Arbitral Tribunals Tend to Pay Lip Service to the Chorzów Factory Full Reparation Principle, Disregarding the Context and Full Implication of the Dictum - Journal of Damages in International Arbitration - Vol. 2, No. 2
It would not be an exaggeration to say that international investment arbitration practitioners and scholars have written volumes about the classic public international law case of Factory at Chorzów (1928) which originated the international law keystone principle of “full reparation.” According to this principle, the purpose of a remedy is to neutralize the effects of a breach so as to restore the status quo. Yet while Chorzów Factory represents for some an influential authority and has been repeated and reiterated as conventional wisdom, it nevertheless does not necessarily suggest concrete guidelines or “convene anything meaningful;” the case is widely cited but interpreted with widely varying results. It has not helped the understanding of Chorzów Factory that much of what arbitral tribunals have written in reliance on it can be as confusing as the original decision.
In Chorzów Factory, the Permanent Court of International Justice (PCIJ), the predecessor to the modern International Court of Justice (ICJ), provided the following exposition of the principle of full reparation:
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 the 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 international law.
Almost a century later, this dictum has become a trite mantra, quoted and cited ad nauseam by investment treaty arbitration tribunals far and wide.