FACTORY AT CHORZOW (GERMANY v.
POLAND)
13 Sept. 1928 1928 P.C.I.J. (ser. A) No. 17 TOPIC: Cases on General Principles of Law
SUMMARY: Germany sued Poland for the latter’s act of taking possession of the nitrate
factory in Chorzów, Upper Silesia (now part of Poland), and the consequent damages su
ered by the 2 German companies, the Oberschlesische and the Bayerische. The Court ruled
that compensation was indeed owing to these companies, but an expert enquiry was needed
in order to determine the extent of the award.
FACTS:
Mar. 1915 - The German Reich (“Germany”) entered into a contract with
Bayerische Sticksto werke A.-G. (“Bayerische”) for, among others, the construction
of a nitrate factory in Chorzów, Upper Silesia.
Dec. 1919 - Another company, Oberschlesische Sticksto werke A.-G.
(“Oberschlesische”), was formed. Oberschlesische would own the land and
improvements of the factory while Bayerische would continue handling the
management and operations. Oberschlesische was duly entered in the land register as
owner of the property constituting the nitrate factory.
July 1922 - The Polish Court of Huta Krolewska nulli ed the registration of
Oberschlesische as owner of the factory, and restored the right of ownership to the
name of the Polish Treasury.
o Court’s basis: Since the German Government owned all of the shares of the
Oberschlesische, what happened was merely a transformation of an ordinary State
enterprise into a State enterprise with a share capital, and this falls within the
category of “property and possessions belonging to the Empire” acquired by Poland
under Art. 256 of the Treaty of Versailles.
M. Ignacy Moscicki was delegated by the Polish government with full powers to
take charge of the factory. He took possession of the immovable and movable
property (licenses, patents, etc.) therein.
Oberschlesische and Bayerische brought separate actions to recover possession
of the factory before the German-Polish Mixed Arbitral Tribunal at Paris, but both
later withdrew. Obersclensische then brought an action for the recovery of the
movable property, but this led to no decision on the merits.
Germany initiated direct negotiations with Poland. Germany saw the
impracticability of restoring the factory, and opted to demand reparations. However,
negotiations were unsuccessful because, among others, Poland believed that some of
its claims against Germany should be considered in o setting the indemnity to be
awarded to the latter.
Germany submitted a suit to the Permanent Court of International Justice (PCIJ)
demanding reparation from the Polish Government, claiming that according to PCIJ
Judgment No. 7, Poland’s acts contradicted Art. 6 of the Geneva Convention. On
receipt of Germany’s complaint, Poland denied the PCIJ’s jurisdiction, and submitted
that the Court should declare that it had no jurisdiction. This was overruled.
GERMANY ARGUES: Poland should pay the two companies the compensation
due for the taking possession of the working capital of the factory from July 3, 1922,
to the date of judgment. However, this is not an ordinary action for damages but a
dispute between governments; the German Government has not brought this suit as
representative of the individuals who have su ered injury, but it may estimate the
damage for which it claims reparation on its own behalf, according to the measure
provided by the losses su ered by the companies whose case it has taken up. Finally,
Poland should not be allowed to demand a set- o of claims.
POLAND ARGUES: Germany is modifying the subject of the dispute; the German
claim assumed another aspect if it was no longer a question of compensating the
companies, but of compensating the State for the injury su ered by it. Poland admits
the existence of injury to Bayerische, but denies the existence of any injurty to
Oberschlesische (since its ownership was null and void) and consequently submits
that Germany's claim should be dismissed.
[Preliminary] W/N Germany altered the subject of the dispute by claiming on its
own behalf ⇒NO.
It is a principle of IL that the reparation of a wrong may consist in an indemnity
corresponding to the damage which the nationals of the injured State have su ered as
a result of the act which is contrary to IL. This is even the most usual form of
reparation; it is the form selected by Germany in this case and the admissibility of it
has not been disputed.
