Facts:
In 1913, there was a concession agreement signed between French firm, Collas & Michel and the Ottoman Government. (A concession agreement is a contract that gives a company the right to operate a specific business within a government's jurisdiction or on another firm's property, subject to particular terms.) The contract between the French firm and the Ottoman Empire has existed since 1860, it was subject to renewal after a certain interval of time, and the 1913 concession agreement was the latest agreement related to renewal of the concession agreement and is the main cause of concern for this case.

The purpose of the concession agreement was for the maintenance of the lighthouses at the coast of the Ottoman Empire. The major task of the firm was to look at the development and management of the lighthouses situated on the coast of the Ottoman Empire. The total number of judges, sitting in the instant case is 13, and the ratio was given in the proportion of 10:3.

The judgment was delivered by the Permanent Court of International Justice (PCIJ). This particular case includes two different judgments by the same Court, which includes two different issues. After the 1934 judgment, which validated the 1913 agreement between the French firm and the Ottoman Empire, a difference of opinion arose between the Governments of France and Greece regarding the administration of the islands of Crete and Samos. A special agreement was signed in Paris on July 15th, 1931 between the government of France and Greece.

(In this special agreement, it was agreed between France and Greece that if any dispute arises, they will approach the Permanent Court of International Justice (PCIJ). Here, Crete and Samos are the cause of concern because these are large islands that generate huge revenue and they are part of autonomous territory. After these two particular judgments by the Permanent Court of International Justice (PCIJ) in years 1934 and 1937 respectively, the dispute was finally resolved in the year 1956 by the arbitration tribunal in which the Principle of Reparation and State Succession were discussed with the resolution of the case.

Issues:

• Whether the contract between the private French firm and Ottoman Empire was duly entered or not? If yes, then whether the concerned lighthouses are operative in the territory of Greece? (1934 judgment)
• Whether the islands of Crete and Samos come under the administration and control of France or Greece? (1937 judgment)
• Whether the arbitration tribunal in fact held the successor state (Greece) is responsible for the obligations arising from the commission of internationally wrongful acts, which took place before the date of succession, or only for its own acts committed after that date? (1956 judgment)

Issue 1:
Based on the contention of the parties, the Court has dealt with and answered three questions of substance:

• Firstly: The object of the contract was to renew the old concession; and it may be presumed that the scope of the contract remained identical with that of the old concession, which indisputably covered the whole of the Ottoman lighthouses. Furthermore, it was in the interest of both contracting Parties not to reduce the previous scope of the concession.
  • They had already begun negotiations before the Balkan war.
  • If the intention had been to restrict the scope of the contract as compared with the concession in force, the fact would, no doubt, have been expressly stated.
     
• Secondly: The Court, for its part, confines itself to considering whether the Turkish decree law was valid; for only if it were not valid would it become necessary to ascertain whether it was indispensable according to Turkish legislation in the matter of concessions.
  • The Court holds that the decree-law fulfilled the formal conditions laid down by the Constitution.
  • With regard to ratification, the Court considers that only a refusal to ratify would be relevant and that, if Parliament did not intervene, the decree law remained in force in the same way as any other ordinary law.
  • The decree-law of 1913, and the contract authorized by it were therefore, the Court holds, valid in Turkish law.
     
• Thirdly: The Court, having regard to the treaty provision contained in Article 9 of Protocol XII of Lausanne, observes that the only objections to subrogation admitted by this provision are those based on the date or the validity of the concessionary contract.
  • The Court has already recognized that the contract of 1913 was valid and that it was made prior to the material date fixed by Article 9 of Protocol XII.
  • Therefore, the Court considers, in the field of international law, the contract is operative as regards the Greek Government.
  • Keeping in mind the reasons stated above, the Court concludes that the contract was duly entered into and is accordingly operative as regards the Greek Government in so far as concerns lighthouses situated in territories assigned to it after the Balkan wars or subsequently.

Issue 2

• The Court considers that there is only one circumstance, which will warrant an exception to the application of the Judgment of March 17th, 1934, on the question of principle — that is, the period at which detachment from the Ottoman Empire took place in the case of the territories in question.
   
• On examining Article 9 of the treaty of Lausanne, which is binding on both Parties and formed the basis of the judgment of 1934, the Court observes:
  • The text is general and does not warrant any exception or reservation.
  • It applies to all the territories that were detached from Turkey after the Balkan Wars.
  • It lays down that a State succeeding to Turkish territory is subrogated as regards the rights and obligations of Turkey in those territories.
  • It provides for the direct and immediate succession of Greece to the obligations contracted by Turkey, without any break in the continuity of the sovereignty over the territories to which it refers.
     
• The Court, on further examining the régime of autonomy granted to the territories, concludes:
  • Even though the Sultan had been obliged to accept important restrictions on the exercise of his rights of sovereignty as regards Crete and Samos, that sovereignty had not ceased to belong to him.
  • There was still a link between the Ottoman government and the islands in question.
• This conclusion, deduced from the international instruments, is not, in the opinion of the Court, invalidated by an argument that the Greek Government had founded on the autonomous régimes granted by the Porte to Crete and Samos prior to the date of the contract.
   
• Accordingly:
  • Crete and Samos must be regarded as having still formed part of the Ottoman Empire at the date of the contract in dispute.
  • That contract, applying to the whole of the Ottoman Empire, is therefore applicable to these islands.

