Compensation as Part of a Comprehensive Solution to the
Palestinian Refugee Problem

WORKSHOP PAPERS

Principles and Procedures for Compensating Refugees: International Legal Perspectives

Eyal Benvenisti^*

Workshop on the Issue of Compensation for Palestinian Refugees
Ottawa, July 14-15, 1999

The Right to Compensation in International Law: A Discrepancy between Principles and Practice

(a) Principles

The principle that refugees are entitled to compensation for their lost property is increasingly gaining recognition in international law. This principle now applies not only to aliens' property but also to citizens fleeing from their own state. Principle 4 of the International Law Association's 1992 Cairo Declaration of Principles of International Law on Compensation to Refugees, which aims at reflecting customary international law, declares that "[a] State is obligated to compensate its own nationals forced to leave their homes to the same extent as it is obligated by international law to compensate an alien."

A different question relates to the appropriate standard of compensation. The general debate over the legal standard of compensation for expropriation of aliens' property is well known. This debate draws upon United Nations General Assembly resolutions, judicial decisions, bilateral investment treaties and even lump sum agreements. In the context of refugees' right to compensation, there is no coherent practice to support any unambiguous conclusion as to the lawful standard of compensation. The majority of instruments that mention compensation for refugees' property do not elaborate on this issue.

Generally, there are two notions of full compensation for damages. As pronounced in 1929 in the famous judgment of the Permanent Court of International Justice (PCIJ, the precursor of today’s International Court of Justice) in case of Chorzow Factory. In its decision, the PCIJ set forth two standards: for takings or other acts which are illegal under international law, the "payment of a sum corresponding to the value which a restitution in kind would bear;" whereas for other takings which are not illegal, "the value of the undertaking at the moment of dispossession, plus interest to the day of payment." Yet, in the specific context of refugees, these standards are not suitable, and indeed, a different standard has been proposed. In 1981, the General Assembly of the United Nations first enunciated the right "of those who do not wish to return to receive adequate compensation." This principle was subsequently approved by the United Nations Group of Governmental Experts on International Co-operation to Avert New Flows of Refugees, and reaffirmed by the General Assembly. Both standards of full compensation raise difficulties in cases of mass transfer of population, especially when long time has elapsed. The current value of the property may be influenced by investments, both public and private, that may have increased or decreased its value. At the same time, the historic value of the property could be difficult to ascertain. Moreover, full compensation could drain the resources of the state, and create instability during a delicate transitional period. In light of these considerations, the German Federal Constitutional Court intimated in its "Land Reform" decision of 1991 that the standard of compensation for property expropriated between 1945 to 1949 in the former GDR need not be at full market value, and a lesser amount would be permissible under the German Basic Law. A similarly nuanced formula is found in the Dayton Accords of 1995 concerning Bosnia, whose Annex 7 ("Agreement on Refugees and Displaced Persons") mentions "just compensation in lieu of return."

The principles of "adequate" or "just" compensation seem more appropriate than the Chorzow Factory formulae in cases of mass relocation and abandonment of property. It is suggested that the more nuanced principles are analogous to the notion of equitable compensation, calling for an ad-hoc appraisal of the various interests and constraints involved. At times, this principle could mean more than the historic value (plus interest) but less than the full current market value; at other times, when rehabilitation of refugees require more funds than the value of their abandoned property, "adequate" or "just" compensation might mean more than the full value of the property. These principles are not just backward looking; they are also, and not less importantly, forward looking.

(b) Practice

In contrast to the widely shared principle that compensation for refugees’ property is due, the practice in the many cases of mass relocation of populations throughout the twentieth century leaves much to be desired. Bilateral agreements on population exchanges, between Bulgaria and Greece (1919), between Greece and Turkey (1923), and between India and Pakistan (1947), provided procedures for compensating the refugees for their lost property. The Bulgarian-Greek and Greek-Turkish agreements contained detailed mechanisms for assessing the value of property and for calculating the amount of compensation. Bulgaria and Greece did pay some compensation for property left in their countries, yet the Greek-Turkish arrangement proved too difficult to implement. After lengthy negotiations, the sides agreed in 1930 to settle the question of refugees' property by the assumption by each state of the property rights in refugee property left in its jurisdiction, and by the setting-off of all claims for compensation, which left Greece liable for a lump-sum payment of 425,000 pounds sterling. India and Pakistan also agreed on a system of compensation, but disagreements over the actual appraisal of property, as well as political difficulties, frustrated its implementation.

