Public International Law/Actors in International Law/Corporations





Author: Sué González Hauck "Required knowledge: Link" "Learning objectives: Understanding XY."

A. Introduction
Corporations are entities endowed with legal personality separate from their owners. The ICJ has recognized the separate legal personality of corporations in the cases of Barcelona Traction and Ahmadou Sadio Diallo. Being endowed with separate legal personality allows the corporation to own assets, to enter into contracts and to acquire rights as well as be subject to obligations under its own name. Under international law, corporations enjoy a number of rights, most importantly the right to own property, freedom of establishment and movement, and access to markets. A whole branch of international law, namely international investment law, is devoted to securing the rights of corporations. In contrast, international law imposes only minimal obligations on corporations.

One of the key tenets of mainstream international law doctrine is that the State is the sole 'natural' subject of international law and that granting rights to or, especially, imposing obligations on other actors requires specific rules. In the case of corporations, this means that the commonly held position is that corporations can only be held accountable under national jurisdictions, notably the jurisdiction of their incorporation and of their center of administration (siège social). A corollary of this mainstream doctrinal approach is that international legal accountability for corporations requires special rules. A glance at the history of modern international law at its inception, i.e. starting from the 17th century, shows that this narrative of the State as the only 'natural' subject of international law is, at best, incomplete.

B. History of International Law and the Corporation
The emergence of international law as a body of law covering global encounters is inextricably linked to chartered companies, which are precursors of the modern corporations. This section provides an overview of the central role of chartered companies in the colonial encounter and their resulting prominent place as creators and original subjects of international law. Subsequently, it sketched the development from chartered companies to corporations and to the multinational or transnational corporations, which have been particularly influential in the new 'globalization' spurred by formal decolonisation in the 1960s and 1970s and by the end of the Cold War in the 1990s.

I. Chartered Companies as Creators and Subjects of International Law
At the beginning of the 17th century, two particularly influential colonial empires, the Dutch and the British, founded the Dutch East India Company (Vereenigde Oost-Indische Compagnie, VOC) and the British East India Company, respectively. Both companies exhibited features that became typical characteristics of modern corporations: They were endowed with permanent capital and legal personhood, and tradable shares, and its governance structures allowed for separation between ownership and management and for limited liability for shareholders and for directors.

Hugo Grotius wrote a set of memoranda for the VOC in 1608 and 1609, which would later be published under the title of De jure praedae, and which exerted a decisive influence on the development of international law, not only regarding international trade law and the international law of the sea but also the very cornerstones of the international legal order, including the notions of sovereignty and subjects of international law. The assignment that the VOC directors gave to Grotius was to justify the violent seizure of the Portuguese vessel Santa Catarina, which was sailing off the coast of Sumatra in February 1603. The Amsterdam Admiralty Board decided to seize the vessel before Grotius could finish his writing assignment.

Transposing theories of individual property as a means of self-subsistence, Grotius argued that the principle of self-preservation entailed a right of a State, which, like the Dutch Republic, relied on trade for its own subsistence, to intervene against anyone who would injure the right to trade and use of the commons, including the High Seas. To justify the seizure of the vessel Santa Catarina and the subsequent practice of the VOC and the Dutch West Indian Company seizing numerous vessels, it was not enough to claim the right of a State to use violence to assure its self-subsistence through trade. Grotius also had to divorce the right to engage in just war from the exclusive link to the sovereign or the Crown, which had been at the centre of previously influential just war theories put forward by Augustine, Aquinas, and Vitoria. Grotius' attempt at legitimating the right of an ostensibly private entity like the VOC to wage just war invests this private entity with public sovereign powers. This argumentative move comes with significant consequences regarding the notions of sovereignty and international legal subjectivity. The structure of international law that Grotius puts forward, therefore, is not the structure international legal scholars and practitioners have come to identify as the 'Westphalian' structure, in which the State occupies a central place and is the exclusive holder of sovereignty. Rather, the structure of international law put forward by Grotius is one in which the corporation is a central actor, subject, and sovereign.

Chartered companies exercised public, sovereign powers. They entered into treaties with local authorities and established titles over territory. The contracts that the VOC, for example, concluded with Asian rulers granted the VOC trade privileges protected the territory gains against third parties. The argument put forward to justify the transformation of the common mare liberum into an exclusive domain of the VOC was that mare liberum did not extend to the sphere within which rights had been contractually agreed upon in a legal relationship between equals. In reality, the contractual relationships between the VOC and Asian authorities were far from equal and consensual in any meaningful sense, given that the VOC exerted significant pressure and often outright forced local authorities to renew contracts against their will. Incrementally, the VOC used the contracts to claim trade monopolies and the right to punish violations of these claimed monopoly rights, including by conquest. These claims and the resulting forcible actions resulted in ultimately hollowing out the sovereign rights of local authorities and turning the VOC into a de facto State.

II. From Chartered Companies to Private Corporations
In the second half of the nineteenth century, starting with the British New Company Law of 1844, many States, including France, the United States, Germany, and Japan established laws which allowed for the free incorporation of private companies. This turn from chartered companies to private corporations entailed a shift in how business enterprises were perceived: from vehicles of State power to entities operating separately and distinctly from the State. However, the development from chartered companies to corporations as freely incorporated private entities was not linear. The last two decades of the nineteenth century saw a 'revival' of the chartered company. British chartered companies that were newly founded in this period include the North Borneo Company (1881), The Imperial British Est Africa Company (1888-1896), and the British South Africa Company (1889-1923).