The rules of law governing the reparation are the rules of IL in force between the
two States concerned, not the law governing relations between the State and the
individual. However, rights or interests of an individual are always in a di erent plane
to rights belonging to a State. The damage su ered by an individual is never identical
in kind with that which will be su ered by a State; it can only a ord a convenient scale
for the calculation of the reparation due to the State.
IL does not prevent one State from granting to another the right to have recourse
to international arbitral tribunals in order to obtain the direct award to nationals of the
latter State of compensation for damage su ered by them as a result of infractions of
IL by the rst State.
Germany has been consistent in its submissions; the indemnities were always
payable to the German Government. The request to pay to the account of the 2
companies with the Deutsche Bank at Berlin relates only to the locus solutionis ("law
of the place where performance occurs").
Substantive Issues:
(1) W/N there exists an obligation to make reparation (and if yes, W/N Poland
committed a
breach)
(2) W/N there exists damage which must serve as a basis for the calculation of the
indemnity. (3) What is the extent of this damage?
W/N there exists an obligation to make reparation ⇒YES.
The Court observes that it is a principle of IL, and even a general conception
of law,
that any breach of an engagement involves an obligation to make reparation. In
Judgment No. 8, the Court has already said that reparation is the indispensable
complement of a failure to apply a convention, there is no necessity for this to be
stated in the convention itself. This obligation to make reparation has been
recognized as an element of positive IL.
On Poland’s breach of an international engagement: res judicata applies. The
nonconformity of Poland's attitude in respect of the two Companies with Art. 6 and
the following articles of the Geneva Convention is established by No. 2 of the
operative provisions of Judgment No. 7.
W/N there exists damage which must serve as a basis for the calculation of the
indemnity ⇒YES.
In Judgment No. 7, the PCIJ passed ruled upon the validity of the transactions
through which ownership passed to the Oberschlesische, and it found that they were
genuine and bona de. Also, Poland’s reliance on the provisions of the Treaty of
Versailles is not well-founded.
The essential principle contained in the actual notion of an illegal act – a
principle which seems to be established by international practice and in particular by
the decisions of arbitral tribunals – is that reparation must, as far as possible, wipe
out all the consequences of the illegal act and re-establish the situation which would,
in all probability, have existed if that act had not been committed. Restitution in
kind, or, if this is not possible, payment of a sum corresponding to the value which a
restitution in kind would bear; the award, if need be, of damages for loss sustained
which would not be covered by restitution in kind or payment in place of it – such are
the principles which should serve to determine the amount of compensation due
for an act contrary to IL.
What is the extent of the damage? ⇒ Data is insu cient.
The whole damage su ered by the one or the other Company as the result of
dispossession is determined by the value of the undertaking as such. The legal relationship
between the 2 Companies in no way concerns the international proceedings and cannot
hinder the Court
from adopting the system of a lump sum corresponding to the value of the undertaking, if,
as is the Court's opinion, such a calculation is simpler and gives greater guarantees that it
will arrive at a just appreciation of the amount, and avoid awarding double damages.
The Court considers that it cannot be satis ed with the data for assessment supplied by
the Parties (e.g. the cost of construction of a factory may not correspond to the value which
that factory will have when built). In order to obtain further enlightenment in the matter, the
Court, before giving any decision as to the compensation to be paid by the Polish
Government to the German Government, will arrange for the holding of an expert enquiry.
W/N Poland is entitled to a set-o of claims ⇒ The Court must abstain from passing
upon this.
Since there is no agreement between the Parties to submit this question to the
Court (only Germany raised this in its submission), it remains to be considered
whether the Court has jurisdiction to pass judgment on it. The Court considers that
this argument must be interpreted in the sense that the prohibition of set-o is asked
for in order to ensure that in the present case reparation shall be really e ective.
Although in the negotiations, Poland had put forward a claim to set o a part of
the indemnity against the claim which she put forward in regard to social insurances
in Upper Silesia. But the Court has already had occasion to state that it can take no
account of declarations, admissions or proposals which the Parties may have
made during direct negotiations between them.
