thé Schetl.e Affidavit) that <tRaytheon • had
guar.anteed tò rìle that they· w<>.ttld gtlàrantee·•tbe ·case••flo.w nècessary·to>:made the·liquidation
wotk: (3 ~) >>~ · · . . · . · · ·.· . . . · · .·. · ·
· ····•··••· ~ll~heort ot··Applic~tl.t.ri;O.W. come$·artd• say~thilt·Raytheoit·would bave paid·ELSI's· indebted'"
ness. ~brl)tighout. the procedure of « orderly Iiquidation >>~ The idea . of the bail-:out sU:ddenly
sh6ws up all over the plaçe. · Now desctibed as an (t esse1ttial &lement of the Uquidation plan {32
) »;
as a setìes of« p6ssibilìties >i by which Ra~heon an d Machlett could have benefitted ELSl ( 33);
and as a« commitment(34) >1or as a« hacking (35
) ».. · . . . ...
Th~ _AppÌlcllht's Dep\lty~Àgen~ iri hi~ sll!Im'1ìng-:up went so far .as to .state thllt:
« ••• Ra;ytheon nad already inade thie financial tommitmentsnecessary to ensure that ELSI's
bbligations would be paid ils they came due{ includìng the paytoll of thé workf&rce and the
· full amounts owed to· the small credit<Jfi and the seéU:ted and pteferred creditors(36) » and
··• << [Raytheon] ;.; Ju:td ttuulè firm còrnmitments • tò pay ELSI' s wvrkforce and tà pròvide any assi•
stance necessaty. to meet other ob:lf,gati,Qns as they came due , •. (37) >>.
/ · Mr. President>the: specific references are in my writtén pleading.
In .answer to questions from yoti, Mr• President, Applicant also stated that if the reserve
for the workforce « proved inadequate ..• • Raytheon would nave increased its funding of the liqui-
(~5)M~IIl6fi~l, ~;x xs, pat:a. 53, ae. cit~d .in C 3t6Ks9t:~ of~'7.Febr~~ry li98~, p. 485 [E~ph~sis ~ddll41 · · (26,)l{iil , · •. x6; •.. · · · . · .. ·· . . .·.. ·. · ·· .··.... . ·.·. ·.. . .. .· . . . . ·. . ·· . · •. · ·· . .·. · • ...
(27) C ~/bRP89/9 ol 27 Februai:y 1989, pp. 48t> 482 and 483. See also C 3/CR 8'9/10 of 27 Februaey
1989 at p; 492. · ·
(118) lbid., C s/CR 89/ro of a7 February 1989, p. 494·
(29) Memoria~, Annex xs, p. a... .• . .
(30)C :t/CR89/9 of2'7 Februilty' 1989 at p. 466 ..
(31) C. 3/CR 89/Z of 14; February 1989, p. 11.79 [Emphasis added.]
( 32) C 3/CR 89/9 of 27 February 1989 at p. 475 [Emphasis added.]
(33) lbid., p. 479·
( 34) lbid., p. 482.
(35) lbid., p. 482.
(36) C 3/CR 89/10 of 2.7 February 1989, p. so6 [Emphasis added.]
( 37) lbid., pp. so7-so8 [Emphasis added.J
516 RASSEGNA DELL'AVVOCATURA DELLO STATO
dation programme to take care of any shortfall ». And similarly, Applicant stated that « Raytheon
and Machlett ... were committed to providing sufficient funds necessary for ELSI to meet its oblitions
during the orderly liquidation », and that « Raytheon and Machlett were committed to supplying
necessary funds to accomplish the orderly liquidation without the necessity of placing ELSI
in bankruptcy ».
A new case has therefore blossomed during the oral proceedings. It has suddenly sprung
up like a mushroom from almost complete obscurity. Why did we not really hear about this
before? The two or three references to the << bail-out proposal » were meagre and ambiguous :
at best, they seemed to be no more than self-serving statements. Above ali, we cannot fìnd
any . contemporaneous evidence.
Applicant must have realized full well that its claim cannot succed unless it convinces
the Court of this « bail-out proposal », for the simple reason that it has now become quite clear
what terrible fìnancial shape ELSI was really in- even in worse shape than we had believed
when the oral proceedings began. Perhaps it was the discovery of the 30 September 1967 fìnancial
statements that did it. They certainly bave showed us a lot.
But it was only after these financial statements were produced and only after Respondent had
spoken in Court - Professor Libonati had addressed them - that the « bail-out proposal »
assumed its present prominence and its position of glory. And now it can be described repeatedly
as being a « guarantee », a « hacking » or an « assurance »; i t is now a « commitment », an « essential
element of the liquidation plan ».
What proof is there of it? Mr. President, I do not wish to belabour this point, buti t is worth
noting. The only proof of the so-called commitment, or the « bail-out proposal », is in the asseverations
of interested parties and in the statements of counsel. That is not much proof, Mr.
President. There never is a single indication of where this « commitment », « hacking », or « guarantee
» was expressed, where it was recorded, and how. There is no indication that it ever got
out beyond the inner circles of high Raytheon management. That is to say, until it becomes
essential to assert it in these proceedings, because of the other things that bave occurred in these
proceedings.
Now it is a m1tter of giving weight to the evidence, and I do not bave to quote Professor
Sandiftr to acknowledge that the Court will, at the end of the day, know exactly what weight to
give to these statements, and to what end.
Moreover, it cannot be supported in this case by« common sense »alone. I t is of course true that
it would bave made sense for Raytheon to bave such a policy - obviously i t would bave been.
l t is also true that it would surely accompany any bona fide effort to work things out and effect
an orderly liquidation. But this conclusion assumes that, at the very least, Raytheon had not
made a dreadful mess of things; it assumes that Raytheon would suddenly bave started to get
it right, instead of wrong; and it assumes that Raytheon was always acting openly andina spirit
of genuine co-operation.
Now Respondent does not stand bere today before this Court and say that this was not the
case. What we do say is that if the Court is going to give the Applicant the benefìt of the doubt
on this point, the11 surely the Court must also give the Respondent the benefìt of the doubt
on an opposite point: the bona fide or justifìcation for the requisition.
Yet we are surely denied the benefìt of the doubt. Indeed, Applicant has even hinted that
Respondent had even « precipitat[eà] the conditions that led to the « social unrest' » that would bave
justifìed the requisition (88). I t has stated that « the planned closing was not a bona fide public
emergency, nor was the requisition a bona fide public response (39) ». Even as recently as in its
closing arguments, Applicant has also stated that « The requisition order had ... no purpose other
than to mitigate local politica! pressures (40) ».
Mr. President, this statement is untrue on its face; the requisition order had at least two
other perfectly serious and genuine motives, as the Court knows full well. I t is an understatement
(38) Reply, p. 147·
(39) Memoria!, p. 36.
(40) C 3/CR 89/xo of 27 February 1989 at p. soS [Emphasis added.]
·REPLICA HIGHET 517
to suggest that it does' seem to be a denial of the benefit of the doubt to Respondent, on its motives
and its intentions, in this critically important area.
· Yet it seems only fair to Respondent that if Applicant's « bail-out proposal >> is to be taken
seriously and giveh weight by the Courti at the very end of these oral proceedings, then equiva·
lent weight should be given to Respondent's assertions about the requisition. Those assertions
have been made since the Memoria!; they have been repeated loud, they have been repeated
consistently llild often. •· Within the • four ·. corners · of this litigation • there should be an equality
of credibility between the Pari:ies, And there should, at least, be equipoise.
Mrv Presideht; ij' thete was indeed sudh ·a • « · bail'-"out proposal n, why wasn' t i t communicated a t
least to the Italian public authorities, in time to avert the incidents of the requisition and its aftermath?
Ray'theori riiay well have had an intentiori of continued support for ELSI, but it never
corfununicìi.ted it to. anybody. · Raytheon certainly did not convey the idea to the key people it
was dealing with: ELSI's workers or etnployees, to the unsecured creditors, to the banks. Indeed,
in thé ci'itìcal days in March, Raytheon gave precisely the opposite impression to the local and
national• òffieiaJs · i:oncerned~ An d this etnerged on Monday in the cross""examination of A vvocato
Bisconti.
There is nota si!lgle piece of evidenceof which we are aware to the contrary. This, Mr.
President, is an importìi.!lt point thatTcannOt stress too highly today.
In fact, itwas ~lvvaysjust the réverse. In the 1974 Claim, for example, whìch is in evidence,
itwas stated that «in view of ELSl's enort!lous losses of the pa$t, Raytheo!l imd Machlett found
i t impossible to lnvest additional amounts in ELSI (41 ) n. . ..
. Later i t stated that « con$istent with its earlier announced position, Raytheon was no t prepared
t() Provlde anyfurther financial support · to ELSI . either by way oj capitai, loans, advances, ()r
gl!,arantees (42) n. The 1974 Claim a1so rejected the possibility that '' Raytheon would have to
shoulder all oj the responsibility jor ELSI's debts including interest (43) n.
At the famous meeting with Mr. Carollo on zo February 1968- which we will ali recallMr.
Adams opened the. weeting by saying that Raytheon «. will not put uP any more cash "• and
then he said to l.Vlr. Carollo that « Raytheon cannot provide ••. immediate cash help n, and finally
he said. that « While we can continue to provide ELSI with management and technology, we
cam;,ot provide money, without whicll ELSI will shortly disappear (44
) n. T}lis is what he said.
In Mr, Adams;s written conununication to Mr, Carollo on the following day, he stated
very clearly that « Raytheon Company will not undertake to supply jurther financial contributions
to ELSI (45) n,
Avvocato Bisconti, on Monday on cross-examination, confirmed the dear impression that
Mr. Adams must have given to Mr. Carollo, when he said that '' this should have made clear
to the Honourable Carollo that Raytheon was not going to invest any money, capitalfunds, however
onf$. may wish ta call them, to continue the operatiòns of ELSI (46) ». Where does this leave us,
Mr. President?
The impression was obviously given to ali outside Raytheon's immediate corporate family
that Raytheon was cutting off ELSI. « W e run out of money and shut the plant n, in the terse phrase
used by Mr. Clare's time-table (47). Raytheon and Applicant would now have us believe- they
would have the Court believe ~ that there would have been some form of « firm commitment n
to pay ELSI's workers during tbe liquidation period. Yet the fact is the opposite: the Regional
Sicilian authorities were stuck with the bill, first, with the March payroll that had not been met,
and then with the payrolls for the next six months.
(4') 19'74 Claim, p. 15; Unnumbered Documents submitted by Italy, Vol. I, p. 21 [Emphasis added.]
( 42) 1974 Claim, p. 35; Unnumbered Documents, p. 41 [Emphasis added.]
( 43) 1974 Claim, p. 41; Unnumbered Document, p. 47 [Emphasis added.]
(44) Minutes of meeting (1974 Vl'rsion), pp. 1-3; id., p. 416-17 [Emphasis added.]
(45) Minutes of Meeting (1974 version) p. 2; Unnumbered Documents submitted by Italy, Vol. I, p. 425
[Emphasis added.]
( 46) C 3/CR 89/10 of 27 February 1989, p. 495 [Emphasis added.]
(47) Minutes of Meeting (1974 version), p. 3; Unnumbered Documents submitted by Italy, p. 417.
518 RASSEGNA DELL'AVVOCATURA DELLO STATO
--------------------~~~~
The willingness of Raytheon and Machlett to stand behind ELSI may be convenient for the
pleading of the case by Applicant, but in the context of what actually happened, it really is a
will-o'-the-wisp. Now you see it: now you don't. W e see it now, or think that we do, but nobody
outside the charmed circle of senior Raytheon people seemed to see it in 1968.
Does it not therefore seem - 20 years later - that the Mayor of Palermo might have been
genuinely concerned that Raytheon was really cutting out and letting ELSI turn in the wind ?
Of course it does. And even though he might have been mistaken, or even though he might have
been ill-informed, the Mayor of Palermo and thus Italy hersfelf did not necessarily act in bad
faith or in such a manner as to constitute an << arbitrary » or even << discriminatory » act under
the Supplement.
An d a second, related, point emerges: does no t this ali go a long way to show that Raytheon's
executives probably managed to bungle the entire situation in March and Aprii of 1968?
Dealing with an e:x:tremely sensitive context involving human welfare, involving public concern
in a generally high stress economie and politica} context, surely there is an element of
contributory negligence here. Now I have used before the expression << assumption of the risk (48) ».
At least it certainly levels out the equities in this situation to an equipoise.
In situations where a treaty violation is asserted, and the facts are buried in two decades of
contrary memories, surely there has to be, Mr. President, an analogue of the application of
<< equitable principles » so well-known to this Court in other contexts ? Here the Court must
also look at the << relevant circumstances » in order to determine whether a line of strict equidistance
between the positions of the Applicant and the Respondent would not produce an equitable
result in this particulare case.
Rather than seeking to prove that Italy violated a treaty commitment, the case should now
be put in its true perspective and viewed as one where mistakes may have been very well made
on all sides, but where those mistakes fall short of creating a cause of action under the Treaty.
In short, the ELSI case is a history of a complicated business disaster for which there is no clear
remedy in international law.
Once Applicant had conceded that there is no<< conspiracy», or that the front end of its case
is not connected to the back end by a similar chain of causation, Mr. President, the entire structure
collapses. There is no << case » left. What is left is the sad and confused history of mixed
motives, bad judgment, inadequate communication, complex misunderstandings, unfortunate
statements, failures of agreement, adverse circumstances, poor business acumen, errors in planning,
and just plain bad luck.
It is a contemporary business tragedy, a commerciai disaster. But it is not actionable under
the Treaty of Friendship, Commerce and Navigation any more than events stemming from the
October 1987 stock market collapse, or adverse currency fl.uctuations, or generai business disasters
are by themselves actionable.
ELSI was indeed a business tragedy - Respondent does not deny that. But it was not a
plot. It was nota coherent whole. Applicant concedes that. We say it. An Applicant cannot
succeed in this Court by resiling from its initial case and then seeking to qualify separate and
individuai components. It is like pointing to a pile of lumber, or separate planks, and saying
that is the same thing as a house.
Why did it not occur to Raytheon's executives that if they kept this information about what
has now become the << bail-out proposal » to themselves, and if they failed to communicate it
to anyone in the local or regional or national government, then the impression they were giving
was one that could be guaranteed to stimulate the worst impressions as to their intentions? I
invite you, Mr. President and Members of the Court, to go back through the Annexes to Mr.
Clare's Affidavit (N. 15) to the US Memoria! with this point in mind.
Is it fair, now, in the last hours of its case, for Applicant to assert vehemently that Raytheon
<< had made firm commitments to pay ELSI's workforce and to provide any assistance necessary
to meet other obligations as they carne due (49) >> ? These commitments were not known to the
( B) In the cross-examination of John Clare, C 3/CR 89/2 of 14 February 1989, p. 287.
(49) In the cross-examinatitm of John Clare, p. 287 [Emphasis added.]
REPLICA LIBONATI 519
Italian Government at the. time, they were never really mentioned in the pleadings and affidavits,
they . are no t. supported by eviderice: not by a letter, comminication, conttact, agreement,
writing, telex; cable, mem.orandum or any other document whatever communicated to anybody
anywhere in the world outside Raytheon;or even outside of a small circle within Raytheon•
. •... 'l'bese « @mmitment~ >> wel:e neve t communicated to the Court other than by pleading.
Whel:e :~s t):lere ,:my fìrst;;-h:md evi<ifllnce 9ftheitr existence? Why should Applicant, goaded per·
hap~ ljy the: fip.ancial cf:i$<:losurfils 1ast week~ no.'W be ab le to .. turn. around at the ·last minute· and
~ay W:eH1w~i,~.P,eyer g!(Ye anyot1e c;;tuset9 requisition the pll,lnt. I t was arbitrary, and even in bad
faith~ 'l?Mre.wa$.Mj1lstifì.catiol}whatever. Why, we a:tRaytheonhad undertaken to pay everything
~ptjltbe otcf:erly#q1li4atione;;tmeJo.a successful end, as indeed it would have.
