By Kartik Tripathi and Sohini Bag
The Germany v. Poland case was distinct, one of the first of its type, and can be referred to as a "landmark case." This issue was closely related to the breach of the 'The Chorzow Factory' Agreement between the German and Polish republics. Between Poland and Germany, there occurred a violation of a treaty. Dated July 26th, 1927, is the case. The Permanent Court of International Justice is the venue for jurisdiction. 'Claim for Indemnity' is the case's topic. "Whether or not Poland is liable for a breach of the international agreement?" was the primary point of debate. Upper Silesia's contentious ownership status was the central point of concern. Between 1914 and 1918, there was the First World War. A new world order and the emergence of new "European" superpowers followed it. After the First World War, a two-part agreement between Germany and Poland was made to settle the Upper Silesia dispute. An acceptable arrangement was reached between the two nations, according to which Poland would take full sovereignty of Upper Silesia from Germany. The only need was that no German property would be forfeited to the Poles. This direct breach also gave rise to the question of restitution. The Polish were expected to pay back the Germans. The Polish did forfeit two local German companies despite including this condition in the contract. Due to this case, novel international law principles came into existence. Unlike now, where there are meticulously defined laws, during the Chorzow case adjudication, the existing law's interpretation influenced the judges' decisions.
Key Words: Chorzow Factory, Geneva Convention, Indemnity, Treaty of Versailles
The case of Germany vs Poland was unique and one of the very first cases of its kind and can be termed a 'landmark case'. This case was in close relation to the infringement of the 'The Chorzow Factory' Agreement between the republics of Poland and Germany. There was a breach of an international agreement between Poland and Germany. The case is dated July 26th, 1927. The forum for jurisdiction is the Permanent Court of International Justice. The subject matter of the case is 'Claim for Indemnity'. The main issue of contention was "Whether or not Poland is liable for a breach of the international agreement?" The main area of contention was the controversial area of Upper Silesia and its ownership status. The First World War was between 1914- 1918. After that, a new world order and the rise of new 'European' superpowers were formed. Germany and Poland had a two-part agreement after the First World War to resolve the area of contention of Upper Silesia. An amicable agreement was signed between the two countries in which Germany would transfer the control (in entirety) of Upper Silesia to Poland. The one necessary condition was that the Polish would forfeit no German property. The issue of reparation also arose due to this direct breach. The Germans demanded compensation from the Polish. Despite the insertion of this clause in the contract, the Polish did forfeit two German Companies in the area.
The Polish sold two factories owned by the Germans. This was a direct violation of the contract between the two sovereigns. A contract was signed between the Chancellor of the German Empire, on behalf of the Reich, and the Bayerische Stickstoffwerke A.-G. of Trostberg, Upper Bavaria. The contract was signed for the construction of a nitrate factory. The location for the same was Chorzow, Upper Silesia. The company signing the contract stated that they would establish the German Chancellor's factory and that they had the suitable and required equipment to begin construction. The company had other plans too. This was done on March 5th, 1915. The required area of land to be attained would be in the name of the Reich.
The same was to be entered in the land register. The next contention was about the equipment to be used, patents to be used, licences to be used, etc. Till March 31st, 1941, the factory was managed by the company. It used all its patents, licences, experience gained, innovations and improvements. Along with this, any and every contract with supply, as well as delivery of goods which led to profit for the company, was dealt with by the company.
Further, the creation of another company took place, and like the original company, this was also under the management of the Reich. This company could access and use the extra profit from every financial year. The Reich was an influential figure and had the authority to terminate the contract for the running of the factory by Bayerische. For the Reich to do this, a fifteen-month notice had to be issued. The notice could be issued when the surplus belonging to the Reich did not reach a certain level. The level was precisely fixed. Many legalities had to be looked upon by the involved parties. These took place in Berlin, intending to form a new company. After the involvement of many complexities, a new company was formed and named the Oberschlesische Stickstoffwerke A.- G. The contracts were signed, which took place on December 24th, 1919.
Some of the components of the sale included but were not restricted to land (whole), infrastructure like buildings and installations, raw materials, etc. It was decided that the Bayerische Stickstoffwerke Company was responsible for managing and overlooking all matters. The company used its licences, contracts, etc. The mode of communication between the two establishments was letters, which were communicated via letters dated December 24th and 28th, 1919. An exchange of letters took place. There was a change in ownership, and the Reich was no longer the owner. The novel company, Oberschlesische Stickstoffwerke Company, became the owner of the nitrate factory at Chorzow. Amtsgericht of Konigshütte was the place, and the date was January 29th, 1920. The novel company's name was in the Chorzow register. All the processes were completed. There was a dramatic change in circumstances. The registration of the novel company was put under the limelight. There were questions raised upon the registration of the company.
