International Conciliation Commission (Denmark/Lithuania)

Facts

By a contract dated 11 January 1930, the Danish company Højgaard and Schultz A/S contracted with the Government of Lithuania to carry out works related to the construction of the Telšia-Kretinga railroad line. Part of the payment was to be made in installments over a period of 8 years, while the construction was to be completed within 3 years. The other portion of the payment was to be made as stages of the work were completed. The first instalment payment fell due on 1 May 1930, and the last instalment payment was due of 1 February 1938. According to Article 29 of the contract, the payments calculated in Litas were to be paid in U.S. Dollars, one Dollar being the equivalent of 10 Litas at the time of the signing of the contract.

By a second contract dated 2 August 1930, the Government of Lithuania contracted with the same company for the construction of a dock in the port of Klaipéda. This contract provided for payment under terms similar to those in the contract of 11 January.

From the commencement of the works until their completion, all payments were made promptly either in U.S. Dollars or Litas at the option of the Danish company. In May 1933, the U.S. Dollar was devalued to the equivalent of approximately 6 Litas. The Government of Lithuania paid the instalment payments that came due in depreciated Dollars. The Danish company objected to this form of payment. As the two Parties were not able to reach a settlement regarding these payments, the Danish company approached its Government which, acting as the guarantor to the company and the holder of Lithuanian bonds, made a formal protest against the means of payment adopted by the Government of Lithuania.

On the basis of the Treaty on Conciliation and Arbitration of 11 December 1923 concluded between Denmark and Lithuania providing for the constitution of a Permanent Conciliation Commission in the case of a dispute, the matter was submitted for examination by a Conciliation Commission. According to Article 9 of this Treaty, it is the task of the Permanent Conciliation Commission to shed light on the questions in dispute and to collect for this purpose all relevant information by means of inquiries, or otherwise, and to endeavor to conciliate the Parties. After examining the matter, the Commission may communicate to the Parties the terms of the arrangement which it considers suitable and to set a time limit for their response.

At the request of the President of the Commission, the International Bureau put its offices and its organization at the disposal of the Powers in dispute.

Question Submitted to Conciliation

Does the responsibility for the losses suffered by Højgaard and Schultz due to the fall of the Dollar lie with the Government of Lithuania?

Report of the Conciliation Commission

The Commission decided that it was not its mission to get involved with the legal matters and to decide on the questions of law which had arisen in the course of the dispute, in order that, should conciliation fail, the recourse by the Parties to the judicial and arbitral instances provided for in the Danish-Lithuanian Conciliation and Arbitration Treaty would in no way be compromised. Its mission was only to provide the Parties with suggestions or proposals which could lead them to be willing to settle and to put an end to the dispute. The Commission could not enter into joint negotiations with the representatives of the two Parties, since the Agent for Lithuania was not authorized by his Government to enter into talks on any area except for legal matters. Consequently, the Commission set out the terms of a settlement to be submitted to the Governments in dispute.

Regarding the work carried out by the Danish company Højgaard, it should be indemnified for the loss that the fall in value of the Dollar would cause it. Regarding the contractor's profits, the Commission suggested that the sum of approximately 2,100,000 Litas should be divided equally, amounting to a reduction of 50% in the Danish claim. The payment of the balance still due to the Danish company, after the deduction of the abovementioned amount, should be paid promptly in Litas to the Government of Denmark.

The Government of Lithuania did not accept the terms of this arrangement, stating, inter alia, that it did not agree with the statement by the Commission that it should not get involved with the legal matters.

Case information