.. . .... Now;it i$. not a$, èi:lsy as ali that. l t is not as, rational, i t is no t as crystal-clear as that. The
pl!til1Jac:t of the. m~t.~er, Mt· rresiclen:t, · is that this situation. would be entirely different if the
<< c91lltnitment >> ha4 \;leen expres~ecf:in: S91:lle. 1:ll~er capable of vfl)rifì.cation today, and particuIaxly
so Jf it had been meaning(ully c()mmunicated outside Raytheori before the requisition.
I t js really a matteJ; .of .c.omtnon sense. .Jt . tura$. o.11t that. what was communiC~tted was a very
di:fferent n;tessage in4eed,Jl,ncf: it was conuìlunicatedi!180o separate envelopes,
In short, i t is reasol1able to conçlude that Raythe()n and Machlett brought the disaster on
themselves: not, merfl)ly by bad management of :EI..$1 in the .preceding years; not merely by
creating a horrendous 4efìcit si:tuadon; l,lù.qll,ç)t l:nt!J:rely by close and hard dealing with the concerned
ltalian auth()r#i~s ,r)ght up t() .the)a.st .minute. R,aytheon did all o~ those things.
• As a. result, • J?ayt/l.e.ort it~elf ruptureç;\ ~he . chain. ,of cause ·an d effect. Raytheon itself was a
con;tributing fllctor. But f()r .the actions of Rpytheon itself we cannot say that the tragedy of EL$1
would ever have occurred ••• But for. the positions taken by Raytheon itself we cannot say that the
1\ll!iyor of Palermo would have ordered the requisition.
Raytheon itself was at least then sufficiently entangled in the chain of cause and effect so
as to shiftthe. burden of pr()of in this case pack where it belongs- to the espousing Government,
to the United, States.
• The Applicant has not sustained that burden.
<The Co11rt Ca.ll therefore,in. our sub:tni$siol}, not permit Italy to be found, liable for violat~
ing a treaty, when Applicant has failed .1;o. shçw that it was. not Raytheon itself that had a criticai
influeilce on · tbe mat:ters ul\lgerlying tbese pr()cee!;lin;gs.
By bringing this affair down on its own head, like S!lmson in the tempie, Raytheon may
have achieved a kind of fame. It certainly did acquire the ability to request its Government to
press • a. claim that i t then perceived as being its own, and that i t would n()t otherwise ha ve had.
But in the · course of so doing, Raytheon · and, . with respect, Applicant itself, have neglected
the first principles of international litigation. They have advanced a case without the requisite
proof.,...,.., one tha1: must, at the very least, remain in a state of unconvincing balance. l t follows
that i t must, at the very least, be dedded in Respondent's favour.
Mr. President, this·concludes my statement òn behalf· of Italy, and Mr. President and
Members of the Court, thank you for the considetation you have given to my pleadings
The PRESIDENT: Thank you very much, Mr. Highet. I give the fl.oor to Professor Libonati.
P~~fessor 1-x)lo:N'Àirx : Mr~ President, disti~g~ished. Members ():f the Court, my intervention
will relate to four major poil}ts in the ascertainment of the facts. c0nnected with the ELSI case.
I. The submission has been prepared in collaboration with Professar Bonell an d with our
financial adviser, Mr. Hayward.
These points are:
a) the state of insolvency of ELSI long before 31 March 1968, and the state of insolvency
of ELSI in the admissions of its own officers;
b) the tale of the ordinary liquidation;
c) the story of extrapolation of the 31 March 1968 values;
d) the incoherences in the .Applicant' s assumptions when · related to the facts.
520 RASSEGNA DELL'AVVOCATURA DELLO STATO
2. First point. - ELSI submitted its accounts to Coopers & Lybrand for audit as a necessary
procedure for Coopers & Lybrand's examination of Raytheon's group accounts.
We must assume that Coopers & Lybrand raised a whole series of potential adjustments,
some of which were accepted by the ELSI management, and others which were not.
A. The adjustments posted by ELSI - see second column on p. 3 of the Coopers &
Lybrand Report - brought 2,200 million lire in further losses. The audited loss for the year
ended 30 September 1967, amounted thus to 4,882.8 million lire, resulting in a shareholders'
deficit (with capitai, reserves, etc., already lost) of 881 million. ELSI was therefore insolvent.
In this connection it must be pointed out a t once- and I shall return to this matter laterthat
Italian commerciai law requires that the official accounts of Italian companies submitted
to shareholders and other parties should be prepared with << chiarezza » and «precisione », darity
and exactness. Moreover a fundamental concept of Italian accounting - see the criteria of evaluation
established in Artide 2425 of the Italian Civil Code- is « prudence ». Accordingly,
the adjustments made by Coopers & Lybrand in following the accounting policy of Raytheon
should also have been reflected in the official accounts of the company, and neither ltalian law
nor Italian tax regulations would have prevented this « prudent » basis of accounting, Contrary
to what one would believe from Mr. Lawrence in his testimony of Monday.
Accordingly, the shareholders should either have reconstituted the capitai, or the company,
as a result of the undisputed deficit, should have been declared bankrupt.
The Italian Civil Code, which deals with the rules applicable to companies with a share
capitai, imposes a minimum capitai for such companies (società per azioni): formerly I million
lire, presently 200 million lire. As soon as the capitai of a company has fallen below this
minimum as a result of losses, its shareholders must either reconstitute the capitai or must put
the company into liquidation (I recall in this respect the observation of the Respondent in its
reply to President Ruda's first question).
For the shareholders to be entitled to decide to liquidate, however, the company must
stili be solvent- i.e., not in a shareholders deficit situation. This is to say, a company which
has shareholders' equity below the legai minimum, is a company which must be recapitalized
or put into liquidation, but which, since it is still solvent, is not required to file for bankruptcy.
When, however, the totallosses of the company exceed the total capitai and reserves, then
there is a stockholders' deficit and the company has no means of meeting its obligations in a regular
manner. The company is « ìnsolvent » and, in terms of Artide 5 of the Bankruptcy law,
must be dedared bankrupt.
According to the audited 30 September 1967 financials, ELSI was in deficit and insolvent.
It should thus have been dedared bankrupt, since its shareholders did not decide to reconstitute
the capitai.
ltalian courts have repeatedly decided that there is no support for the opinion according
to which insolvency and bankruptcy of a businessman cannot be dedared it the failure has not
been shown by non-payment of liabilities. On the contrary, the situation of insolvency subsists
and can be declared by the Tribuna! even if there has been no suspension in payments of amounts
due. This is exactly ELSI's case.
B. According to Coopers & Lybrand the losses were however greater than the ones expressed
in the Company's adjusted accounts (column 3), and the Company's deficit was much greater
than 88r million (an amount already sufficient to make ELSI insolvent and obliged to file a
petition for its bankruptcy).
This can be seen dearly in the Report deposited with the Court by the Applicant on Friday,
17 February 1989. The auditors in fact observed that:
- the inventories were overvalued (see Coopers & Librand Report, p. 2
sub 2) by . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L. 453,30o,ooo
- the fixed assets stated in the balance sheet included revenue expenditure
disallowed by the Italian revenue authorities, therefore an amount not
related to fixed assets. Thus, it was necessary to subtract. . . . . . . . . . L. 463,6oo,ooo
resulting in a total of major losses of L. 916,9oo.ooo
REPLICA LIBONATI 521
ELSI's losses at 30 September 1967 were thus, according to the audìtors, 916.9 xnillion lire
greater than what wa$ stl\ted in the adjusted accounts.
The totalloss for the )i'ear ended jo Septetilber 19671 really amounted to s.799·3 xnillion
lire. · · · ·
This means thatW ìri thé bpiniòn of Cooper~ & Lybrand- the ELSistockholders' deficit,
at 30 September 1907, amounted to 1,798.2 milliori lire. And, on 3I March ì968 the deficit
hadincreased b)'a.iì,trtMr ~,o68.7 million lire.. . . ....•... · . <
:Fui:ther, tlie ~l:iclltors aiso e:i!:préssed an inability to !l~tisfy thelllse1ves on t.he value attributc;~~.
to price ~dj.U!Itlllents on. the 11\lPPly. of klystron!l in· the amount of 25. x .6 million lire (see
n. 2, . po~t ··a) ..• :Ef.$lr$ .lo$$eii weie Jbtis p,rt)babty. even higher • thim s.'799·3 million lire an d
ELS.J's defi.cit was)~Ven hig.herthan i,'798.2 million lire: ELSI's insolvency was even surer.
• . .. 3~ Hut-1\({r. Lawrence tells us, ~.ts noted earlier in my submission - we cìUinot. make
referenceto thé adjusted ~.tc\!oUl'lts; The ~.tdjU$ted accounts were drawn up. accordfug to American
accountmg criteri!(. Inltaly C>ne would adopt dìfferent cdteria, on a less prudenf basis.
Accordingjo Mi:,. :f.,awi:enèethere atetwo tb.1.ths. Otie, the real and prudent one, which
is.told to.the Americanparent·cotilpany;.and another; obviously based on anincomplete val\,l.ation
of the facts, good for the creditors and Italian authorìties. However, Artide 2423, paragraph 2,
of the ltalian Civil Code states..;;.;,. as I have said earlier;;.;.;.;. that:
« the ballmce sheet an d. the profit and loss account must dernonstrate clearly and accurately
(' con chidrei:zd e precisiime ') the c()J:Dpany'S pòsition With regard to its assets and Iiabilities
and the profits made or losses sustained ». ·
.· The Italian cofu:ts hii.ve repeatedly applied, in decisiòns conceming balance sheet ptesentation,
the principle of << truth» as a principle of public order. The Italian courts ha ve further
held thatevery evaluatiòn mtist bemade with « prud~nce >>: the veryconcept that is fòllovv:ed
in the adjusted accounts of ELSI presented to the sharehòlders for their group counting purposes.
Furthet, all ofthe àdjtistfiierits ptopòsed in column··2 of the audited accounts .should bave
beep. reflectedin the << official »accounts~. Italian law indeed requires that the adjllstments should
be booked in ordet thatthe << officiah accot.Jnts express clearly arid accurately the finaneial position
of the. conl.pap,y. . . . . . .. · .
There is no doubt, therefol'e, that ELSI, as an Italian company, had to tell the truth, i.e~,
the << rea! >> truth, to its Italian creditors as well. Any prudentdirector would have noticed at
once that the values suggestedby Coopers & Lybrand corresponded with the trueposition, and
that, by not inunédiately presenting a petition in bankruptcy, ELSI's economie and financial disaster
would only ha ve been aggravateci, as indeed i t was. The directors knew · fòr example that
ELSI's accumulated oper.ating. (!ash ~ow deficit from I October 1962 • through 31 March
1968 amounted to a negative position of 14,3o9.7 million lire (see Arthur Schene's Affidavit,
Annex 13. to the Memoril(l); the directors knewthat ELSI's product line conti:ibution was
negative forthe years eilded 30 Septet:nber 196'7 by 976.3 millio11lire (Audited accounts as at 30
Septet:nbeng67) ;the d~f~ctors .~ewthat EL!SI's curi:eritliabilitie$ exceedeQ. its current as!jets at
30 Septetilber 196'7 by 1,4Òo.i rnillìon lire, accoi:ding tò the <<prudént >> accounting of Coopers
& Lybrand. This means that to .l?ayall the .. current Habilities futther funds were needecl.
On:e cannot therefore imagine fora motilent that the.legal minimum provided by Articles
2:447 and 2448 of the Italian Civil Code was a matter to be determined by reference t6 the official
accounts ofELSI, which we know did not presenta true and fair view of the financial position.
And it strains belied to affirm that a state of insolvency well-known to the parent compaily,
well-known to the directors, had to be concealed from creditors, from the Italian authorities,
and indeed from every other authority.
Mr. President, I think I have half an hour more.
The PRESIDENT: W elì if you ha ve half an hour we can go on until you finish an d then we
will take our break.
Mr. LIBONATl: Thank you very much.
522 RASSEGNA DELL'AVVOCATURA DELLO STATO
4· Tbe consequence is very simple, and it is of the utmost importance in this case.
If ELSI was in a state of insolvency on 30 September I967; if ELSI's state of insolvency
was aggravateci, as we know is sure, on 3I Marcb I968; then tbere is absolutely no point in
discussing the effects of tbe order of requisition of I Aprii I968, on tbe later bankruptcy.
I t stands to reason tbat the order of requisition of I Aprii I968 cannot be tbe cause of tbe
situation tbat already existed for many months.
5· Now I come to my second point, tbe (( very curious case of tbe balance sbeet extrapolated
from a balance sbeet of six montbs before »,
Mr. Lawrence (see C 3/CR 89/4, p. 337) bas accepted tbat ELSI's management extrapolated
and prepared tbe balance sbeet of 3I Marcb I968, using tbe balance sbeet of 30 September
I967, as a premise, Mr. Lawrence bas also stated tbat bis firm did not carry out an audit in
Marcb I968.
Tbe procedure followed was most peculiar. (( Tbe balance sbeet at 3I Marcb I968, was
prepared on a basis consistent with tbe valuations in tbe Coopers & Lybrand Audit Report of
30 September I967, using actual ELSI accounting records tbrougb 3I December I967 and a
conservative extrapolation to 3I Marcb I968 » (see Mr. Scbene's Affidavit, Annex I3 to tbe
Memoria!). This means:
- tbat tbere were no accouting records for ELSI for tbree months, from I January I968
to 3I Marcb I968;
- and that tbe balance sbeet was prepared on bypotbeses and estimates wbicb did not
respect tbe concept of « prudency »,
I t also means that no account was taken of tbe audited adjustments included in tbe audited
financials at 30 September I967.
Mr. Lawrence's conclusions are based on tbe assumption tbat (C 3/CR 89/Io, p. 499) (( Tbe
acbievement of tbe values tbat I bave arrived at relies on tbe premise tbat there would bave been
an orderly liquidation ». Tbis basis requires time to find a willing buyer or buyers for the business
or tbe business lines.
Tbe fact tbat ELSI bad lost 8,451.5 rnillion lire over the years; that ELSI's product
line contribution was negative in tbe sole year I967 to the tune of 976.3 million lire; that in
tbe six montbs ended 3I marcb I968 ELSI lost I,o68.7 million lire; that ELSI bad (( fired »as
Mr. Clare says- 8oo workmen on 3I Marcb I968; tbat ELSI bad closed tbe plant; tbat
ELSI was not a continuing business, neitber in an operational nor in a financial context; all
tbis appears to bave no e:ffect wbatsoever on tbe unwavering, but totally unsupported, convictions
of tbe Applicant.
6. But there is more. - Tbere bas been a debate about a valuation on a going concern basis
or a valuation on some otber basis.
Mr. Lawrence in his testimony of Monday (C 3/CR 89/Io, p. 496) stated clearly tbat, in addressing
tbe question of valuation, tbe issue was not wbetber ELSI was a going concern on 3 I
Marcb I968, on 30 September I967, or on any otber date, and tbat bis evidence relied on no sucb
premise.
However, if we look to Mr. Lawrence's earlier testimony of I6 February I989 (C 3/CR
89/4, p. 335) we know clearly tbat bis valuation was based on tbe sale of ELSI's business,
and for tbat reason, according to Mr. Lawrence, tbere was ((a real prospect tbat intangible assets
would bave realized a substantial value >>,
Mr. Lawrence also explains tbat tbe goodwill of tbe business included tbe benefit of tbe
continuing business connections, and indeed we understand tbat due to tbe well-trained and
technically competent workforce (wbicb bad been dismissed on 3I Marcb) and tbe strong technical
base (despite tbe buge losses accumulateci over tbe years) tbere were particular features whicb
sbould bave commanded a substantial prernium for goodwill.
Moreover, in discussing tbe fixed assets, Mr. Lawrence recalls tbe appraisal carried out
by Mr. Puglisi, appointed by tbe Tribuna! of Palermo as a tecbnical consultant to tbe bankREPLICA
LIBONATl 523
rup:tcy. Mr. Lawr~nce says tbat in bis opinion « tbe Puglisi appraisal ... provides an appropriate
basis for estimating tbe realizable value of its fixed assets >> (C 3/CR 89/4, p. 338).
