## Facts

- Elettronica Sicula S.p.A. (ELSI) was an Italian corporation wholly owned by two U.S. companies, Raytheon Company and The Machlett Laboratories Inc.
- ELSI experienced prolonged financial distress; Raytheon decided to close and liquidate the company.
- Before liquidation, the Mayor of Palermo ordered a six-month requisition of ELSI’s plant and related assets, citing local employment concerns.
- The plant also faced employee occupation and was later subject to bankruptcy proceedings; at the end, no funds remained to pay the U.S. shareholders as equity holders.
- The United States brought an inter-state claim against Italy under a 1948 Treaty of Friendship, Commerce and Navigation and a 1951 supplemental agreement, alleging that Italy’s requisition and related conduct prevented liquidation, impaired management/control rights, and caused uncompensated loss.
- Italy objected that the claim was inadmissible for failure to exhaust local remedies; the parties agreed the objection would be resolved with the merits.

## Issues

1. Whether the United States’ claim was inadmissible because the U.S. shareholders failed to exhaust reasonably available local remedies in Italy.
2. Whether the treaty framework permitted the United States to espouse claims for injury to U.S. nationals as shareholders in an Italian corporation.
3. Whether Italy’s measures violated treaty protections, including rights to manage and control the investment, protection against uncompensated taking, protection against arbitrary or discriminatory measures, and due process of law.
4. Whether the alleged treaty breaches caused the shareholders’ claimed losses.

## Decision

- The Chamber unanimously rejected Italy’s objection and held local remedies were sufficiently exhausted for admissibility.
- The Chamber (4–1) held Italy did not breach the FCN Treaty or the supplemental agreement.
- The Chamber denied all requested reparation and awarded no compensation to the United States.

## Legal Principles

- Exhaustion of local remedies is assessed functionally; a claimant need not pursue remedies that do not offer a reasonable prospect of meaningful redress in the circumstances.
- An FCN treaty may permit an espousing state to present claims for injury to its nationals’ shareholder rights in a locally incorporated company, depending on the treaty’s protected interests (e.g., management and control).
- “Arbitrary” treatment under treaty standards requires more than error, delay, or negligence; it connotes conduct that is manifestly unjust or unreasonable and evidences a serious disregard for legal propriety.
- A delay in domestic proceedings is not, by itself, a treaty breach absent a showing that it rises to a denial of due process under the applicable standard.
- Treaty responsibility requires a sufficient causal link between the challenged state conduct and the specific loss claimed; losses primarily attributable to the enterprise’s insolvency and commercial conditions do not establish state liability.

## Conclusion

The ICJ Chamber held the United States’ claim was admissible but failed on the merits because Italy’s requisition and related conduct did not violate treaty protections for management/control, property, non-arbitrary treatment, or due process, and the claimed shareholder losses were not shown to have been caused by any treaty breach rather than ELSI’s underlying insolvency.


Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 I.C.J. 15 (I.C.J. 1989)