Issue 3
[Claim no. 4 Decided by the Arbitral Tribunal in the Lighthouse Arbitration Case (1956) in the Context of the Cession of Crete to Greece (1913)]

The Tribunal concluded that Greece, having adopted the illegal conduct of Crete in its recent past as an autonomous State, is bound, as a successor State, to take upon its charge the financial consequences of the breach of the concession contract. Otherwise, the avowed violation of a contract committed by one of the two States, linked by a common past and a common destiny, with the assent of the other, would, in the event of their merger, have the thoroughly unjust consequence of canceling a definite financial responsibility and of sacrificing the undoubted rights of a private firm holding a concession to a so-called general principle of non-transmission of debts in cases of territorial succession, which in reality does not exist as a general and absolute principle.

Therefore the court concludes that Greece adopted the illegal conduct of Crete. Here the principle of state succession will be applicable and Greece is under obligation to repair the other party for the commission of international wrongful act. This was based on the fact that an internationally wrongful act must not remain unpunished. Greece is also liable under the principle which states that if a state benefits from the consequences arising out of an internationally wrongful act. Then it shall be responsible for the obligation resulting from such act.

Analysis
Moving to the first issue which talks about whether the contract was concluded and whether the territories of Crete and Samos were detached from Turkey well before that date, and the contract was entirely inoperative in so far as concerns those islands, which were detached from Turkey before 1913, just as it now is in so far as concerns Greece, the legal successor of those islands, which were previously autonomous territories incorporated in the territory of Greece in 1913.

Article 9 of Protocol XII, signed at the same time as the Treaty of Lausanne of July 24th, 1923 provides for the direct and immediate succession of Greece to the obligations contracted by Turkey, without any break in the continuity of the sovereignty over the territories to which it refers.

It establishes a close correlation between the detachment and the assignment of the territories. Therefore, from the standpoint of the applicability of the principle in question, there is nothing in the text of Article 9 of Protocol XII to warrant any differentiation between the various territories that were assigned to Greece. Examining the regime of autonomy granted to the territories in question, it concludes that, though the Sultan had been obliged to accept important restrictions on the exercise of his rights of sovereignty as regards Crete and Samos, that sovereignty had not ceased to belong to him.

The Court finds proof of this more especially in Articles 4 and 5 of the Treaty of London (May 17th/30th, 1913), in the Treaty of Athens (November 1st/14th, 1913), and in Article 12 of the Treaty of Lausanne (July 24th, 1923). Conclusively, in the opinion of the Court, invalidated by an argument which the Greek Government had found that the autonomous regimes granted by the Porte to Crete and Samos were prior to the date of the contract.

These regimes of autonomy had not abrogated the rights of the Sultan. This brings us to the second and main issue of whether Greece is liable for the internationally wrongful acts committed by Crete before the date of succession or the acts committed by it under the date of succession. State succession as defined under Article 2(1)(b) of the 1978 Vienna Convention on Succession of States in Respect of Treaties is "The replacement of one State by another in the responsibility for the international relations of territory".

In the present case, tax exemptions were granted to a Greek shipping company and its ship (the Haghios Nicolaos) by a law proclaimed by the local authorities of Crete in 1908. After 1913, when the Island became officially part of Greece, (state succession) the law remained in place. This tax exemption was alleged by the French company to violate its existing concession rights. France therefore sought reparation from Greece. Reparation as stated in the Chorzow Factory case is the essential principle contained in the actual notion of an illegal act which 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.

This principle was reaffirmed in a number of cases, including, for example, by the International Court in the Gabcikovo-Nagymaros Project case 148 and in the Genocide Convention (Bosnia v. Serbia) case, 149 and by the International Tribunal for the Law of the Sea in M/V Saiga (No. 2). Article 31 of the Articles on State Responsibility provides that the responsible state is under an obligation to make full reparation for the injury caused by the internationally wrongful act and that injury includes any damage, whether material or moral, caused by the internationally wrongful act of a state. The principle of state succession was duly applied by the Tribunal that T

he issue of State succession to the obligation to repair essentially depends on the different factors and circumstances involved where an important point was noted that: Whenever an internationally wrongful act is committed by an autonomous government (while still part of the Predecessor State) with which the Successor State has an "organic and structural continuity. In the present case the internationally wrongful act was committed by the local authorities of Crete which was given autonomy by Porte as specified before the date of succession i.e. 1913 the transfer of the islands to Greece who continued the illegal conduct of the Crete authorities makes Greece liable for the internationally wrongful act as the obligation to reparation has been transferred from Islands to Greece (the successor state) which makes it liable in the present case.

Conclusion:
Thus with the analysis of the case, we come to some important conclusions.

1. Firstly, the Contract between the French Firm and the Ottoman Empire was duly entered into and was operative against Greece. This implies that the French Firm still has the right to collect dues from the Lighthouses in the Islands (Crete and Samos and other islets).
2. Secondly, The Sultan's Sovereign Rights continued to exist and thus the autonomy of the concerned Islands continued to exist. With this, the application of the principles of State Succession is possible and implied.
3. Thirdly, by applying the principle of State Succession, we conclude that the autonomous territories of the concerned Islands were now a part of Greece, and Greece being the Successor State was liable for any internationally wrongful act committed by the islands.
4. Fourthly, since Greece was responsible for the wrongful acts of the Islands, by applying the Principle of Reparation as per Article 31 (Article on State Responsibility), we can also conclude that Greece is liable to pay the Reparation Cost to the French Firm.

Thus, even though the judgment doesn't act as a precedent, it has a persuasive value that still gives us a clue that if a State 'A' cedes its territory (autonomous) 'B' to another State 'C', then 'C' being the Successor State will not only enjoy the rights over the territory but will also be responsible for its acts and shall thereby be liable for payment of Reparation cost.