Mr. Puglisi describes bis approacb to tbe appraisal exercise as follows:
« Tbis reporf •.. is designed to determine tbe current market value of ELSI as a wbole; if
sold to a tbird party wbich intends to operate tbe facility witbout substi:mtially changing
tbe nature of its products or mode of manufacture. All valuation criteria applied must,
th~refore, be seen intbe ligbt ofthisconcept », (Unnumbered Documenta, Vol. III, p. 91).
Tberefore, Mr. Puglisi considered ELSI's facilities as a going concern. Tbis can also be
seen from wbat · Mr. Pug1isi says in connection witb tbe criteri.a for the appraìsal· of machines
an d equipment:
(( Tbe. cònsultant furtber .maintains tbat, in view of tbe intended purpose of this survey,
tbe appraisal of tbe machines, equipment and tools must also take into account tbat tbe
said equipment and macbines are for use in production lines, in testing and quality control ».
(Unnumbered Documents1 Vol. III, pp. 91-9~).
I stili quote from tbe ;l\ppraisa1. of Mr. Puglisi:
« In fact, tbe resale value would come out different if tbe equipment would be· sòld to third
parties not as a complete system but individually, as separate components witbout functional
interrelation ». (Unnumbered Oocuments, Vol. III, p. 92).
Thé conclusion is tbat Mr. Lawrence bas assumed tbat tbe·assets of ELSI could be disposed
of òn a going còncern basis, and oh. sucb premise- wbateverbe says- be bas taken bis valuation
. ah d, indeed, givén value to goodwiiL
But tbat was not tbe situation of ELSI.
No names of prospective buyers bave been presented by tbe Applicant. Mr. Adams admitted
to recalling no confiden~ialdiscussionswitb prospective buyers (C 3/CR 89/2, p. 267). Tbe plant
was closed. Tbe workJ:nen were dismissed. Tbere is tbus no real support for tbe contentions
of Mr. Lawrence. And tbe Respondent does not need to say more.
7. Let us move on to my third point.
Tbe Applicant is adamant on tbe idea of an ordetly lìquidation. (( As tbe record amply
demoristrates, tbere was an òrderly liquidatio:h ·pian and the orderly liquidation pian would
bave worked >>(C 3/CR 89/9, p. 479). «Raytheon and Machlett formulated a specific plan for tbe
execution of the liquidation » (ibid., p. 34).
Mr. President, it is not true,
The Applicant should read the witnesses' depositions w1tb greater attention. Mr. Clare(
see C 3/CR 89/2, p. 278) - clearly stat~d tbat plaus for an orderly liquidation ((were not in place »
at the time of the Board meeting at wbicb it was decideg to liquidate ELSI, i.e. 18 Marcb 1968.
And this,. Mr. President, is obvious. • .
In ltaly, as in many otber countries, voluntacy liquidation follows a specific procedure.
lt must be decided on by an extraordinary sbarebolders meeting; it mustbe carried out througb
a special organ, tbe ((liquidatore »1 appointed by tbe sbarebolders or, if tbey fail to do so, by the
Tribuna[ (~Jee Art. 2450, Italian Civil Code). In the case of ELSI, tbere was a Board meeting
on 18 Marcb 1968, and a sbarebolders' meeting on 28 Marcb 1968, but no (( liquidation » was
decided, and no (( liquidatore » was appoin,ted.
Thus, it is obvious tbat tbe (( fantastic >> orderly liquidation is based on an equally « illusocy»
liquidation pian.
Wbat is significant is that in tbe minutes of tbe Board meeting and of tbe sbarebolders'
meeting tbe word (( liquidation » ((( liquidazione ») never appears. Tbe Board simply decided
that (( production will be discontinued immediately », and (( commerciai activities and employment
contracts will be terminated. on 29 Marcb 1968 » (Annexes to tbe Memoria!, N. 31).
524 RASSEGNA DELL'AVVOCATURA DELLO STATO
The shareholders simply decided that « the company cease operations ))' and that the Board of
Directors - not the « liquidatore >> - was empowered:
« to make contact with the banks and principal creditors of the company to reach an agreement
on the procedures to be foliowed to dispose of the company's assets in an orderly
manner and at their highest realizable value in the interests of ali creditors >> (Annexes to
the Memoria!, N. 32).
Thus production was to be discontinued; commerciai activity and employments contracts
were to be terminated. The company was to cease operations.
But this means that in the directors' and shareholders' opinion the business ceased to be
an operating entity, and became a coliection of assets to be realized piecemeal. At the best price
of course; but in a manner that does not need a pian, and is carried out on a daily basis and,
most importantly, requiring the understanding (to the extent of some so per cent of their outstanding
debts) of the creditors.
The Respondent has already shown that the option of an orderly liquidation was not open
to ELSI, since its accounts expressed its clear inability to pay its debts. The Respondent now
emphasizes that when the question was discussed by ELSI, no liquidation pian was in piace,
no « liquidatore >> was appointed, and the word « liquidazione >> (« liquidation ll) was not even
used. Thus, the orderly liquidation is really a legend, a sophism createci when no liquidation,
neither substantialiy nor formaliy, could in fact take piace.
8. Let us go on to my fourth and last point. The Respondent is stili awaiting for the
Applicant to provide some sort of coherent evidence that ELSI was stili in a state of solvency
on 31 March 1968. ELSI had lost billions of lire over the years, was out of money and could
pay neither its creditors nor its workmen. Therefore, when the Applicant states that ELSI was a
technological jewel, it cannot seriously pretend to base ali its arguments on statements made
by representatives of the very Company seeking damages, statements which are moreover
contradictory and incongruous.
The Respondent has however indicated, ad abundantiam, numerous circumstances demonstrating
the real situation of ELSI. The Applicant has tried to reply to the Respondent's demonstrations
of the facts but in a very ineffective way. A few examples will be suffi.cient.
A. The premise is that ELSI had been losing billions for years.
I do not want to repeat the fantastic fìgures of ELSI's losses throughout the sixties.
I would like to recall only that the accumulateci operating cash flow deficit from 1 October
1962 through 31 March 1968 amounted to a negative position of 14,309.7 million lire, this enormous
amount of funds having being swaliowed in the disastrous trading operations of ELSI
(see Mr. Schene's Affidavit, Annex 13 to the Memoria!).
I would like to recali too that for the year ended 30 September 1967 the product line contribution
of ELSI was negative for 976.3 miliion lire and could thus not cover the generai manufacturing,
marketing and administrative expenses and fìnancial costs (see audited accounts as
at 30 September 1967). This is insolvency.
Any reasonable person must thus conclude that the product lines of the insolvent ELSI
cannot be considered to be of any great value.
The Applicant affi.rms, however, that « ELSI's product lines utilized top-of-the-line technology,
that they e~oyed solid markets throughout Europe ))' etc. (C 3/CR 89/9, p. 483).
What nobody understands is why such a technological jewel could only produce losses. But
where is the evidence for the Applicant's affi.rmation? Only the words of Raytheon's offi.cers.
Ali other opinions- for example, those expressed in the Affi.davits of Mr. Ravalico and of Mr.
Busacca (see Annexes 14 to the Rejoinder and 44 to the Counter-Memorial) - must of course
be ignored.
It is a very simple and comfortable way of arguing, Mr. President. Unfavourable evidence
is simply disregarded.
But there is the admission of ELSI's own management made before litigation began, and
therefore not open to suspicion. In my fìrst pleadings, I stressed the Project for the fìnancing
REPLICA LIBONATI 525
and reorganization of the company (see Annex 22 to the Memoria}), because it is a document
drafted prior to ELSI's final disaster and the start of litigation.
In that Project, we read that « the present range of products are beginning to come under
significant mar:\{et pressures » (Annex 22 to the Memorial, p. 24).
« Without additional help being provided both fi·om Raytheon and from Italian Government
agencies .•. the annual sales tuJ;nover of the present product ranges cannot do anything
but decrease. This is particularly so in the case of the cathode ray tubes Une where
the advent ofcolour. tehwision in a few years time will have a very significant effect indeed »
(Annex 22 to the Memorial, p. 24). ·
The words are polite; but the meaning is sure. ELSI was out <>f the market.
The Applicant n()W speaks about c<>l<>ut: televisi<>n laboratories in Palerm<> (C 3/C:R 89/9,
p. 485). But also on this matter tl:le.Px:oject is strict. « lt would certainlybequite. uneconomic to
try to extend this line and create a colour tube facilicy in Palermo » (Annex 22 to the Memorial,
p. 24).
Tht'l proJect was presented. by ELSI in May x967. The words are those of ELSI's officers.
Do we need anY more proof of the fact that the Applicant's efforts to attach a high value for
ELSI's ·. obsolete Products are . useless?
R With the pennission ofthe Court, I would like to make one more observation.
The Responderit noted that the famigerate càthode ray tubes wère made with glass brought
from Russia. The Respondent has quoted the Affida\dt of Mr. Ravalico. The Applicant says
that this is not true. In its opinion the << tubes )> were bought in Gertnany or France (C 3/CR
89/9; p. 39). Whether Mr; Ravalico's « glass >) is the same as the tubes just referred to is not
a question of interest. No evidertce has been, however, provided by the Applicant to darify this
point.
Mr. Presìdent, it is perhaps inaccuta:te- as the Applicant has contested (C 3/CR 89/9,
p. 485)- to quote an affidavit; but it is certainly inaccurate to quote nothing.
Moreover, the al:)ove:;-ment:ioned Projf)ct for financing and reorganization stresses. the need
for financial help for tra:p.$po:rt .costs (Anò.ex 22 to the Memorial, p. 40). Evidently, regardless of
its place of o.rigin, the total· ;raw J:riaterial· cost was uneconomic to. the · Sicilian company. ELSI
own offi.cers have admitted the same. · · ·
C. Things do not appear different if we discuss semi-conductors, the product line of ELSI
second in importance. The Applicant submits that a certain TAG of Zurich implemented a
profitable transition :from germanium technology to silicon technology. Therefore - the Applicant
argues - the semi-conductot line of ELSI was excellent because it could be converted
from germanium to silicon technology.
Unfortunately, TAG of Zurich is not ELSI of Palermo, and nobody can deduce success
for an economie disaster like ELSI f:rom events connected to a company situated in <>ne of the
richest and industrially strongest, areas in Europ.e. Moreover, at the moment of the dismi11sal
of the workmen ~ 28 March 1968 ~ tbere was « only an attempt in l'rogress to produce silicon
diodes ». ($1:le the Affidavit o:f ing. Busacça, who was at the head of ELSl's microwave tube
design departinent until 29 · March. 1968 (Antlex 44 to the Counter-Memorial). ·
This forecast o:f happy results was stili orily a dream.
Mr. President, distinguished Members of the. Court. The conclusion is that.the Applicant
has not substantiated any of its assumptions that ELSI's Iines of business had a value at least
equal to extrapolated book values at 31 March 1968. No valid argument has been put forward.
No evidence, no document, no figures have· been produced. Once again only theories, orily a
castle built on sand. The sole value that can be surely attributed to ELSI is the one arising
from piecemeal disposal of its assets through its regularly appointed Receiver in the banlo;uptcy.
Mr. President, I thirik I have ten minutes more.
The PRESIDENT: Well we can have a break now and you can continue afterwards.
The Court adjourned from II,Jo a.m. to II-45 a.m.
526 RASSEGNA DELL'AVVOCATURA DELLO STATO
The PRESIDENT: Please be seated. Professor Libonati.
Mr. LIBONATI: Thank you, Mr. President.
9· One last small point. - According to the Applicant it is not possible to complain about
royalties or expenses for technical consultancies charged by Raytheon to ELSI, because on
31 March 1968 there was in ELSI's accounts an unpaid amount of US $521,653 for royalties,
and an unpaid amount of US $143,763 for consultancies.
The position assumed by the Applicant is curious. The Exhibit C to Mr. Deithcher's
Affidavit (Annex 14 to the Memoria!) talks of US $1,273,653.49 in accounts receivable due
from ELSI to Raytheon. Not such a small amount.
This amount was shown in ELSI's financials as a debt. Raytheon therefore wanted to be
paid that amount, and the Applicant asks now for damages which include that same amount.
What is the Respondent meant to say ? That it is not ELSI but the Respondent itself that
Raytheon considers a lemon to be squeezed ?
10. The Respondent does not think it necessary to say any more about the industriai, economie
and financial situation of ELSI. The Applicant can repeat yet again that « the Respondent
has not presented any real disagreement on the basic sequence of facts in this case» (C 3/CR
89/9, p. 32). Really, I do not know what more. the Respondent must say in order to disagree.
But I want to point out here that it is not only the Respondent, but the facts themselves that
speak in disagreement with the Applicant.
The Applicant knows it, and has recognized its error on the question of the solvency or
insolvency of ELSI. It is true, he says, ELSI was unable to pay its debts; but nobody had to
worry. There was Raytheon standing behind the scene committed to hacking its subsidiary,
assuring it of the necessary funds for an orderly liquidation. Ali the discussions on bankruptcy
are therefore useless; the Applicant has produced no objections to Professor Bonell's arguments.
I must apologize to the Court, as must many others.
For the past 21 years, nobody has understood that Raytheon was committed to anything.
ELSI's creditors did not unders.tartd this commitment. Italian judges did not consider the
commitment of Raytheon to pay anything. The I talian banks never saw Raytheon offering
money. After 21 years we learn that when Mr. Adams was saying that Raytheon was not willing
to put any more money into ELSI, he did not really mean this. When Mr. Clare said that ELSI
was out of money, he did not mean it. What is curious, is that we have had to wait 21 years -
more than 15 years of litigation - one Claim; one Memoria!; one Counter-Memorial; one
Reply; one Rejoinder ; two weeks of oral pleadings ; in order to learn of it.
Mr. Highet has already stressed the incongruence of the case.
I want only to recall how Raytheon appears and disappears, how Raytheon says it is ready
to put or not put money in ELSI, how the parent company seems to be ready to implement its
parental duties depending on the circumstances of the moment.
I want to further point out that the thesis of Raytheon's hacking has come out only after
the production of the Coopers & Lybrand Report, kept secret until two weeks ago, which Report
put an end, once and forali, to the question of ELSI's insolvency. Mr. Highet has already stressed
this point, but I want to stress it again, because of its importance.
It is convenient, however, to examine one point of bankruptcy law.
We know that ELSI was in a state of insolvency. The Applicant suggests that Raytheon
was ready to back ELSI's orderly liquidation, to financially sustain its subsidiary. Raytheon's
commitment, however, is based only on words: there is no documentary proof, moreover, there
is no document giving legai form to this obligation of Raytheon to financially sustain ELSI.
ELSI's state of insolvency, in law, is thus in no way modified. I do not wish to discuss whether
or not what the Applicant now says has any grounds. I mean that the supposed commitment
of Raytheon, having no legai effect, leaves ELSI in exactly the same position as before: out of
money, not capable of paying its debts in a regular manner - regular manner in law, not in
~~ .
.REPLICA CARAMAZZA 527
According to Italian bankruptcy law and to many other legai systems, the actual situation,
in law, of the debtor must be taken into account in order to decide whether it is insolvent or not.
The supposed commitment, with no binding force, that the Applicant now says was taken by
Raytheon years ago, has thus no significance. It is a rhetorical way intended to distort the truth.
And in any case, ELSI stili had to be declared bankrupt.
I must apologize to the Court, but figures cannot be discussed in the over-simple way
that Applicant would like. Where there is a loss, there is a loss. Where there is insolvency,
there is insolvency. And bankruptcy must be declared when there is insolvency.
Mr. President, distinguished Members of the Court, may I recall one last time the figures,
the principal figures, expressed in these oral pleadings ?
Audited losses of ELSI for the year ended 30 September I967
amount to: ............................................... .
(almost 5 billions);
ELSI's adjusted audited shareholders' deficit at 30 September I967
(million lire of I967, of course);
ELSI's losses according to the adjusted accounts and audit qualifications
at 30 September I967 ............................. .
(almost 6 billions);
ELSI's deficit according to the adjusted accounts at 30 September
I967 ..................................................... .
ELSI's losses throughout the sixties ......................... .