C. The Corporation and the Public-Private Divide
Studying the place of corporations in international law necessarily involves engaging with the familiar distinction between public and private law. The 'publicness' of international law stems from the fact that it is mainly concerned with sovereignty and with legal relations between sovereign States. Business corporations, on the other hand, are supposed to be private actors governed by private law.

Corporations create international regulation, they shape the content of existing legal rules, and they exert decisive influence on the efficacy or enforcement of legal regimes. They do so not only by leveraging their economic power to pressure governments, but also in ways that can be seen as expressions of autonomous regulatory force or governance. Corporate actors create transnational rules and regulation through business practices, contractual arrangements, or private dispute resolution mechanisms. They can shape the content of existing legal rules by interpretation, especially in contexts in which no official judicial or other public interpretatory pronouncement exists - as it is often the case in international law. Additionally, corporate acquiescence plays a significant role in determining the efficacy of legal rules, given that both international and domestic rules are only enforced by public bodies like the police in exceptional cases and rule compliance is overwhelmingly determined on a voluntary basis. Through all of these forms of corporate regulatory authority, corporations produce social welfare effects in a way that is almost indistinguishable from public, governmental, rule-making and enforcement.

The public-private divide is blurred further by the present-day prevalence of public-private partnerships (PPPs). PPPs are joint ventures between public State authorities and private, often foreign, investors. They shift functions like the provision of utility services to private entities.

I. Rights Derived from the Corporations' Nationality
The links between a corporation and a State through the act of incorporation or through the center of administration lead to the attribution of corporate nationality. As nationals of Contracting States Parties, corporations have the rights granted to the nationals of the parties under Treaties of Friendship, Commerce Navigation or under Bilateral Investment Treaties (BITs).

The traditional way of enforcing corporations' rights on the international plane is through diplomatic protection. Establishing the link of nationality between the corporation and the State willing to exercise diplomatic protection on its behalf can be difficult, especially in the case of transnational corporations, which operate and have shareholders and subsidiaries across a variety of countries. The two leading cases regarding the exercise of diplomatic protection in favour of corporations are the ""Barcelona Traction Case"", and the ""Diallo Case"".

1. Barcelona Traction Case
The Barcelona Traction, Light and Power Company, Limited ('Barcelona Traction') had its head office in Toronto, Canada, where it was also incorporated in 1911. It held a number of subsidiaries, some some incorporated and with registered head offices in Canada, others with head offices in Spain and incorporated under Spanish law. A large percentage of the shares were held by Belgian nationals.

Barcelona Traction had issued a number of bonds, some in the Spanish currency pesetas but most in pound sterling. The bonds were supposed to be serviced through the Spanish subsidiaries. In 1936, at the start of the Spanish Civil War, Barcelona Traction suspended the payment of interest on the bonds. After the Civil War, payment of interest resumed on the pesetas bonds but not on the sterling bonds. In 1948, a Spanish court declared the company bankrupt due to its failure to pay interests on the bonds. Barcelona Traction and other interested parties unsuccessfully instituted proceedings before Spanish courts to challenge the bankruptcy judgment and the ensuing decisions made by the commissioner in bankruptcy. The British, Canadian, US, and Belgian governments made representations to the Spanish government, intervening on behalf of their nationals who had interests in Barcelona Traction and, in the case of Canada, on behalf of Barcelona Traction itself. Belgium was the only State that did not discontinue its actions of diplomatic protection. After Spain had rejected a Belgian proposal to submit to arbitration in 1951, and after Spain was admitted to the United Nations in 1955, Belgium filed an application instituting proceedings before the ICJ in 1958.

The ICJ held the Belgian claims on behalf of the Belgian shareholders to be inadmissible. First, the ICJ rejected Belgium's arguments based on analogies to domestic company law, according to which the rights of shareholders could be subsumed under the company's rights where the latter had been infringed upon. The Court held that Stats could only bring forward claims in the name of shareholders holding their nationality if the corporation had seized to exist or if the company's State lacked the capacity to take action on its behalf. Barcelona Traction, however, was still deemed by the Court to be in existence so that only Canada as the State of incorporation could enforce Barcelona Traction's claims.

The Court considered the possibility of 'lifting the corporate veil', i.e. the possibility of the law bypassing or disregarding the corporation as a legal entity and directly addressing the people behind it. The ICJ stated that 'the law has recognized that the independent existence of the legal entity cannot be treated as an absolute'. The ICJ remarked that, in municipal law, this 'lifting of the veil' occurred more frequently as a way of people dealing with the corporation to bring their claims directly against the shareholders, e.g., in cases of fraud or malfaesance. In principle, lifting the corporate veil must also be possible unter international law, albeit under exceptional circumstances.

Second, the ICJ confirmed that corporations are allocated to States by virtue of where they are incorporated and where they have their registered office. It refused to apply a genuine link test to determine the corporation's nationality, similar to the standard it had set for individuals with multiple nationalities in the Nottebohm case.

Three main points regarding the legal status of companies under international law can be derived from the Barcelona Traction judgment: First, the ICJ recognized corporations as a legal entity whose status is determined by domestic law and reaffirmed the rights of States to exercise diplomatic protection on behalf of corporations. Second, the 'corporate veil' can only be lifted in exceptional circumstances. Third, corporations are treated as nationals of the State in which they are incorporated and where they have their registered office.

Further Readings

 * Source I
 * Dan Danielsen, 'Corporate power and global order' in: Anne Orford (ed.), International Law and its Others (Cambridge University Press 2006) 85-99.

Conclusion

 * Summary I
 * Summary II