Originally from Journal of Damages in International Arbitration

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The stated goal of reparation for violation of international law—including, where appropriate, compensation—is to “wipe out all the consequences of the illegal act.”1 This is often known as the “Chorzów Factory” standard—and with good reason, for it is a direct quotation from the 1928 “Merits” decision in the Permanent Court of International Justice (“PCIJ”) case of the same name.2 An intriguing aspect of the case, however, is that the PCIJ in Chorzów Factory did not ultimately award damages to the claimant, for the dispute was settled before the court-appointed committee of experts produced their report on the factory’s value. And, although the case was a true “investor” claim, in that it involved expropriation of privately-held ownership and licensing rights in a factory, it took many decades for its full significance to become apparent to investment arbitration practitioners. The Chorzów Factory dispute between Germany and Poland must be understood in the overall context of German-Polish relations in the preceding decade, in particular the tumultuous final two years of World War I, as well as the two Peace treaties—the July 1919 Treaty of Versailles, and its little known (but, at the time, infamous) predecessor on the Eastern Front, the March 1918 Peace of Brest-Litovsk.