ELSI's accumulateci cash fiow deficit from I October I962 through
to 3I March I968 ....................................... .
4,882.8 million lire
88 I million lire
5,799·3 million lire
I,798.2 million lire
8,451.5 million lire
I4,309.7 million lire
The Respondent is convinced that these facts, that now are truly undisputed, demonstrate:
- that ELSI was in a state of insolvency long before 3I March I968;
- that no orderly liquidation was open to ELSI, and that no orderly liquidation was decided
on, or prepared by, ELSI at the time;
- that no causai relationship can be established between the order of requisition issued by
the Mayor of Palermo and the bankruptcy of ELSI requested by its management.
Mr. President, I thank you very much.
The PRESIDENT: Thank you very much, Professor Libonati. I give the fioor to Mr. Caramazza.
Mr. CARAMAZZA:
Préambule.
Monsieur le Président, MM.lesjuges. Laissez-moi tout d'abord avouer queje suis en quelque
sorte embarrassé par la technique adoptée par la partie demanderesse au cours de sa contre-plaidoirie.
J'avais toujours pensé qu'un des principes fondamentaux de notre culture juridique en tant
que règle de droit nature} était le principe contradictoire: I'audiatur et altera pars des Romains,
le «fair hearing »de la Common Law.
Un principe qui devrait se traduire, d'un point de vue procédural, par une sorte de dialogue
entre la partie demanderesse et la partie défenderesse, qui répondent, à tour de ròle, aux observations,
déductions et critiques de l'adversaire.
Je m'attendais donc, en ce qui concerne les aspects du différend qui m'ont été confiés,
à ce que la contre-plaidoirie de mes adversaires eOt tenu compte des observations que j'avais eu
528 RASSEGNA DELL'AVVOCATURA DELLO STATO
l'honneur de présenter à ce sujet à cette Cour la semaine dernière, tout comme j'avais cherché,
en présentant ma plaidoirie, à prendre en juste considération toutes les observations faites par
mes adversaires au cours de leur première intervention.
Jamais attente ne fut plus vaine.
Aussi bien M. Matheson que Mme Chandler et M. Lawrence ont cru bon de se passer de
tout commentaire sur mes thèses et ont repris, dans la deuxième phase de la discussion, une fois
de plus, les mèmes mots (on pourrayit dire à la virgule près) qui avaient été énoncés dans le
Mémoire, répétés · dans la Réplique et réitérés dans la première plaidoirie.
Est-ce que mes confrères de la partie adverse ont pensé pouvoir adopter, aux fins de la logique
juridique, la règle issue du calcul algébrique, selon laquelle une erreur répétée deux fois
(ou un nombre de fois multiple de deux) devient vérité?
franchement, j.e ne le crois pas.
Est-ce que mes considérations étaient tellement convaincantes qu'aucune réponse ne
pouvait etre donnée ? J e devrais alors renoncer tout simplement à ma contre-plaidoirie. Mais ce
serait vraiment présomptueux de ma part de penser une chose pareille.
Je dois clone conclure après une nécessaire autocritique, que je n'avais pas été assez clair
dans mon exposé pour mériter une réponse.
Je m'en excuse et j'essaierai clone, d'une façon aussi brève que possible, de mieux m'expliquer
aujourd'hui sur les quatre points qui m'ont été confiés, à savoir les avantages pour le Sud,
la protection de l'usine par la force publique, l'ordonnance de réquisition, et le délai dans la
décision du recours hiérarchique.
I. - Les avantages pour le Sud.
J'avais affirmé, lors de ma première plaidoirie, que la doléance, à ce sujet, était générale,
vague et non pertinente, et qu'aucune preuve n'avait été offerte sur la présentation d'instances
formelles et de demandes aux autorités judiciaires compétentes.
Nous apprenons maintenant par la plaidoirie de Mme Chandler et par la réponse écrite
à une question posée par M. Schwebel, que, comme il résulte d'une note en bas de page d'un
cles documents annexés à un affidavit de M. Scopelliti, rédigé le t•• avril 1987, quelqu'un- on
ne sait pas qui, on ne sait pas quand - avait présenté une protestation - on ne sait pas à quelle
autorité - pour réclamer les avantages dont on parle. On ne précise pas exactement lesquels.
Mais, cela va de soil Il est encore affirmé dans la meme note en bas de page qu'un ingénieur et
un expert comptable étaient, à l'époque, en train de travailler pour présenter une nouvelle réclamation.
Seui le ciel sait pourquoi un ingénieur et un expert comptable et non pas un avocat!
En tout cas l'annexe à l'affidavit, après avoir donné toutes ces précisions, va jusqu'à indiquer
le montant de la réclamation: de 100 à 300 millions de lires.
Nous sommes vraiment en plein royaume de l'à-peu-près.
Evidemment il s'agit là de quelque chose que meme le plus généreux cles optimistes ne
pourrait jamais considérer comme une valeur sure. Et en effet, M. Scopelliti ne tient pas compte
de ces chiffres dans son évaluation, comme il a soin de le préciser.
Mais on se trouve sans doute en présence d'un excès de prudence, d'un manque impardonnable
de confiance dans la chance!
Heureusement, au cours de ce procès, M. Lawrence a pu apporter un remède à cette erreur
du management américain d'ELSI et, puisque la valeur de cette réclamation fantomatique était
estimée entre 100 et 300 millions, avec toute la prudence et la pondération que sa profession
exige, il a choisi le chiffre le plus haut - 300 millions - et a inclu cette somme dans la valeur
comptable de la société.
Voilà la mesure pour apprécier les critères dont M. Lawrence s'est servi pour donner son
avis sur la valeur de l'ELSI et que M. Libonati a déjà soulignée.
Ils' agit là d'un papier de tournesol sur lequel je me permets d'attirer l'attention de la Cour,
sans pour autant me livrer à tout autre commentaire.
529
Nous avions précisé quel' occupation de l'usine par les travailleuts avait été:
l r. ®t~#:i~hl'e à J( l'équi~Ji#on;
.itB1·~~•# ~~~'· ... ·. . . 6) corùlfl~tif s'~s cause:r ~\:!;cun préjudi~e l tiisine. (C3. C:R $9{6, ~xte français, p. zo:..z6) •
.. . ·. Chers' A()~frè:res amél'icainS', souveriei:..vòi.i$ <le· ce qu'~ctivait tEL.Sl dans son recours hié~
ra~:çbiql,l<l Cll,l :Il~ aY#l J96$:: .c~J~s J.oùl;.s s.•,J.ivantll <[l~. a~:. n:lar*l un p~tit groupe <ie travailleurs a
rlkl-~~~~~"ilg;f~~~~.;t u.. taucuno Ù>te<·
Et bien~ que not:ls a-t-on .répondu lundi del"tlier ?
Rien. Riért de rien. M. Matheson et Mrne Chandler ont contit1Ué, comme si de rien n' était,
à répéter les mèmes choses. Que l'occupation avait commencé après la réqtùsition, qu'elle avait
emp&hé tout accès à l'usine; etC• i etc. Choses qui orit été prouvées ètre aussi loin de la vérité
qtie possiblei et (iui sont en tout cas démenties par les décla:rations ·de l'EL.SI·· elle-mème.
Pas un • mot clone, pas: ttn seui. mot pour contredite nos a.rgwnents.
Que dire, Morisiéur le • Présidérit ? Encore tine ·. fois, permertez"'1:lloi de· me J?asser de tout
commentaire.
3· - L'ordonnance de réquisition •
. . Avantde.traiterc.tLt~ujet,je d()is l>résen~er,. au préala:ble, .cles e:x:c\lses•à.la Cour .
. .••. Ces ~cuses .9l;l,t ~alt à . un cet1;ain tlléllliag~ linguistique al.\quelje vais <Jevoi.t recourir con-.
cerriiirit l'anglais et le françaiS. · Cela t:g~~,. rien .·~ voi~ avecJe <<franglais>> tellement àla mode pii.11IÙ
la jeunesse française, mais plutòt avec 1a Common Lèlt:Q et le d.toi:t adznùùsi:~a:tif. .
J e . m' ex:plique mie1llC. Em:ore une f()is, . mes ~minents conJr~res de la partie. demanderesse
con$"1.\ent à ignol:'et n9s argqmetltìf1 re~~~~f~ c~t1;e .fQili à l'i!J~g!ill~~~ c;le l'()J;d()QQanceAe réqMisition.
Mais à ce sujeti je ctois q\ltiLy à ul). l:Mt~ti:tendu vraimellt profo.nd dO. à la. di:fférence entre
le système de.Common Lat.Q e:tJe sytème' de OivilLaw, une di:ffé~ence qui est pa~ticulièrement sen ..
sible lorsqu~ilfaut aborder les récifs pétilleux du · <4-oit adminis:tratif. · Je m~efforcerai clone. d'il ..
lustrer encore une fois le point de vue du Gouvernement i.talien sous cet angle particulier. Nos
adversaires . affirment, que ·le caractère arbitraire de !'ordonnance. de réquisition découlerait de la
décision du préfet, dans laquelle on lit que « th~ order i$ des#tute of any juridical caus~ which may
justify #.or make it enjorceable >>, Je dois dire tout; de suite que cette phrase est une très mau-.
vaise traduction de la phrase i tali enne « manca, Pf!P_tanto, nel provvedimento,. genericamente, la
causa giuridica che possa giustifitqrlo é renderlo operante >> qui pourrait etre plus exactement
t;raduite par « l'ordonnance1 d'un point de vue général, manque d'un fondement juridique suf ..
fisant qui puisse la soutenir et la ren<h'e effective ».
De .plus, il faut lire cette phrase. dans le contexte général· de la décision du préfet: « incivile
est nisi tota lege perspecta consiliare v~l respondere ». Si l'on procède de cette manière, si on lit
530 RASSEGNA DELL'AVVOCATURA DELLO STATO
la phrase dans le contexte général, on constate qu'en dépit du fait que, dans le recours, l'ELSI
contestait sous de nombreux aspects l'existence meme du pouvoir du maire de prendre l'ordonnance
de réquisition attaquée, le préfet en a reconnu l'existence, affi.rmant aussi l'existence des
conditions préalables pour l'exercice du pouvoir. C'est-à-dire la grave nécessité publique et
l'urgence (cf. réponses écrites aux questiona posées parla Cour et qui ont été déposées ce matin).
Le préfet a toutefois nié que ce pouvoir ait été exercé correctement, car il a jugé que le but
poursuivi- à savoir la continuation des activités de l'usine- n'avait pas été atteint.
Le préfet de Palerme, en accueillant le recours hiérarchique de l'ELSI a donc aflìrmé, à
travers un pronostic fait a posteriori, l'existence de l'usage incorrect d'un pouvoir qui était, en
tant que tel, reconnu. Pour cette raison il a annulé l'ordonnance de réquisition.
Tout cela semble etre traduit par nos adversaires, si je comprenda quelque chose à la Common
Law - et je précise que je me base essentiellement pour ce point sur le fameux livre de W ade,
Administrative Law- tout cela- dis'lis-je- semble etre traduit par nos adversaires par un
« quashing for an unreasonable use of discretionary power of an act that was challenged as ultra
vires by means of an application for judicial review ,,, Car, dans la Common Law, seui un acte
ultra vires ou affecté par « an e"or on the face of the record ,, peut etre annulé, comme le disait
Lord Reid, «ifa tr~bunal has jurisdiction to go right, it as jurisdiction to go wrong. Neither an
error in fact nor an e"or in law will destroy its jurisdiction ,, (R. v. Governor of Brixton Prison,
Annuals [1968] A.C., p. 234).
Or la raison pour laquelle l'acte dont il est question, c'est-à-dire l'ordonnance du maire,
a été annulé, à savoir ·une erreur de prévision, est traduite par nos adversaires, en termes de
Common Law, par '' le mauvais exercice d'un pouvoir discrétionnaire », Mauvais exercice qui
d'ailleur ne conduit en Common Law à l'annulation de l'acte que lorsqu'il est tellement grave
qu'il rend celui-ci « unreasonable » on « arbitrary »,
In fact, as Lord Diplock states:
« no t every mistaken exercise of judgment is unreasonable; the very concept of administrative
discretion involves a right to choose between more than one possible course of action
upon which there is room for reasonable people to hold differing opinions as to which is to
be preferred» (H.W.R. WADE, Administrative Law, Oxford, I98z, p. 364).
En traduisant cette histoire de recours hiérarchique survenu dans un système de Civil
Law en termes de Common Law, nos adversaires arrivent clone à la conclusion que l'ordonnance
du maire était «ultra vires, because unreasonable and therefore arbitrary». S'il en était différemment,
semblent-ils dire, il n'y aurait pas eu d'annulation.
Et voilà, Monsieur le Président, où est l'erreur fondamentale.
La seule chose exacte dans tout cela, c'est que le recours hiérarchique au préfet doit etre
considéré, dans ce cas, plutl>t comme une « application for judicial revzew » que comme un appel
- « an appeal ,, - (voilà une autre erreur de traduction).
La preuve en est que le préfet, en décidant du cas, ne s'est pas posé l'alternative« right or
wrong »? Mais l'alternative « lawfull-unlawfull ,, ? (H.W.R. WADE, précité, p. 35).
Mais il faut penser qu'à la différence des systèmes de Common Law, dans les systèmes de
Civil Law tels que les systèmes français ou l'italien, la «judicial review >> peut se conclure avec
l'annulation de l'acte administratif meme si l'acte est intra vires, à cause d'une erreur de droit ou
de fait. Et cela meme si l'erreur n'est pas évidente, ou n'est pas « on the face of the record»,
Bien plus, dans le système français comme dans le système italien, un acte administratif
peut etre annulé pour un mauvais exercice du pouvoir discrétionnaire meme s'il s'agit d'un mauvais
exercice absolument raisonnable. Le mauvais exercice du pouvoir discrétionnaire ne doit
pas devenir « unreasonnable » pour que l'annulation puisse s'ensuivre. Voilà la différence entre
les systèmes et voilà ce qui a causé le quiproquo.
Nous nous trouvons, dans le cas de l'ordonnance du maire de Palerme, exactement dans
cette situation: l'ordonnance était intra vires car le maire était compétent, comme le préfet
l'a très clairement dit. Les conditions préalables pour l'exercice du pouvoir existaient, comme le
préfet l'a également dit. Mais le maire a commis une erreur de fait en évaluant malles perspectives
de s.uccès de son initiative.
REPLICA CARA]dAZZA 531
En Common Law, ce genre d'erreur n'aurait jamais pu conduire à l'annulation de la décision
du maire car les simples erreurs d'appréciation dans l'exercice d'un pouvoir discrétionnaire ne
tendraient jamais un acte nul ou annulable. Les erreurs d'appréciation dans l'exercice d'un pouvoir
discrétionnaire, en Common Law, rendent nul ou annulable un acte seulement quand elles
sont tellement graves qu'elles rendent l'acte unreasonable, arbitrary.
Si cela est vrai, alors l'équation de la partie défenderesse << annulation à la suite d'un recours
en excès de pouvoir = quashing of an act as being ultra vires because of abuse of discretionary power
» est erronée. Est également erronée l'équation corollaire « annulation = arbitrariness )).
En conclusion, l'ordonnance du maire n'était nullement arbitraire, quoiqu'elle ait été annulée,
et les exemples que M. Matheson a donnés lundi dernier m'aideront à le prouver.
M. Matheson a parlé de pouvoirs administratifs, te! que le pouvoir d'arrestation, le pouvoir
de déportation, le pouvoir d'imposition, qui pourraient 8tre exercés pour des raisons politiques.
Dans ce cas-là, a-t-il plaidé, est-il soutenable que, puisque les autorités ont le pouvoir en
question, son exercice ne serait jamais << arbitraire )) mème s'il reposait sur des motifs politiques ?
C'est à cela, a-t-il dit, que conduirait la thèse du gouvernement italien (C 3/CR 89/10, p. 42).
Et voilà l'erreur, Monsieur le Président. Voilà encore une fois une confusion de langages juridiques.
