T H E FA C T O R Y AT C H O R Z O W ( G E R M A N Y v.

P O L A N D )
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 latters act of taking possession of the nitrate factory in
Chorzw, Upper Silesia (now part of Poland), and the consequent damages suffered 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
Stickstoffwerke A.-G. (Bayerische) for, among others, the construction of a nitrate factory
in Chorzw, Upper Silesia.
Dec. 1919 - Another company, Oberschlesische Stickstoffwerke 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 nullified the registration of Oberschlesische as
owner of the factory, and restored the right of ownership to the name of the Polish Treasury.
o Courts 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 offsetting 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,
Polands acts contradicted Art. 6 of the Geneva Convention. On receipt of Germanys
complaint, Poland denied the PCIJs 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 suffered injury, but it may estimate the damage for which it claims
reparation on its own behalf, according to the measure provided by the losses suffered by the
companies whose case it has taken up. Finally, Poland should not be allowed to demand a setoff 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 suffered 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.
VILLARAMA, BIANCA DANICA S.
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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 suffered 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 different plane to rights belonging to a
State. The damage suffered by an individual is never identical in kind with that which will be
suffered by a State; it can only afford 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 suffered by them as a result of infractions of IL by the
first 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 Polands 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
fide. Also, Polands 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 insufficient.
The whole damage suffered 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
VILLARAMA, BIANCA DANICA S.
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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 satisfied 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-off 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-off is asked for in order to ensure that in
the present case reparation shall be really effective.
Although in the negotiations, Poland had put forward a claim to set off 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.

VILLARAMA, BIANCA DANICA S.

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