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Article Excerpt
CONTENTS
I Introduction II Facts III Decision on Preliminary Objections A Diallo's Expulsion from Congolese Territory B Diallo's Rights as an Associe C Claims on behalf of Africom-Zaire and Africontainers-Zaire IV Comment A Consideration of the Draft Articles B Burden of Proving Exhaustion of Local Remedies C The Source of Shareholder Rights D Substituting the State of Nationality of the Company for the State of Nationality of Shareholders V Conclusion
I INTRODUCTION
On 24 May 2007, the International Court of Justice handed down its decision on the preliminary objections raised in Ahmadou Sadio Diallo (Republic of Guinea v Democratic Republic of the Congo). (1) The case concerned a claim of diplomatic protection by the Republic of Guinea ('Guinea'), which alleged that the Democratic Republic of the Congo ('DRC') had violated the rights of Guinea's national, Mr Diallo, by expelling him from the DRC and confiscating property from Congolese companies that Diallo owned and controlled. As Higgins has noted, it was 'a classical case, perhaps, in the Western context, but somewhat unusual as an intra-African case'. (2)
The diplomatic protection of shareholders and corporations has been a controversial issue in international law since the Court's seminal decision in Barcelona Traction.(3) In that case, the Court held by majority that the state of a shareholder who has invested in a foreign company could not, in the circumstances of that case, diplomatically protect the company's shareholders. (4) This was because, if the company possessed its own separate legal personality,
although two separate entities may have suffered from the same wrong, it is only one entity whose rights have been infringed ... an act directed against and infringing only the company's rights does not involve responsibility towards the shareholders, even if their interests are affected. (5)
This decision severely restricted the diplomatic remedies available to the states of shareholders in foreign companies operating in foreign jurisdictions. Kubiatowski has stated that
the judgment of Barcelona Traction remains a nearly insurmountable barrier to foreign shareholders hoping to protect their investment based on general principles of international law. Since the Barcelona Traction Court concluded that shareholders' interests constitute indirect interests which do not warrant international legal protection, a claimant state cannot espouse the claim of its nationals who have invested in foreign corporations absent treaties or agreements specifying otherwise. (6)
Whilst this statement captures the popular perception of the decision in Barcelona Traction, it is not completely accurate. The Court identified three limited exceptions to the general rule. (7) First, the Court recognised that shareholders' state of nationality may be able to diplomatically protect those shareholders where the corporation has the same nationality as the state responsible for causing injury to the corporation. (8) Second, the Court recognised that an exception existed where the corporation had ceased to exist in its place of incorporation. (9) Third, the Court held that shareholders' state of nationality could take action where the shareholders' direct rights in the corporation, such as the right to receive a dividend or attend general meetings, had been infringed. (10)
The precise scope of these exceptions has, however, remained uncertain. Many commentators have suggested that the decision of a Chamber of the Court in ELSI, (11) whilst distinguishable, signalled a more favourable approach to the protection of foreign investors' interests. (12) The absence of any further specific guidance from the Court, coupled with the proliferation of bilateral investment treaties allowing investors to bring claims directly against states, has led to claims that the decision of the Court in Barcelona Traction no longer reflects customary international law. (13) For example, in CMS Gas (Jurisdiction), (14) a tribunal convened under the auspices of the International Centre for the Settlement of Investment Disputes ('ICSID') stated:
the fact is that lex specialis in this respect is so prevalent that it can now be considered the general rule, certainly in respect of foreign investments and increasingly in respect of other matters. To the extent that customary international law or generally the traditional law of international claims might have followed a different approach--a proposition that is open to debate--then that approach can be considered the exception. (15)
In Diallo, the DRC raised two preliminary objections. The first was that Guinea lacked standing to diplomatically protect Diallo's property because that property had been owned by companies not possessing Guinean nationality. (16) The second was that neither Diallo's companies nor Diallo himself had exhausted the local remedies available in the DRC. (17) These preliminary objections provided the Court with the opportunity to revisit the principles it had established in Barcelona Traction and to consider, for the first time, the Draft Articles on Diplomatic Protection adopted in 2006 by the International Law Commission ('ILC'). (18) Before examining how the Court dealt with these issues, it is necessary to briefly summarise the events that set Guinea and the DRC on the road to the Hague.