Dans les exemples de M. Matheson, il y aurait non pas un excès de pouvoir pour mauvais
usage du pouvoir discrétionnaire, mais un débordement de pouvoir. Et si le maire de Palerme avait
adopté l'ordonnance non pas pour les raisons énoncées dans l'acte mais pour nuire à Raytheon
et Machlett ou pour donner des avantages à l' IRI, dans ce cas-là, lui aussi, aurait commis un débordement
de pouvoir, et bien siìr l'acte administratif serait arbitraire.
Mais dans le cas d'espèce, à moins que les Etats-Unis ne veuillent revenir à la thèse de la
conspiracy, il n'y a aucun débordement. Il y atout simplement une erreur d'appréciation dans
l'exercice d'un pouvoir discrétionnaire reconnu, ce qui est bien loin de produire un acte arbitraire.
Cela découle très clairement d'une lecture de toutes les pièces concernées et surtout de la lecture
de la pièce en langue italienne car, comme je l'ai dit, la traduction est erronée. Mais M. Capotorti
parlera encore de l' arbitariness cet après-midi et je ne veux pas insister davantage.
4· - Le prétendu retard du préfet.
Encore une fois, permettez-moi de le dire, mes adversaires ont fait la sourde oreille. Comment
peut-on, disais-je la semaine passée, prétendre à une décision tambour-battant quand,
toute autre considération mise à part:
1. la partie plaidante n'indique dans son recours aucun caractère d'urgence, ne soligne
d'aucune façon le besoin d'une décision immédiate alors que la loi accorde à l'autorité saisie 120
jours pour décider;
2. La partie plaidante fait preuve d'un total manque d'intérèt en présentant le recours 19
jours après et en déposant immédiatement après une requète de mise en faillite.
J'aurais été très intéressé d'entendre de la voix mème de M. Bisconti les raisons pour lesquelles,
en tant qu'avocat et conseiller juridique de l'ELSI et de Raytheon, il avait jugé bon de
préparer un recours hiérarchique en écrivantjusqu'à i6 pages remplies de doctrinejuridique, mais
sans insérer une seule phrase, sans insérer un seui mot pour souligner que la décision était urgente
pour l'ELSI.
Malheureusement, il ne nous a rien dit à ce sujet, et les règles strictes du contre-interrogatoire
nous défendaient de lui poser des questions sur ce point.
En tout cas reste le fait que M. Matheson a ignoré totalement le problème et a continué,
imperturbable, à parler du retard de la décision du préfet comme d'un fait undisputed.
Monsieur le Président, si vous me permettez la boutade, j'ai l'impression que si à la piace
du gouvernement italien comme partie défenderesse se trouvait ici un astronome de mes compatriotes,
Galilée, accusé d'impiété, m8me après le témoignage de Copernic entendu comme
expert, M. Matheson continuerait à dire que le soleil tourne autour de la terre et qu'il s'agit là
d'un « undisputed facn.
532 RASSEGNA DELL'AVVOCATURA DELLO STATO
S· - Conclusion.
Monsieur le Président, je crois que je dois m'arrèter là pour ne pas abuser de votre patience
et pour ne pas soustraire encore du temps à mes confrères de la défense italienne.
Je me bornerai donc, quant aux points que je n'ai pas eu le temps d'évoquer, à faire un renvoi
à l'exposé que j'ai eu l'honneur de vous faire la semaine dernière.
Permettez-moi seulement de vous dire que plaider devant cette Cour a été le plus grand des
privilèges qu'un avocat puisse souhaiter, surtout si, comme dans mon cas, il ne s'agit pas d'un
spécialiste de droit international. Merci mille fois pour votre attention.
Le PRESIDENT: Je vous remercie, Monsieur Caramazza, etje donne la parole à M. Capotorti.
M. CAPOTORTI.: Monsieur le Président, Messieurs de la Cour.
Je reviens, si vous le permettez, au sujet de l'interprétation des accords d'établissement en
vigueur entre les Etats-Unis et l'ltalie, pour répondre aux affirmations faites lundi dernier par
M. Matheson, coagent des Etats-Unis. Mon intention est de limiter cette réponse à l'essentiel;
en tout cas, je voudrais bien traiter d'abord quelques problèmes d'ordre général qui sont controversés.
A propos des objectifs pursuivis par le Traité de 1948, M. Matheson vous a dit que les dispositions
concernant le droit de propriété des sociétés étrangères sur les entreprises et sur les
biens doivent ètre interprétées à la lumière de l'objectif de la protection des investissements,
indépendamment de la question de savoir si cette protection constitue le but primaire ou seulement
l'un des buts du Traité en cause. Cette alternative n'aurait donc pas beaucoup d'importance.
Nous restons, par contre, convaincus que, s'agissant d'interpréter chaque traité dans son
ensemble, selon une méthode qui s'applique à toutes ses règles, le fait de qualifìer le Traité de 1948
d'accord de protection des investissements plutòt que d'accord d'établissement a sa relevance.
C'est M. Matheson, lui-mème, qui en donne la preuve lorsqu'il critique la thèse d'une<< présomption
contraire à la protection des actionnaires étrangers de sociétés locales »: en effet, dit-il, une
telle thèse est certainement inexacte quand il s'agit d'interpréter un traité « which is designed
specifically to provide protection for foreign investments ». Voici donc une conséquence importante
qu'il prétend tirer de l'encadrement du Traité de 1948 dans la catégorie des traités visant
spécifìquement la protection des investissements.
En réalité, ce que nous avions dit, c'était seulement qu'on ne saurait présumer de l'existence
de droits subjectifs des actionnaires là où des dauses conventionelles confèrent des droits aux
sociétés. Nous restons de cet avis, qui se fonde d'ailleurs sur la lettre et sur l'esprit de l'arrèt Barcelona
Traction. Par conséquent, selon nous, la reconnaissance aux actionnaires de droits subjectifs
ne saurait dériver que de règles ad hoc.
Toujours à propos de la structure des artides, par lesquels les sociétés Raytheon et Machlett
prétendent ètre protégées, notre adversaire nous reproche d'avoir, d'une manière générale,
avancé l'objection que ces dispositions concernent des actes dirigés contre l'ELSI (et donc contre
une société italienne) et non pas contre ses actionnaires américains. Cela est inexact: par exemple
nous n'avions pas exprimé d'objections de ce genre à l'égard de l'artide III du Traité, ou de,
l'artide premier de l'Accord supplémentaire de 1951.
Nous avons par contre mis en évidence le fait de l'artide VII du Traité ne se réfère qu'aux
personnes physiques et aux sociétés ayant la nationalité de l'une des Parties contractantes et qui
se trouvent sur le territorire de l'autre, sans s'étendre aux actionnaires de ces sociétés ni aux
sociétés locales qui en sont les fìliales (C 3/CR 89/7, p. 41). Bref, nous avons été fìdèles à notre
critère de base, à savoir que la structure de chaque artide exige d'ètre interprétée en respectant
sa singularité, sans qu'on puisse opérer de généralisaton sur la protection des actionnaires.
A propos des faits imputables à l'Etat italien, je suis franchement surpris de constater que
les actes de l'IRI et ceux de la société EL TEL- qui a un rapport d'affiliation avec l'IRI - sont
encore compris dans la catégorie des faits imputables à l'Etat italien, avec la justifìcation lapidaire
que << IRI is not only owned and controlled by the Respondent but it is an arm and agent of the
Respondent ». On aurait pu espérer qu'un débat sérieux s'engage, au sujet de l'imputation des
actes accomplis par des sujets autres que les Etats, dans le cadre de la réglementation internatioREPLICA
CAPOTORTI 533
nale concernant la responsabilité des Etats. En effet, nous avions mentionné le texte des artides
élaborés soit parla Harvard Law School, soit parla Commission du Droit international des Nations
Unies (C 3/CR 89/7, p. 46). Mais M. Matheson s'est borné à dire qu'un critère fondamenta!
pour l'attribution à l'Etat du comportement d'une entreprise « is whethert hat enterprise serves
State purposes, thus becoming a part of the States's apparatuS» (C 3/CR 89/10, p. 36): ce qui
se serait, selon lui, dairement vérifìé dans le cas de l'attitude de l'IRI et de l'EL TEL «in acquiring
the plant and assets of ELSI>> (ibid., p. 37). L'orateur a négligéévidemment de considérer que
l'achat de la fabrique de l'ELSI par l'ELTEL ne saurait ~tre qualifìé d'acte correspondant
aux buts de l'Etat qu'à la condition d'avoir établi au préalable que l'Etat italien pursuivait le
but d'acheter l'usine de l'ELSI (ce que nous contestons en fait ainsi qu'en droit).
Enfìn, à propos du caractère temporaire ou défìnitif de la réquisition, le Requérant affirme
que la mesure de réquisition, le défaut de révocation de cet acte, l'occupation de l'usine,
la vente de l'EL TEL dans le cadre ·de la procédure de faillite « were seriou11 and irreverllible intrusions
into the essential rights and interests of Raytheon and Machlett. in the contro[ and
dispollition of ELSI» (ibid.). Il en arrive clone, par là, à établir les effets de la réquisition sur la
base des effets de la faillite.
Qu'il me soit permis de répéter que:
I) l'efficacité de la réquisition dans le temps ne saurait 8tre établie que sur la base de
l'ordonnance de réquisition, dont le terme fìnal n'a jamais été prolongé;
2) les actes ayant eu lieu postérieurement n'ont eu aucune infiuence sur la durée de la
:l"équisition;
3) en particulier, la faillite a été la conséquence d'une demande des administrateurs de
*'ELSI, qui se fondait sur l'état d'insolvabilité de celle-ci; la faillite a clone été tout à fait indépendante
de la réquisition.
* * *
Dans le nombre des dispositions du Traité de 1948, dont les Etats-Unis affirment la violation
par l'Italie, un ròle éminent revient à l'artide III. Nous l'avions interprété en employant les
méthodes d'interprétation textuelle et fonctionnelle; mais nous avions en premir lieu constaté
e~ souligné (C 3/CR 89/7, p. 13-20) que le paragraphe 2 de cet artide donne aux nationaux et
aux sociétés de chaque Partie contractante la faculté, conformément aux lois et aux règlements
en vigueur dans le territoire de l'autre Partie, d'organiser, contrtJler et diriger des sociétés de celleci,
qui mettent en oeuvre certaines activités (commerciales, industrielles, etc.). Le m8me paragraphe
donne en outre aux sociétés contrtJlées par les nationaux et par les sociétés de chaque
partie, et créées ou organisées en conformité aux lois et aux règlements .en vigueur dans les
territoires de l'autre, la faculté de mettre en oeuvre les activités susmentionnées, en conformité
aux lois et aux règlements en vigueur. Jusqu'à ce point, nous n'avons fait que citer le texte du
paragraphe en question, en omettant uniquement l'expression finale relative aux conditions de
traitement faites aux sociétés contròlées.
M. Matheson a objecté que, contrairement au sens ordinaire ainsi qu'au but évident de
cette disposition, le droit formel d'organiser, de diriger et de contròler des sociétés fìliales n'a
été accompagné de notre part par aucune référence à la soi-disant << operational protection to the
parent corporation for any interference with those rights » (C 3/CR 89/xo, p. 41). En réalité,
une référence de ce genre ne sauraiti 8tre faite qu'au delà du texte de l'artide III, paragraphe 2.
C'est entièrement en dehors du texte de cette disposition que notre adversaire a élaboré l'idée
d'une protection de la société mère contre toute interférence dans ses activités d'organisation
de contròle et de direction, en ajoutant que ces mots « necessarily imply a continuing right to
direct the enterprise and dispose of its asseti» (ibid.).
Nous avons déjà mis au dair à cet égard que le demandeur fait volontairement une confusion
entre l'artide III, paragraphe 2, et l'artide premier de l'Accord de 1951. Ce demier protège, il
est vrai, les nationaux et les sociétés de chaque partie contre les mesures prises dans les territoires
de l'autre partie ayant pour conséquence d'empecher le contrtJle effectif et l'adminilltration des
35
534 RASSEGNA DELL'AVVOCATURA DELLO STATO
entreprises qu'ils aient établies ou achetées; mais ceci à condition qu'il s'agisse de mesures
arbitraires ou discriminatoires.
Au contraire, dans l'artide III, paragraphe 2, on ne s'occupe pas de mesures susceptibles
d'entraver le contrllle et la direction effectifs d'une filiale, pour la simple raison que la règle ne
s'étend pas à la notion d'interférence dans ces droits. En réalité, l'artide III, paragraphe 2, se
limite à garantir aux sociétés mères ce que notre adversaire qualifie de droit « formel » d'organiser,
de controleret de diriger des sociétés filiales: je souligne que ce droit n'est pas du toutformel.
Les clltés concrets de cette faculté coincide plutot avec l'aspect structurel de la réalitésociale;
il est extremement important, sur le plan pratique, que les sociétés mères aient l'assurance de
pouvoir librement régler l'organisation des filiales (par leurs statuts), de pouvoir librement assurer
leur contrale (par la formation des majorités suffisantes), de pouvoir librement aménager leur
direction (par l'entremise des administrateurs). Bien entendu, cet aspect structurel est autre
chose que l'activité quotidienne; mais le libellé de l'artide III, paragraphe 2, permet de comprendre
que c'est le premier et non pas la seconde qui forme l'objet de cette disposition.
D'autre part: est-ce qu'on pourrait admettre, dans la ligne indiquée par notre adversaire,
une garantie de protection totale des investisseurs étrangers contre l'interférence de toute autorité
dans l'activité effective de direction et de contr<>le des filiales locales, et cela en dépit de la condition
de la conformité aux lois et aux règlements en vigueur? Evidemmerit pas. Nous avons déjà
manifesté notre contrariété à l'égatd d'une telle interprétation de l'artide III, paragraphe 2,
qui nous semble absolument inadmissible. Nous ajoutons enfin qu'il faut éviter de considérer
le libellé de cet artide à travers des lunettes déformantes, du genre de celles qui sont imposées
par l'idée fixe de la protection des investisseurs étrangers. Si on interprète la règle en question
sans ce genre de lunettes, il devient plus facile de reconnaitre la différence qui existe entre la
faculté de contrlller et de diriger des associations (qui pourraient etre de nature philantropiqu~,.,
religieuse ou scientifique) et la prétendue obligation de non-interférence dans l'activité quotidienne
de ces associations.
D'autre part, dans le cas d'espèce, meme si on faisait découler de l'artide III, paragraphe 2,
un droit de Raytheon et Machlett de poursuivre sans entrave leur activité industrielle par l'entremise
de l'ELSI, il ne faudrait pas oublier que cette activité a été arretée par la décision de la
société elle-meme avant que la réquisition ait eu lieu.
Un autre point qui a été traité par M. Matheson dans sa plaidoirie de lundi dernier concerne
l'artide premier de l'Accord supplémentaire de 1951, cité par lui, précisément afin de réaffirmer
que la réquisition ordonnée par le maire de Palerme était une mesure arbitraire (C 3/CR
89/xo, p. 42-44).
Permettez-moi, Messieurs de la Cour, de prendre volontiers acte que la défense des EtatsUnis
n'a plus insisté sur le prétendu caractère discriminatoire de cette mesure. En effet, la thèse
de la discrimination mise en oeuvre par les autorités italiennes était nécessairement liée à l'idée
du « complot » organisé par ces autorités en vue de faire acheter à l'IRI l'établissement de l'ELTEL,
et cette idée fantastique semble n'etre plus retenue par nos adversaires. La matière controversée
a donc subì une petite réduction, et je m'en félicite.
