The decision, handed down in the UN's highest court, came after Germany requested that Italy be ordered to stop its courts from admitting compensation claims for Nazi atrocities.
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Germany appealed to the ICJ in 2008, after Italy's supreme court ruled that Luigi Ferrini, a former slave laborer, was entitled to reparations for his deportation to Germany in 1944.
Reading aloud the verdict, judge Hisashi Owada said the Italian supreme court had violated Germany's sovereignty in the Ferrini case, the BBC reported.
Germany has paid tens of billions of dollars in reparations since the 1950s, and the IJC ruling holds that Italy was wrong to allow its courts to make such compensation claims.
This comes after Berlin last year argued there would be “severe consequences” if these type of claims continued to be heard in Italian courts.
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German lawyers said that by permitting claims for WWII abuses, Italy "failed to respect the jurisdictional immunity" that modern-day Germany enjoys under international law, Agence France Presse reported.
But Italy had argued that the claims were admissible, the BBC reported, because the Nazi atrocities amounted to "international crimes," which took precedence over a country's immunity.