ICJ Rejects Extension of Diplomatic Protection for Limited Liability Corporations

Yesterday, the International Court of Justice issued a preliminary judgment analyzing some interesting issues about the ability of a state to exercise diplomatic protection on behalf of a hybrid partnership/corporation registered under the laws of another state.

The case surrounds Zaire’s (the predecessor state to the DRC’s) 1995 expulsion of Mr. Ahmadou Sadio Diallo, a Guinea citizen who had been the majority shareholder in certain companies that had been doing business in Zaire. Guinea is now seeking damages from the DRC on Mr. Diallo’s behalf.

The most (and perhaps only) interesting part of this prelimnary judgment is Guinea’s claim that it can exercise diplomatic protection not only for Mr. Diallo (their citizen), but also for two SPRLs (sociétés privées à responsabilité limitée), that were registered under Congolese law but which Mr. Diallo controlled as the majority “associé” or shareholder. SPRLs appear to be very similar to the U.S. limited liability corporation, a hybrid business form combining aspects of a partnership and a corporation.

In general, the ICJ has refused to allow a State to exercise diplomatic protection on behalf of a company unless that company is incorporated under the laws of that State (See its famous Barcelona Traction decision). Hence, Congo argued that Guinea cannot exercise diplomatic protection for Diallo’s companies since those companies were registered under Congolese law (and hence Congolese nationals). They can exercise diplomatic protection for Mr. Diallo, of course, and Mr. Diallo’s rights as a shareholder.

The ICJ reaffirmed that analysis here to some degree, rejecting Guinea’s attempt to carve out an exception to this rule in this case due to (1) the difference between SPRLs and typical business corporations, where the separation of ownership and control is not as sharp. Here is a key graf:

89. The Court, having carefully examined State practice and decisions of international courts and tribunals in respect of diplomatic protection of associés and shareholders, is of the opinion that these do not reveal at least at the present time an exception in customary international law allowing for protection by substitution, such as is relied on by Guinea.

90. The fact invoked by Guinea that various international agreements, such as agreements for the promotion and protection of foreign investments and the Washington Convention, have established special legal régimes governing investment protection, or that provisions in this regard are commonly included in contracts entered into directly between States and foreign investors, is not sufficient to show that there has been a change in the customary rules of diplomatic protection; it could equally show the contrary…

As the ICJ points out, the law of diplomatic protection with respect to corporations has become less important in a world of bilateral investment treaties and other investor protection regimes. But as a reaffirmation of the general treatment of corporations and quasi-corporations under customary international law, this judgment might prove interesting nonetheless.

As for the litigation, hopefully, the parties will settle this case. Certainly, there is no prospect of the ICJ reaching a final judgment anytime soon. (The case has already been trapped in the ICJ’s docket purgatory for 9 years. A final decision might be forthcoming before the 15 year mark, but I wouldn’t count on it.