II FACTS
Mr Ahmadou Sadio Diallo settled in the DRC in 1964 when it was still known as the Congo. (19) The Congo was renamed 'Zaire' in 1971. (20) In 1974, Diallo founded an import-export company, Africom-Zaire, as a societe privee a responsibilite limitee, or a private limited liability company ('SPRL'), under Zairean law and became its gerant, or manager. (21) in 1979, Diallo expanded his activities and with two private partners founded a second SPRL named Africontainers-Zaire. (22) In 1980, the two partners withdrew and Diallo became the sole manager of the new company. (23) Toward the end of the 1980s, the relationships between Diallo and his business partners deteriorated and Diallo initiated a number of court actions seeking to recover alleged debts from these partners, which included Zaire Fina, Zaire Shell and Zaire Mobil Oil, and to recover debts from certain instruments of the Zairean state. (24) The Prime Minister of Zaire issued a formal expulsion order against Diallo in October 1995. (25) Diallo was deported from Zaire and returned to Guinea in January 1996, (26) some 18 months before the fall of the government of Mobutu Sese Seko and the subsequent renaming of Zaire as the DRC. (27)
Guinea alleged that Diallo's deportation was the final step in the implementation of a concerted DRC policy to prevent him from recovering various debts owed to his companies by the state. (28) Guinea claimed that, among other things, Diallo had been subject to arbitrary detention and improper interference by the DRC government with Diallo's actions in the DRC courts, including the implementation by the DRC's Minister of Justice of a direct stay on court orders obtained by Diallo. (29) The DRC contended that it had acted appropriately at all times and that Diallo's deportation was justified in the Zairean public interest. (30)
III DECISION ON PRELIMINARY OBJECTIONS
A Diallo's Expulsion from Congolese Territory
The first issue for the Court to consider was the objection made by the DRC that Diallo had not exhausted the available local remedies in relation to his expulsion from Congolese territory. (31) The Court began by noting that neither party disputed that the rule regarding the exhaustion of local remedies was as stated in Interhandel. (32) That rule is:
Before resort may be had to an international court in such a situation, it has been considered necessary 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 legal system. (33)
The Court then considered the onus of proof and observed that both parties had obligations in this regard. Referring to its previous decision in ELSI, (34) the Court stated:
Guinea must establish that Mr Diallo exhausted any available local remedies or, if not, must show that exceptional circumstances justified the fact that he did not do so; it is, on the other hand, for the DRC to prove that there were available and effective remedies in its domestic legal system against the decision to remove Mr Diallo from the territory and that he did not exhaust them. (35)
The main point of dispute between the parties was whether the action taken against Diallo by the DRC was an expulsion or a refusal of entry decision. The importance of this distinction was that Congolese law explicitly declared refusal of entry decisions, but not expulsions, to be unappealable. (36) The DRC argued that, being an expulsion, the decision was subject to the general principle of Congolese law that the subject of a decision could always ask for that decision to be reconsidered by the original decision-maker or by the superior of the original decision-maker. (37) The Court rejected this argument and held that:
the DRC cannot now rely on an error allegedly made by its administrative agencies at the time Mr Diallo was 'refused entry' to claim that he should have treated the measure as an expulsion. Mr Diallo ... was justified in relying on the consequences of the legal characterization thus given by the Zairean authorities. (38)
The Court went on to point out that, even if it were an expulsion decision, the ability to plead for a reconsideration of such a decision by the decision-maker was not sufficient because
while the local remedies that must be exhausted include all remedies of a legal nature, judicial redress as well as redress before administrative bodies, administrative remedies can only be taken into consideration for purposes of the local remedies rule if they are aimed at vindicating a right and...
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