Whether the registration was null or void had to be cancelled rose. Instead of transferring property rights to the newly established company, they should be given to the Polish Treasury. This occurred on July 1st, 1922. Article 256 of the Treaty of Versailles was cited along with the Polish law, and a decision was taken and put into effect the same day. The two decrees were dated July 14th, 1920 and June 16th, 1922. The subsequent significant development in the case was the Polish takeover of the factory. They followed the decree and officially took over the running of the factory. This happened on July 3rd, 1922.
The German company, Oberschlesische Stickstoffwerke, demanded the following before the Germano-Polis Arbitral Tribunal: The claim of undertaking the control of the working of the factory as well as the possession of the movable property, patents, licences, etc. and the Polish Government is ordered to restore the factory and make any other reparation that the Court deems fit to fix and pay costs of the action. In reply, the Polish Government asked the Court to declare that it had no jurisdiction to try the case.
There were a plethora of laws which were required in adjudication of the case. Some of them were Articles 2 and 5 of the Polish Law of 14th July 1920 and Articles 92 and 297 of the Peace Treaty of Versailles.Articles 6 to 22 of the German-Polish Convention concluded at Geneva on 15th May, 1992 were also referred to. In this particular case, the Permanent Court of International Justice established the principle of international law, and even a greater conception of law, that any breach of an engagement involves an obligation to make reparation. The remedying of a breach of an international obligation for which the state concerned is responsible was laid in this case.
A state is interpreted as an individual entity, specifically during international disputes. Hence, in this case, the violation of the Geneva Convention, the principle of state responsibility must be applied. Poland violated Article 7 of the Geneva Convention and illegally expropriated two German factories. In this case, the Court further interpreted that the expropriating state must, in addition to paying the compensation due in respect of a lawful expropriation, pay damages for any loss sustained by the injured party. It is a general principle of international law that every violation of an engagement involves an obligation to make reparation adopted from municipal law.
Herein, we derive a point of view of Indian Law. Sec 73 of the Indian Contract Act states the damages that must be provided for a breach of a contract. In this case, we would like to further the argument in the context of the Contract of Indemnity as stated in Chapter VIII of the Act. Postulating that a contract of indemnity had existed between the two high contracting parties, the matter would not have been of such complexity and not bought in suo moto by the Court. The terms and conditions of the Contract of Indemnity would lay down the preceded circumstances and the parties' obligation in case of any damage. In this case, the question of who would indemnify was brought up, which the Court held, in a different plane" to private law, with the claimant State being the one entitled to claim damages. Article 23 of the Geneva Convention affected Germany's entitlement to claim damages in this case.
So, the state (Poland) was made liable to indemnify Germany. Section 125 states the right of the Indemnity holder when sued. If, per se, a contract of indemnity existed per the Indian Laws, Poland and Germany would be entitled to a particular set of rights. It would have been implied under the same that Poland would indemnify Germany without the intervention of PCIJ besides on the matter of jurisdiction.
The principle of good faith is a widely accepted principle not only in International Commercial Arbitration but also in contract law. According to this imperative principle, parties that enter into a contract have to oblige with the terms and conditions of the contract. If either of the parties that have entered into a contract tries to go against the terms and conditions of the contract then that party goes contrary to the principle of good faith.
The Court laid the following important principles in the case: A state shall be held responsible for the expropriation of alien property, under International Law, a nation shall be held responsible for acts of Government organs or officers and the General Principle of International Law which states 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". Which put in simple words explains that reparation should consist of a restitution in kind, which if deemed to be impossible, shall proceed to the payment of a sum that corresponds to the value as compensation.
It is crucial to point out here the need for indemnity clauses as it provides for managing risks of losses associated with a contract, especially in cross-boundary commercial transactions. It also allows flexibility in terms of the obligations of an indemnifier in terms of duty to mitigate, limitation of remedy clause and treatment of third-party claims. Hence, it cannot be ruled out that if a contract of indemnity existed between the two parties, Poland would not have to submit to such extreme compensation, or Germany may have received further compensation as the mechanics of it would already have been laid out in the contract itself.
The authors of this article are Kartik Tripathi and Sohini Bag, third-year law students at Christ (Deemed to be University), Banglore.
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