Mais les points de vue des Etats-Unis et de l'Italie sont encore partagés quant au fait de
considérer la réq'Jisition comme arbitraire dans le cadre de l'Accord de 1951 seulement au motif
qu'elle a été annulée par le préfet de Palerme. La réponse positive des Etats-Unis a été déjà
critiquée dans ma première plaidoirie: je me suis fondé sur une notion de mesure arbitraire qui
a des connotations précises, c'est-à-dire les caractéristiques d'un acte déraisonnable, capricieux
et dépourvue de toute justification, d'un acte conçu uniquement comme un moyen de porter
un préjudice injuste à quel'qu'un (C 3/CR 89/7, p. 42-43). Par contre, M. Matheson a cité des
morceaux de la décision du préfet de Palerme pour affirmer que l'ordonnance de réquisition ne
se fondait sur aucune considération unique mais se proposait simplement d'alléger la pression
politique locale. M. Caramazza vous a largement parlé de ce sujet ce matin meme. J'ajoute, si
vous le permettez, qu'afin de démentir une telle affirmation (à part les réponses italiennes aux
questions relatives à ce problème, posées par la Cour), il suffira de signaler que:
x. Dans la décision du préfet de Palerme il n'est pas dit que la mesure de réquisition visait
uniquement un allégement de la pression politique locale. En réalité, cette décision commençait
REPLICA .. CAPOTORTI 535
par reconnaìtre la compétence du maire de prendre la mesure dont il s'agit, ainsi que l'existence
- sur un pian théorique - des conditions de grave nécessité publique et de.l'urgence -et
précisait parla suite que le but visé parla réqwsition ne pouvaittrouver sa réalisation pratique
par la mesure adoptée (Unnumbered, Documenta Vol. II, p. U3-II4).
2. Cette Préd$ion aide à comprendrer expression qui sui1:~ Elle a ~té traduite par h()tre
adversaire d'tiAe façon, Jnotre. avis, it:iappr()priée (C 3/CR 89/10, p. 43),. à savoir que l'ordre
de réquisitiori était dépoul"VIl deto\lte Ca\lse juriçlique qui pui11se la ju11tifier et la rendre efficace;
on doit par contre la traduire, et M. Caraniazza vient de le dire, par la phrase: « l'ordorinance
est pourtant dépouvue, en termes généraux,. du fondement juridique qui puisse la justifier et
la ri.mdre efficace» (Unnumbered Documetsn, Vol. II, p. ii4). ·
3· En tout cas, à la fin de la page.suivante- après avoir décrit la situation de l'entreprise
la réaction de la main-d'oeuvre et les conditions de l'ordre publique - la décision du préfet
ajoutait des considérations sur la pression.exercée parla presse (ibid., p. us).
Il est donc absolument inexact de prétendre que le préfet ait annulé l'ordonnance de réquisition
au motif qu'elle était fondée sur le proposA'alléger la pression politique locale, La mention
de ce prop.os n'est.qu'une considétation additionnelle, supplémentaire··et certainement superflue
par rapport au texte de la mesure.
Il convient d'ajouter, à l'égard du fondement de la réquisition, que le maire de Palerme
avait placé au début de san ordohnance sept ~c. considérants »·se référant à un nombre correspondant,
de circonstances susceptibles, à san avis, de justifier sa mesure, à savoir: la décision de
l'ELSI de fermer san établissement; les lefues de licenciement; la réaction des syndicats et de
l' opinion publique ; le préjudice pour l' économie de la province ; les critiques de la presse; le
danger pour l'ordre public; l'intér8t écon()mique général @id., p. s-6). Or, lorsqu'on essaye
d'établir si une certaine mesure a été arbitraire ou non, la décision ultérieure d'annulation ne
saurait 8tre considérée comme la seule source d'information. Il convient de tenir compte aussi
du texte de la mesure ell~m8me, qui reflète la manière de voir la situation par l' autorité appelée
à prençlre une déci11ion .. En effet, la mesure de réquisition exige d'8tre. évaluée par rapport au
It\Oment .où elle a été adoptée.
Ce critère s'applique aussi à la question cons.istant à établir si la condition de la conformité
aux lois et aux règlements locaux (qui figure dans.le texte de l'artide III, paragraphe 2, du Traité)
peut 8tre considérée camme remplie dans l'hypothèse où une mesure de l'autorité s'avère 8tre illégale
et avoir été annulée. Je remarque à cet égard que, camme il est dair, la mesure en cause était
la réquisition; nous n'acceptons pas que la réquisition rentre dansle nombre des actes prévus
par l'artide III. C'est seulement, je l'aidéjà dit, l'artide premier de l'Accord de 1951 qui pourrait
s'appliquer à la téquisition (sì cene:..:.d était une mesure arbitraire, ce que nous contestoos), et
cet artide, à la différence de l'artide III, ne prévoit pas la condition de la conformité aux lois
et aux règlements locattx. Ceci dit, je réponds à la question posée par deux observations.
La première: au moment où la réquisition a été décidée et mise en oeuvre, elle était sans
doute conforme à la loi, sous l'angle de la compétence du maire et de l'existence des conditions
de l'urgence et de la nécessité: le décret du préfet l'a ultérieurement reconnu (Unnumbered
Documenta, Vol. II, p. II2;.,.II4)• Quant au vice découlant de ce que certains objectifs ne pouvaient
pas 8tre atteints par le moyen de la réquisition, il est évident que, jusqu'à la date de la
décision du préfet qui a constaté ce vice, la mesure proc:lui$ait en droit italien les effets juridiques
qui lui sont propres.
Deuxième observation: la conformité à la loi est une notion qui englobe aussi celle de l'existence
de moyens de recours. Une mesure est donc conforme à la loi si le sujet frappé par un
préjudice qu'elle a provoqué est en mesure de s'adresser à un juge qui soit habilité à redresser
le tort. M. Matheson se plaint de l'insuffisance pratique de cette solution, ou bien des inconvénients
qu'elle peut présenter (C 3/CR 89/1o, p. 43). Il a noté que cette solution ne serait pas en
harmonie avec l'atticle premier de l'Accord de 195I (ibìd.); mais, je le répète, la règle où figure
la condition de la conformité à la loi, c'est l'artide III du Traité1 et non pas l'artide premiet de
l' Accord supplémentaire.
536 RASSEGNA DELL'AVVOCATURA DELLO STATO
Le demandeur a réitéré son point de vue d'après lequell'artide V, paragraphe 2 du Traité
aurait été également violé par l'Italie, parce que celle-ci aurait exproprié les biens de l'ELSI
sans .respecter ni la règle de « due process ))' ni celle du paiement d'une indemnité juste et efficace
(ibid., p. 45-47). Dans notre plaidoirie du premier tour, nous avons identifié trois questions à
cet égard: premièrement: s'il est vrai que la réquisition ordonnée par le maire de Palerme rentre
dans la notion d'expropriation (C 3/CR 89/7, p. 26-3o); deuxièmement si les actionnaires américains
de I'ELSI avaient des droits fondés sur l'artide V, paragraphe 2, du Traité (ibid.,p. 30-33);
troisièmement: si les conditions prévues par cet artide ont été respectées ou non par l'Italie (ibid.,
p. 33-35).
Quant à la première de ces trois questions, notre adversaire est, comme souvent, très avare
d'explications: il se limite à affirmer que « under international law the acts and omissions of the
Respondent in this case constitute a taking or expropriation of property)) (C 3/CR 8gfxo, p. 47).
Cette position aurait le soutien d'une « ample evidence)) (ibid.); en tout cas, l'interprétation de
la règle citée irait dans le sens que « they protect property from any unreasonable interference
in its use, whether this be characterized as a direct taking, indirect taking or expropriation ))
(ibid., p. 46).
Nous ne pouvons que manifester notre surprise. Où trouve-t-on dans l'artide V, paragraphe
2, la notion de unreasonable interference? D'autre part, à supposer que les termes de taking ou
d'expropriation soient absolument équivalents, est-ce que cette équivalence s'étend aussi à la
réquisition et au contrOle temporaire des biens dont M. Mahteson ne parle pas ?
Et pourquoi notre adversaire persiste-t-il à nous dire qu'il n'y a aucune différence entre
taking et expropriation alors qu'il sait que le fond du problème est ailleurs, et se traduit par ceci:
le mot anglais « taking )) couvre également la réquisition (ibid.), tandis que le mot italien cc espropriazione
» ne comprend pas la réquisition temporaire ?
Nous restons donc sur l'idée qu'il y a des différences réelles entre le texte anglais et le texte
italien de l'artide V, paragraphe 2, ainsi qu'entre les deux textes du protocole: l'un parle de
« interests held directly or indirectly ))' l'autre de cc diritti spettanti direttamente o indirettamente)),
On n'arrivera pas, je me permets de penser, à surmonter les difficultés découlant de ces
différences sans recourir à la méthode établie par l'artide 33 de la Convention de Vienne. Je ne
veux pas me répéter à ce sujet. En tout cas, il serait très difficile de soutenir qu'une réquisition
temporaire, telle que celle ordonnée par le maire de Palerme le I avril 1968, rentre effectivement
dans le champ d'application de l'artide V, paragraphe 2.
Deuxième question: est-ce que les actionnaires de l'ELSI ont des droits fondés sur la règle
dont il s'agit? La réponse est certainement négative si on se limite à interpréter l'artide V, paragraphe
2: il ne protège que les biens des nationaux et des personnes juridiques de chaque partie
dans les territorires de l'autre (donc dans l'espèce, les biens appartenant aux sociétés Raytheon
et Machlett et non pas à l'ELSI). Mais le protocole étend les dispositions du paragraphe 2 cc qui
disposent le paiement d'une indemnité )) aux droits des personnes juridiques de chaque partie
sur les biens qui sont expropriés dans les territoires de l'autre. Ici, on a à faire encore une fois
avec la non-coincidence du texte italien avec le texte anglais: nous en avons déjà parlé. On a
besoin de résoudre aussi le problème qui découle de l'expression « dispositions qui disposent
du paiement d'une indernnité >>, ainsi que le problème des droits indirects sur les biens. M. Matheson
n'a fai t rien d'autre que répéter son point de vue (ibid., p. 45); sur ces points, qu'il nous
soit permis de faire de mème, parce que nous estimons avoir dit assez à leur égard dans la précédente
plaidoirie.
Troisième question: est-ce que les conditions établies par le paragraphe en question ont
été remplies par l'Italie? N otre adversaire a préféré ne pas dire un mot à propos du respect par
l'Italie des règles de procédure en matière de réquisition, ni à l'égard du paiement de l'indemnité
liquidée parla Cour d'appel de Palerme. Son silence, ici, semble avoir été suggéré par un certain
embarras: comment soumettre à la Cour une demande d'indernnisation qui fait pourtant double
emploi avec l'indeminité perçue par le syndic de la faillite (à la suite d'un jugement en trois
instances)? Nous nous contentons de poser la question.
REPLICA CAPOTORTI 537
La dernière imputation que notre adversaire a repris concerne la prétendue violation par
l'Italie de l'artide V, paragraphes I et 3, due Traité, en conséquence du défaut de protection des
biens des sociétés américaines actionnaires de l'ELSI. Ce défaut de protection sérait devenu
manifeste au moment de l' occupation de l'usine par les ouvriers: l~t forc.e. publique ne serait pas
intervenue après la réquisition (ibid., p. 47-48). .
Nous avions déjà objecté, dans notre plaidoirie précédente, que les paragraphes I et 3 de
l'artide V concernent les nation:aux et les soeiétés de chaque partie dans les territoires de l'autre:
en l'espèce, les sociétés Raytheon et Machlett, et non leur filiale italienne à qui l'usine appartenait
(C 3 CR 89/7, p. 36). En présence d'une affirmation faite par notre adversaire dans sa réplique.
éçrite, - à sàvoir que l'ELSI repl,"ésentait les biens de Jùytheol1. et M~tchlett en Italie -
nous avions prédsé dansnotre plaidoirie qu;il est inexact de considérer une société comme
l'objet d'W1 droit de propri~téde sesactionnaii:es: .nous avic;>ns rappeléla.notion élénieri.taire que
les actionnaires ont plut6t un droit de participatiori · à la société dont ils sont les membres et non
un droit de propriété ayant pour objet la société. (ibid., p. 37).
M. Matheson a qualifié cette proposition d'« untenable » (C 3/CR 8g/1o, p. 47); il a dit aussi
que « this would come as quite a shock to the shareholders around the world, particularly those
with IOO per cent ownership i:q ~ com}:)any .~ .• (ibid.). A notre tour, nous r~tons franchement choq:
ués; à tei pointqu'ilnous Sen1ble irrespeètueux de rappeler quela propdété de IÒO p. cent des
:;~çtions n'est pas la n1eme .cho$e que la propriété.de l~t société: depuis l'til:ret :R_arcelona Traction,
nous croyons que la sépar~ttio!l juridique entre une société anonyme et ses associés était entrée
11u nombre .. des .conna.issances acquises. par tout le .moJ:lde •. · .· ·. . .
· Monsieur le Président, Messieurs les juges, èette remarque me donne l'occasion de condure.
en mettant au dair un dernier problème d'ordre général,
Très souvent, au cours de notte travail de défense dans · cette affaire, nous avons eu le sentiment
que toute précision juridiqùei toùt effort d'interpétatiòn rigoureuse du Traité, toute résistance
ou opposition aux constructions sommaires de certaines thèses, recevaient chez notre
éminent adversaire un aècueil non seulement froid, mais plut6t géné: on nous a accusés parfois
de faire du formalisme (C 3/CR Sgfto, P• 55). Je reconnais, pour ma part, que le respect exagéré
des formes du droit risque dans certaines hypothèses d'occulter la substance des règles juridiques.
Néanmoins, une idéee que je me refuse d'accepter est· que l'interprétation des .règles de droit
puisse etre facilitée en prénant comme point de repère le langage et la piatique (auxquels j'ajoute
le degré de connaissance du droit) de ceux qu'on qualifie d'opérateurs• de la vie économique.
Non, on ne peut pas simplifier le droitjusqu'au point de lui faire dire.seulement ce qui correspond
aux intérets cles opérateurs économiques. Ce n'est qu'au juriste que revient l'humble métier
de technicien du droit, · aussi bien que le privilège de· mettre en oeuvre cette technique sans
craindre de passer pour un formaliste. Metei, Monsieur le Président, j'ai terminé.
Le PRESIDENT: Je vous rexnercie, Monsieur Capotorti. Nous continuerons cet après-midi
à 15 heures.
The Court rose at 12.55 p.m.
C 3JCR 89jl2
Thursday 2 March 1989, at 3 p.m.
MR. GAJA, MR. FERRARI BRAVO
The PRESIDENT: Please be seated. As I said this morning, we have received a reply by Italy
to the questions put by some Members of the Court, and one of the replies has a document
attached. Does the American delegation object to the presentation of these documents ?
Mr. MATHESON: Mr. President, we do not object to these documents. We would like to
reserve the right to submit comments when we have looked at the information contained therein
in detail. Thank you.
The PRESIDENT: Very well. In this case we ha ve discussed the procedura! matter in the
Chamber; sihce the replies have been received before the dosing of the oral proceedings, we
have decided as follows. Both the United States may comment on the replies to questions that
have been submitted by Italy, and the Italian delegation will have the opportunity to comment
on the United States reply to the questions, attached to C 3/CR 89/xo, in each case after the dosing
of the hearings .
. Now we continue with the business of the day and I give the fl.oor to Professor Gaja.
Mr. GAJA: Mr. President and Members of the Court.
I. The Applicant insists on its theory that the local remedies rule does no t apply in relation
to daims under the FCN Treaty and the Supplementary Agreement. This contention
does not rest on fìrm ground.
It is diffi.cult to see why Artide XXVI of the FCN Treaty, on which the jurisdiction of the
Court is based, should be construed as affecting the application of the local remedies rule (C
3/CR 89/9, p. 470), as the rule provides a bar only to the admissibility of daims and not to jurisdiction.
Nor can the fact that the local remedies rule is expressly referred to in some treaties
make it inapplicable with regard to daims under other treaties. This would run counter to
the provisions of the Vienna · Convention on the Law of Treaties concerning interpretation.
Moreover, the example taken from Artide X of the Economie Co-operation Agreement between
the United States and ltaly (C 3/CR 89/9, p. 470) is of little signifìcance since it only contains
a proviso confìrming the applicability of the rule. The relevant paragraph runs as follows:
« It is further understood that neither Government will espouse a daim pursuant to this
Artide until its national has exhausted the remedies available to him in the Administrative
and Juridical Tribunals of the country in which the daim arose » (20 UNTS, p. 66).
l t may be added that the applicability of the rule to daims under the FCN Treaty had been
dearly accepted by the Applicant when submitting its Memorandum of Law with the 1974
Claim (Unnumbered Documents, Vol. I, pp. 133-137).
