Wednesday, October 17, 2012

Elettronica Sicula S.p.A (ELSI):U.S.A v. Italy- A Case Study by Habib Zafar, NALSAR

In 1967, Raytheon held 99.16% of the shares in ELSI, the remaining 0.84% being held by Machlett, which was a wholly owned subsidiary of Raytheon. ELSI was established in Palermo, Sicily, where it had a plant for the production of electronic components; in 1967 it had a workforce of slightly under 900 employees. In February 1967, according to the United States, Raytheon began taking steps to endeavor to make ELSI self-sufficient. At the same time numerous meetings were held between February 1967 and March 1968 with Italian officials and companies, the purpose of which was stated to be to find for ELSI an Italian partner with economic power and influence and to explore the possibilities of other governmental support. When it became apparent that these discussions were unlikely to lead to a mutually satisfactory arrangement, Raytheon and Machlett, as shareholders in ELSI, began seriously to plan to close and liquidate ELSI to minimize their losses. On 28 March 1968, it was decided that the Company cease operations. Meetings with Italian officials however continued, at which the Italian authority rigorously pressed ELSI not to close the plant and not to dismiss the workforce. On 29 March 1968 letters of dismissal were mailed to the employees of ELSI.  On 1 April 1968 the Mayor of Palermo issued an order, effective immediately, requisitioning ELSI's plant and related assets for a period of six months. On 19 April 1968 ELSI brought an administrative appeal against the requisition to the Prefect of Palermo. A bankruptcy petition was filed by ELSI on 26 April 1968, referring to the requisition as the reason why the company had lost control of the plant and could not avail itself of an immediate source of liquid funds, and mentioning payments which had become due and could not be met. A decree of bankruptcy was issued by the Tribunal di Palermo on 16 May 1968. The administrative appeal filed by ELSI against the requisition order was determined by the Prefect of Palermo by a decision given on 22 August 1969, by which he annulled the requisition order. The Parties are at issue on the question whether this period of time was or was not normal for an appeal of this character. In the meantime, on 16 June 1970 the trustee in bankruptcy had brought proceedings in the Court of Palermo against the Minister of the Interior of Italy and the Mayor of Palermo for damages resulting from the requisition. The Court of Appeal of Palermo awarded damages for loss of use of the plant during the period of the requisition. The bankruptcy proceedings closed in November 1985. Of the amount realized, no surplus remained for distribution to the shareholders, Raytheon and Machlett.

The United States claimed that the requisition had caused the bankruptcy of the company, thereby violating several substantive and procedural rights guaranteed by the FCN Treaty. Italy, raised preliminary objection to the admissibility of the claim on the ground that local remedies had not been exhausted and any event, flatly denied any violation of the treaty. In the oral hearing Italy further submitted “in a subsidiary and alternative basis only” that even supposing a violation of its obligation, no injury had been caused for which payment of indemnity would be justified.

The Chamber rejected the objection of non-exhaustion of the local remedies and after examining found that the Respondent, Italy, had not violated the FCN Treaty in the manner asserted by the Applicant, it follows that the chamber rejected the claim for reparation made by the Applicant.

This case is in respect of a dispute arising out of the requisitioning of the plant and assets of Elettronica Sicula S.p.A (ELSI)[1], An Italian company established in Palermo, Italy; which was 100 percent owned by the two United States Corporations: Raytheon company [Raytheon] which held 99.16% of the shares and its subsidiary Machlett laboratories [Machlett] which held the remaining 0.84% of shares. The issue at the heart of the dispute was the bankruptcy of ELSI in March/April 1968[2] and its subsequent sale at a reduced price (due to requisition) than fair market value to the state owned Telecommunicazioni S.p.A (ELTEL).

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