The Applicant also developed a more generai argument. Mr. Matheson said:
« First, has the Respondent demonstrated that the Iocal remedies ruie appiies, as a matter
of generai internationai law, to the request of a State under a treaty for a dedaration that
its rights have been violated, and for reparation as a result? In our view, the answer is no »
(C 3/CR 89/9, p. 468).
The only precedents invoked to support this proposition are the Finnish Shipowners and
Ambatielos cases.
REPLICA GAJA 539
Let us firstlook at the Finnìsh Shipowners Arbitration Award. After giving bis interpretation
of the Court's Judgment in the Ambtitielos case, Mr. Matheson said:
<<Li~ewise, intbe.F'~nnishSh#ow.nttr.$.1\rl:)it~:~ttioll,,.the Arl:!itrator founcl. thatthe local.remedies
issu,e. .· onlY atn?l~é<i to tl!te •• priD,cìP~tl çlalrii ~.t finland ~ à · daill) under .. customary il).ternationallll'\
V, ai:i!,{ not t() ilie. alte~tiye çla1J,D,. of Fi.nland --- a. claim · l:)ased • on. a bilatera! agree-
(q~Ìg~C~fb.ot.~~:~~ Sltipor!J#et'S. 3, Repofts of1nternationàt Arbitràtll.wards, p. 149())
- . . .
l-J#t 'Yhat · di4 ~~ Arbitrator in façt say in relation to the ·alternative claim ? I:ie said:
. ((·.·T~ the altern~tlve clfl.fnl as deflllitely :formÙlated, the question of tbe exhaustion of · Iocal
remedies is li()t relev.al)t as this claim is based on an international agreement whicb . does
not giYe th~ shipownei:s anY legal right; QP.t ac pp.rely moral interest •.. The shipowners, therefore,
cannot bave recourse, on tbat basis, t<> any municipal court» (3 Reports oflnternational
Arbitral Awards, p. 1490).
·· ... · ·· ... · .. ·· .. ·· .
Tbis dearly implies that the. re.rnedies, bad tb.Èlre been. any, wol,lld bave bad to be pursued .
. / •.. Tl)e Applicant's argU!nent col).ceming the Ambatielos case is equally curious. Tbe Court
()nly del\lt witb the question wh.etbet there was an obligation t() l!ubmit .the dispute t(>, arbitration
a!td deçìdecJ. that there; was. (I, C.]. Rèport,r I9$3, pp. 22-23). Tbe subsequent special agreement
required the Arbitration Cornmission to determine:
«(a) Tbévalidity ofthe Ambatielos claitn under the x886 Treaty baving·regard to:
.•. (ii) the q\lestlon raised. by ilie United Kingdonl Govemment of tbe non-exbaustion of
1egal remedies • in· tbe Englisb courts ìn tespect of acts alleged to constitute breacbes of any
Tteaty» (xi Reports oflnternationa" Arbiiral Awards, p. 88). .
Tbè Arbitration Commissiot1·exi:unined ·this question .and found that tbe local remedies
rule was appl;tcable and tbat•reriiedies had .not been exhausted. How· could one then say that,
as Mr. Matbeson put i t, « tbe Commission di d not bave to decide wbetber tbe rule would apply
as a matter ofla'W to. a disp9te under. a treaty » (C. 3/C:R. 89/9, p~. 4~9) ?
There ìsa.riiore recel).farbi~raHonéase ìn point. It was qu()ted.jn tbe Rejoinder (p. 213)
but totally igncired by tbe Applicant. Tbe award is given in tbe case concerning tbe Air
Services Agreernent of 27 March I9<f.6 (United States v. France). Tbe Arbitrai Tribuna} said:
« the rule of international law relating to tbe · requirement of exbaustion of local remedies,
wben making a distinction. betw.een tbe State.;..to--State . claims in w bi cb tbe requirement
applies, and claims wbicb are not subject. to Sucb a requirement; must necessarily base
this distinctioti on the juridical cbaracter of tbe legal relatiOnship between States wbicb
is invoked in support of tbe claim. Consequently; with .respect to the applicability of tbe
local remedies rule, a distinction is generally made between 'cases of diplomatic protection '
and ' cases of direct.injury ' » (54 lnternational Law Reports, pp. 304-324).
Despite ··some wording in· the rehùttal to the effect tbat tbe application to tbe Court seeks
to assetn broader rigbts and interests of the United States under tbe Treaty .•. vindicating its
own rigbts and interests and clarifying the obligations of tbe Parties » (C 3/CR 89/9, pp. 468-469
also p. 471), o.ne cannot escape theconclusion tba ttbe present case is a case of diplomatic protection
to whléb tbe rule consequently applies. Suffice it to notice tbat tbe submissions only consider
violations of Treaty provisions, obviously, with reference to Raytbeon's claitn and that reparation
is only sougbt for tbe damage allegeilly caused t() Raytheon.
2. Tbe Applicant again put forwa1;d the contention that tbe rule sbould not apply because
tbe United States seeks a<< declaration tbat tbe FCN Treaty bas been violated, as well as reparation
to itself for violati()ns of tbe Treaty » (C 3/CR 89/9, p. 469). However, tbe Applicant's
subinissions have not been modified accordingly. No alternative submissions bave been made.
540 RASSEGNA DELL'AVVOCATURA DELLO STATO
As they stand - Mr. Highet explained i t this morning - the submissions do not read as if
there was a request solely for declaratory relief and even less for an abstract interpretation of
Treaty provisions.
The passage in the United States Government's Memoria! in the Interhandel case which was
quoted by Mr. Matheson (C 3/CR 89/9. p. 469) in order to contend the inapplicability of the
rule with regard to declaratory judgments should be read in the context of the subsequent statement
made by the Agent of the United States Government, Mr. Becker, when the Swiss Government
had made an alternative submission requesting a declaratory judgment. He said that
« there is no generai and universally accepted principle excepting ali requests for declaratory
judgments from the doctrine of exhaustion of local remedies » (I.C.]. Pleadings, Interhandel,
p. soz). The views expressed by the United States Government in the Interhandel case are in
any case of some what academic importance, given the passage of the Court's Judgment in the
same case on the alternative submission - a passage to which I referred in my previous pleading
(l.C.]. Reports I959, p. 29; C 3/CR 89/5, p. 366).
3· The Italian Government never waivc;d the application of the rule, nor did it maintain
in the course of diplomatic negotiations, unlike the United States Government in the Interhandel
case (see I.C;]. Reports I959, p. z7), that ali the available remedies had been exhausted.
The United States Goverriment, nevertheless, filed a preliminary objection in that case with
regard to the non-exhaustion of local remedies (I.C.]. Pleadings, Interhandel, p. 303). Why
should it be improper for the ltalian Government to raise the same objection?
Mr. Matheson's statement that the Italian Government only contended that no remedies
had been exhausted « after proceedings have been instituted with its concurrence >> (C 3/CR
89/9, p. 473) is incorrect for two reasons. First, proceedings before the Court have been instituted
by a unilateral application of the United States Government. Second, asI recalled in my previous
pleading (C 3/CR 89/5, p. 365), the Italian Government had specifically indicated to the United
States Government that it would raise the question of non-exhaustion of local remedies should
the United States Government institute judicial proceedings and no objection was made to this
communication.
4· According to the Applicant, there exists an exception to the local remedies rule when
a claimant has made a « reasonable and good-faith effort » to exhaust those remedies (C 3/CR
89/9, p. 47Z).
If one could justify non-exhaustion of local remedies simply by stating later that one had
assumed in good faith that no remedies were available the rule would have in practice little
meaning. Anyway, this is not a case in which a << reasonable and good-faith effort » has been
made. The Applicant insists on Raytheon's requests for opinions addressed to two Italian lawyers.
One of them was Avvocato Bisconti, Raytheon's lawyer in Italy. These opinions were
referred to in the Memorandum of Law of 1974 as «opinions of independent Italian legal experts»
(Unnumbered Documents, Vol. l, p. 137). The Applicant has not contested the analysis that
I made of Professar La Pergola's opinion, showing that no argument was offered on local remedies
in ltaly and that the opinion had in alllikelihood been requested in order to justify recourse to
the United States Government (C 3/CR 89/5, p. 369). No argument on the relevance of the
Treaty was either put to the lawyers or offered in their opinions. The question of the effects
of the Treaty in Italy was totally ignored. Was it « reasonable » not to take the Treaty into account
when one intended to persuade one's Government to bring a claim for one's benefit on the basis
of the very same Treaty and when the Court of Cassation had already held the Treaty to be
applicable by Italian courts?
s. While several remedies were not exhausted by Raytheon, attention has rightly been
focussed on what I called the « radical remedy »: a claim for compensation under Artide 2043
of the Civil Code. This would have allowed Raytheon to recover any damage allegedly occurred
according either to the earlier version of the Claim or to its new presentation.
In substance, the Applicant develops two arguments against the requirement that this radical
remedy should have been exhausted: the remedy would not have been effective; and the FCN
REPLICA GAJA 541
Treaty, from which one could draw the unlawful character of the damage, could not be applied
by Italian courts. I will examine them in turn.
Much has been rnade by the Applicant of the decisions given over the receiver's claim for
compensation (C 3/CR 89/9,PP·470-471 ;Annex 2 to C 3/CR 89/10, pp.2-3). I would like to recall
that this point had not been put forward in the Applicant's fìrst round of pleadings. Nevertheless,
it is nota new argument. I had brought it to the attention of the Court myself (C 3/CR 89/5,
p. 368). However, I pointed out that the receiver had claimed on the basis of a more limited
set of facts and that he could only act in the interest of all the creditors. He could not act on
behalf of Raytheon and vindicate Raytheon's rights under the Treaty.
Those rights were listed by Professor Gardner in the following way :
« rights to manage and control ELSI and liquidate it in an orderly fashion ... the right
not to have their investment rights and interests impaired, the right not to have their interests
in property taken without just and effective compensation, and the right ... to have
the security of their interests in property protected » (C 3/CR 89/3, p. 325).
Could one seriously argue that the bankruptcy receiver was entitled to bring a claim for
compensation because of an infringement of any of these rights ? Furthermore, could any compensation
thus awarded be used to pay all the creditors ?
The issues relating to Raytheon's rights were never brought to the attention of Italian courts.
No reference to them was made by the receiver in his claim (Unnumbered Documents attached
to the Counter-Memorial, Vol. Il, pp. 137 et seq.). Besides, the receiver did not and could not
algele or demonstrate all the facts alleged by the Applicant - most of them originating from Raytheon's
documents- concerning the relation between the requisition order and the bankruptcy.
Thus, the highest court which dealt with the merits of the receiver's claim had to state that there
was «no proof whatsover as to the damages incurred from that viewpoint » (Annex 81 to the Memoria!,
p. 14).
All this leads one to conclude that, even in its reshaped version, the Applicant's Claim
cannot be justifìed under the local remedies rule.
6. In its written and oral discussion of the local remedies rule the Applicant has given little
attention to judicial and arbitrai precedents or has not considered them carefully. One of these
precedents is the Panevezys-Saldutiskis Railway case (C 3/CR 89/9, p. 471). Here the Permanent
Court of International Justice accepted the Lithuanian objection that remedies had not been
exhausted and sai d:
« The question whether or not the Lithuanian courts have jurisdiction to entertain a particular
suit depends on Lithuanian law and is one on which the Lithuanian court alone can
pronunce a fì.nal decision. It is not for this Court to consider the arguments which have
been addressed to it for the purpose either of establishing the jurisdiction of the
Lithuanian tribunals by adducing particular provisions of the laws in force in Lithuania,
or of denying the jurisdiction of those tribunals by attributing a particular character (seizure
jure imperii) to the act of the Lithuanian Government. Until it has been clearly shown
that the Lithuanian courts have no jurisdiction to entertain a suit by the Esimene Company
as to its title to the Panevezys-Saldutiskis railway, the Court cannot accept the contention
of the Estonian Agent that the rule as to the exhaustion of local remedies does not apply
in this case because Lithuanian law affords no means of redress ». (PCI], Series A/B,
N. 76, p. 19).
A similar point was made by Sir Hersch Lauterpacht in his Separate Opinion in the Norwegian
Loans case (I.C.]. Reports I957, pp. 39-41). With reference to this opinion Mr. Matheson
said: « As judge Lauterpacht stated in the Norwegian Loans case, the rule only requires exhaustion
of effective local remedies that are available 'as a matter of reasonable possibility' » (C 3/CR
89/9, p. 472). But here is the full quotation of what Sir Hersch Lauterpacht in fact stated:
" The legal position on the subject cannot be regarded as so abundantly clear as to rule out,
542 RASSEGNA DELL'AVVOCATURA DELLO STATO
as a matter of reasonable possibility, any effective remedy before Norwegian courts ». (IC]
Reports I957, p. 39).
This kind of reasoning couid be easily transposed to the case in point. Moreover, in our
case there is little reason to doubt the applicability of the FCN Treaty by Italian courts. The
attitude of Italian courts is friendly towards the self-executing character of treaty provisions.
Three decisions by the Italian Supreme Court applied provisions contained in the FCN Treaty
or in the Supplementary Agreement as a matter of course; no question about their self-executing
character was raised. No doubts about that character were expressed at all unti! the Applicant
voiced them in its Reply.
The Applicant looks for support for its theory that the Treaty could not be invoked essentially
to an opinion of one of Rome's State attorneys (C 3/CR 89/9, p. 469). However, the reasons
that I gave in my previous pleading to the effect that the opinion has been misinterpreted and
is anyway immaterial (C 3/CR 89/5, pp. 37o-371) have not been challenged. I would only like to
stress that in the Italian legai system, courts interpret treaties and decide on their effects in ltaly
independently from whatever State attorneys or other Government officials may say and that
what matters when it comes to decide whether a treaty provision may be applied is the court's
attitude alone.
A significant precedent which is also not challenged by the Applicant is represented by
the Corte di Cassazione decision that applied, again as a matter of course, a provision of the FCN
Treaty between ltaly and the Federai Republic of Germany which corresponds to the FCN
Treaty provision concerning taking of property (C 3/CR 89/5, p. 369).
Moreover, the Applicant's argument that the FCN Treaty provisions are not sufficiently
specific to be applied by Italian courts makes little sense. Let us assume for example that, as the
Applicant contends, what is « arbitrary » under Italian law is also « arbitrary » under the Supplementary
Agreement. What kind of Italian legislation would have been necessary in order to
make what is « arbitrary » under the Supplementary Agreement, «arbitrary" under Italian law?
I t is anyway to be noted that, if one held that most of the Treaty provisions are not regarded
as self-executing in Italy, one would have to expect that, as a result, infringements of obligations
under the same provisions would very likely occur. Why did the United States Government
never make representations to the Italian Government in order to have the implementing legislation,
which is supposedly rtecessary, enacted by the Italian Parliament?
7· Mr. President and Members of the Court - The present case only involves claims
for the alleged violation of Treaty provisions. These provisions were designed for the benefit
of individuals and corporations who are nationals of a Contracting State. They regulate in detail
the treatment of those individuals and corporations in the local State. The very nature of these
provisions implies that any question relating to their applicability should first be brought tothe
courts of the State in which the provisions are invoked.
The local remedies rule simply meets the reasonable need not to encumber diplomatic
channels with claims under the Treaty before local courts have had a chance to consider the
alleged infringement. As Jenks put it, the rule is based « on the practical convenience of channelling
the settlement of private grievances through the established machinery of municipal law
wherever possible with a view to reducing the strains placed by such grievances on international
relations and procedures" (The Prospects of International Adjudication [1964], p. 536).
Thus, rights under the Treaty belonging either to a United States or an Italian national
should not be invoked first in diplomatic protection, but should be brought to the test of local
courts. lf remedies have not been used, as in the present case, a diplomatic claim is inadmissible.
No « rigid" application of the local remedies rule is thus suggested; only an application of the
rule.
I thank you, Mr. President and Members of the Court, for your kind attention.
The PRESIDENT: Thank you very much, Professor Gaja, I cali upon the Agent of the Republic
of Italy, Professor Ferrari Bravo.
REPLICA FERRARI BRAVO 543
M. FERRARI BRAvo: Monsieur le Président, Messieurs de la Cour, nous arrivons à la fin
cles plaidoiries dans une affaire qui demandait l'examen de nombreuses, très nombreuses en
vérité, questions de fait, ainsi que de bon · nombre d'importantes questions de droit.
Comme dans toute affaire où les questions de fait sont prépondérantes, au moins d'un point
de vue quantitatif, et où, de surcroit, elles sont hautement controversées (et cela malgré toute
opinion contraire exprimée à plusieurs reprises par la délégation cles Etats-Unis), l'étude de
cette affaire a demandé la présentation d'un grand nombre de documents. En outre, nous avons
aussi écouté la voix de personnes qu'une cles Parties a appelées en tant que témoins ou experts.
La vivacité cles argumentations développées par les Parties aura eu, faute d'autres mérites, celui
de ne pas avoir ennuyé la Cour.
L'Italie a présenté beaucoup de documents et les Etats-Unis en ont produit plusieurs. La
nécessité de recourir à une documentation supplémentaire s'est manifestée parfois dans la phase
orale du procès (et d'autres documents ont été ajoutés aux dossiers préexistants). Concernant
ce sujet et d'un point de vue tout à fait général, je voudrais faire deux remarques.
La première consiste à rappeler que, en annexe à son Contre-mémoire, l'Italie présenta
trois gros tomes intitulés « Unnumbered Documents >>, Ces trois tomes reproduisaient sans aucune
omission le « Claim >> présenté en 1974 par le gouvernment cles Etats-Unis pour le compte de
ses deux nationaux, les sociétés Raytheon et Machlett Laboratories, ainsi que tout document
que les Etats-Unis avaient cru bon d'annexer audit Claim.
Malgré la dénomination « Unnumbered Documents », un index de la documentation annexée
au Claim de 1974 se trouve aux pages 198 à 204 du premier tome. C'est l'index établi en
son temps par Raytheon aux fins de la consultation de ladite documentation.
Sans doute, nous aurions pu établir un nouvel index, ce qui aurait facilité peut-Mre le travai!
de la Cour. Si nous ne l'avons pas fait- et nous nous en excusons auprès du Greffe pour ce
travail supplémentaire que nous lui avons imposé- c'était pour une raison très simple, que
j'espère la Cour approuvera. La raison est que nous n'avons rien voulu changer au texte
de la documentation qui se trouvait disponible chez nous, pas mème une seule virgule.
Les trois tomes contiennent quelques documents qui nous semblent favorables aux thèses
italiennes, d'autres qui peut-ètre le sont moins; d'autres encore qui ne nous paraissaient pas pertinents.
Mais, après miìre réflexion, nous avons pensé que dans une affaire telle que celle-ci, à
propos de laquelle nous avons constaté avec une certaine amertume la transformation du Claim
américain entre 1974 et 1987 ainsi que l'augmentation vraiment astronomique du montant de
mandé à titre d'indemnité, il n'aurait pas été honnète de notre part de donner un aperçu seulement
partiel de la documentation disponible. La Cour, dans sa sagesse, choisira les documents
qu'elle considérera comme pertinents.
La deuxième remarque relative à la documentation concerne tous les documents présentés
par les deux Parties. La présente affaire se rapporte à cles événements qui, en quasi-totalité, se
sont produits en Italie. Elle concerne cles mesures administratives italiennes, cles lois italiennes
ainsi que cles accords internationaux dont le texte italien fait foi avec le texte en langue non italienne.
C'est pourquoi il est nécessaire de vérifier avec une attention que je dirais méticuleuse toute
traduction en anglais cles documents dont l'originai est en langue italienne. Cela d'autant plus
que la terminologie juridique cles pays de langue anglaise qui est celle de la Common Law, n'a
souvent pas d'équivalent précis et automatique dans une langue latine.
Or, la lecture cles documents pertinents a révélé dans certains cas cles erreurs de traduction
et chaque fois que nous nous en sommes rendus compte nous les avons signalées. Mais il est
fort probable que d'autres imperfections existent, dont la défense de l'ltalie pourrait ne pas
s'ètre aperçue, particulièrement lorsqu'il s'agit de traductions faites en dehors de l'Italie, dans
un environnement linguistique anglophone où le risque de se tromper, mème en toute bonne foi,
est plus élevé.
Voici pourquoi la défense de l'Italie qui à cause du régime linguistique de la Cour,
a diì travailler, tout au long de la présente affaire, età la différence de la défence cles Etats-Unis,
dans cles langues qui ne sont pas les siennes, se permet de demander à la Cour de faire vérifier
soigneusement la traduction, chaque fois qu'elle utilisera un document dont l'originai est en
langue italienne, car c'est seulement ainsi que la Cour se forgera la certitude que le document en
544 RASSEGNA DELL'AVVOCATURA DELLO STATO
question revet un sens déterminé et non pas un autre qui, encore que voisin, pourrait ne pas
etre identique.
Cette prémisse m'a paru nécessaire étant donné les caractères spécifiques de la présente
affaire.
* * *
Quant à l'affaire elle-nieme, il n'est pas dans mes intentions de résumer les arguments développés
tant par notre défense que par celle des Etats-Unis. Il me semble que tout ce qu'il
était nécessaire de dire a déjà été dit.
Nous croyons, avant tout, avoir démontré de la façon la plus convaincante que l'exception
présentée par l'Italie et par laquelle il est demandé à la Cour de déclarer irrecevable la requete
américaine parce que les actionnaires américains de l'ELSI n'ont pas épuisé les voies de recours
offertes par l'ordre juridique italien, est pleinement fondée. Nous sommes confiants, par conséquent,
dans le jugement de la Cour, qui voudra bien déclarer irrecevable, la requete américaine
sans passerà l'examen du fond de l'affaire.
Nous avons présenté cette exception non seulement parce que nous croyons en son bienfondé,
mais aussi parce que la règle de l'épuisement préalable des voies internes de recours est
une règale fondamentale du droit international qui protège l'intéret de tout Etat à résister aux
demandes injustifiées que des nationaux influents adressent à leur Etat, comme le souli,gnait
M. Highet dans sa plaidoirie du 23 février. Cette règle a été réaffirmée récemment parla Commission
du droit international des Nations Unies, à l'artide 22 du projet d'articles (première
partie) sur la responsabilité des Etats. Et ses conclusions, unanimes, ont trouvé l'appui de la
Commission juridique de l'Assemblée générale des Nations Unies.
Il aurait été peu raisonnable de notre part de ne pas nous prévaloir d'une règle fondamentale
du droit international alors que nous sommes convaincus qu'elle est applicable en l'espèce.
L'acceptation de notre exception ne serait pas, comme l'a dit M. Matheson dans sa plaidoirie
finale le 27 février, une victoire du formalisme juridique. Le droit internationale, dans
toutes ses règles - et notamment dans celle-ci - toujours égard au fond des problèmes, en
départageant les intérets des Etats en jeu selon des critères de justice. Nulle considération d'opportunité
ne s'oppose clone à l'application, dans la présente affaire, de la règle de l'épuisement
préalable des voies internes de recours, dont le fonctionnement n'est pas, en l'absence d'une exclusion
expresse dans le Traité, mis en échec par l'existence de celui-ci, comme l'a démontré tout
à l'heure M. Gaja.
D'ailleurs, avant de présenter leur requete, les Etats-Unis étaient bien au courant de l'intention
de l'Italie de présenter l'exception en question.
Tout ce qui précède ne signifie nullement que l'ltalie ait peur de soumettre au jugement de
la Cour les faits qui se sont effectivement produits. Elle ne craint pas non plus l'application des
normes pertinentes aux faits tels qu'ils seront établis par la Cour sur la base des preuves fournies
par la Partie à laquelle incombe le fardeau de la preuve. Bien au contraire. Au cas où la Cour
déciderait de ne pas accepter l'exception préliminaire présentée par l'Italie, nous n'aurions aucune
crainte d'etre jugé pour nos agissements. La vigueur de notre défense en témoigne.
En effet, nous sommes profondément persuadés que le gouvernement des Etats-Unis n'a
pas réussi à fournir la preuve, dont le fardeau lui incombait pourtant, des faits qu'il a invoqués
et dont nous contestons la véracité. Il n'a pas non plus prouvé l'exactitude de son interprétation
des règles de droit.
La défense des Etats-Unis, qui dans ce procès sont la partie demanderesse- une circonstance
qu'il ne faut jamais oublier- n'a sur aucun point démontré que l'Italie serait responsable
d'avoir commis des actes illicites internationaux.
Il y a un manque total de preuve des faits qui pourraient justifier cette conclusion, notamment
de celle d'un lien de causalité ininterrompu entre les événements qui se sont réellement
produits. Il n'y a, en outre, aucune démonstration convaincante de l'exactitude de l'interprétation
données par les Etats-Unis des normes pertinentes. La requete américaine doit clone etre
rejetée.
REPLICA FERRARI BRAVO 545
En plus, et en tout état de cause, il n'existe aucune preuve que des faits dommageables,
pour lesquels une indemnisation tout à fait adéquate n'a pas déjà été versée, se soient produits
au détriment des actionnaires américains de l'ELSI. J'ose dire que, s'il y a quelqu'un qui a
été lésé par le déroulement de l'affaire, c'est plutòt l'IRI qui, d'une part, a perdu de grosses sommes
d'argent à travers les banques qu'elle contròlait à 100 p. cent et qui se sont vu déboutées
de leurs plaintes contre la compagnie américaine par les juridictions italiennes. L'IRI encore,
par l'intermédiaire d'une des ses sociétés, achetait à un prix tout à fait raisonnable, mais en réalité
à contre-coeur, les avoirs restants de l'ELSI.
Cet IRI, qui, comme dans un jeu de miroirs chinois, appara1t et disparait, selon les
convenances de la défense américaine, tantòt comme partie intégrante de l'Etat italien, tantòt
comme entité indépendante, mais dont les agissements, m~me ceux ayant causé des pertes à
l'IRI et des avantàges aux réquérants américains, sont invariablement mis à la charge de l'Etat
italien à qui une indemnisation est demandée.
Monsieur le Président, Messieurs de la Cour, aucune perte, aucun dommage qui n'ait
été la faute des actionnaires américains de l'ELSI ne s'est produit. Pourtant, m~me dans le
hypothèse, qui nous semble tout à fait absurde, que quelque irrégularité serait imputable à l'Etat
italien dans le respect des traités qui le lient aux Etats-Unis, ceci n'aurait produit aucun effet
dommageable dont les Etats-Unis auraient le droit de se plaindre. M~me dans ce cas la demande
américaine doit donc ~tre rejetée.
En effet, Monsieur le Président, et en ragardant en arrière, je crois que ces trois semaines
de plaidoiries ont vu s'effacer, jusqu'à disparaitre totalement, le fondement de la requ~teaméricaine.
Paroles, paroles, paroles, comme le disait Hamlet, rien que des paroles. Mais des paroles
écrites sur sable et effacées par l'eau.
Monsieur le Président, Messieurs de la Cour, dans son intervention du 13 février, au tout
début de la phase orale, mon éminent collègue et cher ami, l'honorable Abraham Sofaer, agent
des Etats-Unis, déclarait ce qui suit:
«Economie development and social progress are the common concern of the whole international
community. By establishing legal norms that encourage economie prosperity and the
well-being of all nations, we help strengthen peaceful relations and co-operation globally.
Chaper 9 of the Charter of the United Nations acknowledges that the development of economie
and social relations creates the conditions of stability and well-being necessary for
friendly relations among nations » (C 3/CR 89/I, p. 247).
Je suis tout à fait d'accord avec M. Sofaer sur cette évaluation d'ordre général et je peux
assurer la Cour que le Gouvernement italien est pleinement conscient de l'importance et de
l'utilité d'instruments internationaux tels que le Traité d'amitié, de commerce et de navigation
de 1948 entre l'Italie et les Etats-Unis ou l'Accord supplémentaire de 1951. Ce sont des instruments
internationaux qui, peut-etre, s'ils étaient négociés aujourd'hui, seraient rédigés de façon
quelque peu différente compte tenu du changement des réalités économiques et sociales qui
s'est produit partout dans le monde entre 1948 et nos jours. Mais les bases fondamentales
de ces accords restent toujours valables et de toute manière, tant qu'ils existent dans leur libellé
actuel, ces accords demandent à ~tre respectés scrupuleusement. L'Italie, pour sa part, est siìre
de les avoir toujours respectés et continue de les respecter.
De ce point de vue, si la Cour décide qu'il lui est nécessaire, pour rendre son jugement,
d'aborder l'interprétation des traités en question, l'Italie pense n'avoir rien à craindre. Elle
respectera scrupuleusement le jugement de la Cour et, si celui-ci contient des éléments d'interprétation,
l'Italie en tiendra diìment compte pour orienter sa propre pratique vis-à-vis
des traités en question.
D'ailleurs, le présent différend, que les deux Parties ont plaidé au mieux de leur capacité
en cherchant, comme il se doit, à obtenir la victoire, n'est qu'un épisode dans l'histoire des
relations entre deux pays amts, relations qui se développent d'une façon heureuse et qui se
développeront encore plus de cette manière si elles sont débarassées de quelques débris d'une
époque révolue dans laquelle le déséquilibre entre les deux Parties se faisait encore sentir.
546 RASSEGNA DELL'AVVOCATURA DELLO STATO
Monsieur le Président, Messieurs de la Cour, c'est à l'aide de ces réflexions que l'Italie,
persuadée du bien-fondé de ses thèses, se prépare à se soumettre à votre jugement. La défense
du gouvernement italien vous a exposé, au mieux de ses ressources intellectuelles, ses arguments.
Elle a confiance qu'ils seront bien accueillis. Elle attend donc avec la plus grande sérénité
le jugement de la plus haute instance judiciaire internationale, étant persuadée que les
décisions de la Cour internationale de Justice ne peuvent que contribuer, par la seule force du
droit, au développement des relations amicales entre les nations.
Dans cet esprit, je me permets de lire maintenant, les condusions finales présentées par
l'Italie. Elles coincident avec celles présentées le 23 février dernier. Et pour éviter tout malentendu
je les lirai en anglais, langue que j' ai employée lors de la précédente lecture. Voi ci ces condusions:
May it please the Court,
A. To adjudge and dedare that the Application filed on 6 February I987 by the United
States Government is inadmissible because local remedies have not been exhausted.
B. If not, to adjudge and dedare:
I. That Artide III of the Treaty of Friendship, Commerce and Navigation of 2 February
I948 has not been violated; ·
2. That Artide V, paragraphs I and 3, of the Treaty has not been violated;
3· That Artide V, paragraph 2, of the Treaty, and the related provisions of the Protocol
to the Treaty, have not been violated;
4· That Artide VII of the Treaty has not been violated;
s. That Artide I of the Supplementary Agreement of 26 September I95I has not been
violated; and
6. That no other Artide of the Treaty or the Supplementary Agreement has been violated.
C. On a subsidiary and alternative basis only: to adjudge and dedare that, even if there
had been a violation of obligations under the Treaty or the Supplementary .Agreement, such
violation caused no injury for which the payment of any indemnity would be justified; an d,
accordingly, to disxniss the daim.
Monsieur le Président, Messieurs les Juges, m~me au nom des autres membres de la délégation
italienne, je vous remercie de votre attention.
The PRESIDENT: Merci Monsieur Ferrari Bravo. On behalf of the Members of the Chamber,
I thank the Agents and Counsels of both Parties for their assistance to this Chamber. Befor
dosing these oral proceedings, and in order to facilitate the future work of the Chamber, I thinke
is necessary to fix the time-lixnit for the written comments of each Party on the replies to the
questions put by the judges of the Court to which I referred at the beginning of our sitting
this afternoon. Therefore, I fix, Monday, I3 March as the time-limit to receive the comments
to which I have already referred.
In accordance with our practice, I request the Agents to remain at the disposal of the Chamber
for any further assistance it may require. Subject to this, and thanking you again, gentlemen,
for your assistance, I dedare the oral proceedings in this case dosed.
The Court rose at I5.55 p.m.
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