Compensation in lieu of repossession of property is viewed as an alternative in the international efforts to resolve the refugees’ problem in both Cyprus and Bosnia. UN initiatives to resolve the Cypriot refugees’ claims and counterclaims emphasize compensation as the preferred alternative, and offer a procedure for processing claims. The 1995 Dayton Accords provide a general framework for compensating refugees who would prefer it to repossession. Despite international efforts, however, the scheme is yet to begin functioning.

II. Procedures

As the failures to compensate refugees demonstrate, carefully designed procedures to process claims to compensation are the key to providing an effective compensation scheme. Past international practice provides a number of compensation schemes as possible prototypes for situations of mass abandonment of private property. The important variables are the processes through which private persons may prove their claims (to a national or to an international institution) and the methods of payments (a direct payment by one state to the claimant, or an indirect payment to the claimant’s government or to an international institution). An examination of the possible designs will help to identify the most appropriate method in the Israeli-Palestinian context.

(a) International Claims Tribunals

International Claims Tribunals provide a forum for adjudication of claims brought by individuals (and states) against states. These tribunals are based on international agreements. With a few exceptions, international claims tribunals were in fact imposed after wars by victorious powers on their defeated enemies who conceded their infringement of international law. The agreements establishing such tribunals reflected the unequal power positions between the parties by explicitly or implicitly excluding the opportunity of citizens of the defeated state to bring claims.

Starting with the Jay Treaty of 1794 between the United States and Britain, and until World War II, states often resorted to international claims tribunals to settle disputes, many of them dealing with takings of alien property. Since that war, however, this practice has virtually stopped, as lump sum agreements became increasingly favored. In fact, with the exception of a few tribunals established under post World War II peace treaties, in the last five decades only one such tribunal -- the Iran-U.S. Claims Tribunal – was established. The primary reason cited for the sharp decrease in the number of international claims tribunal was the slow and inefficient procedure before these institutions.

The Iran-U.S. Claims Tribunal was established in 1981 as part of the settlement of the crisis in the relations between the two countries, which had started with the seizure of the US embassy in Tehran, to which the US responded inter alia by the freezing of Iranian assets situated in the US. About 4,000 claims were filed with the tribunal. The tribunal is commended for its successful adjudication of commercial disputes between the US governmental agencies and private firms vis-a-vis Iran. By the end of 1994, the great majority of the large commercial disputes was resolved, either through awards issued by the tribunal or by agreed settlements. One may assume that many of these settlements would not have been attained but for the availability of the tribunal and the standards it set. The tribunal did experience some delay in its work, partially due to delay tactics of the Iranian side.

When assessing the feasibility of establishing a similar tribunal to deal with property claims of individuals in the Israeli-Palestinian context, the success of the tribunal in resolving commercial disputes is largely irrelevant. For our purposes, the most telling observation is the tribunal's failure to settle satisfactorily the claims of private US citizens who had left or had been expelled from Iran as a result of the Islamic revolution. Out of about 40,000 US citizens who had fled Iran between November 1978 and February 1979, only 1,500 (less than 4%) have actually filed claims against Iran. Until 1990 (nine years after the beginning of the tribunal's activity) only six of these claims were adjudicated, and damages were awarded in only one case. In view of this failure, in 1990 the two governments concluded a lump sum agreement concerning these individual claims, following which these claims are to be relegated to the US Foreign Claims Settlement Commission.

The difficulties that hindered the filing of damages claims by the rest 96% of U.S. citizens who had left Iran may be attributed to the high costs involved in complex international legal proceedings. One may assume that similar difficulties would influence also, and to a greater extent, most of the refugees seeking compensation. The decision to change the venue for the individual claims may reflect an understanding that an international forum for dispute resolution is less suitable that an internal one, when private individuals are concerned. In addition, the specific difficulties in ascertaining the merits of private claims of refugees after mass relocation and perhaps loss of documentation would prolong indefinitely the work of such a tribunal that would have to handle hundreds of thousands of claims. In light of the magnitude and the complexity of refugees’ claims, and the need to achieve early settlement so as not to delay the rehabilitation efforts, the model of the Iran-U.S. Claims Tribunal is not suitable.

(b) Lump-Sum Agreements

Such agreements usually include a payment of a fixed sum by one state to the other. The recipient can in turn establish through domestic legislation a national claims commission to adjudicate private claims for shares of the sum received. Richard Lillich and Burns Weston examined a total of 168 lump sum agreements concluded between 1945 and 1988. They observed that "in the last 40 years this procedural device has become, without doubt, the paramount vehicle for settling international claims." There are clear advantages to lump sum agreements, for both states. For the claimant state this agreement offers prompt payment, less costly procedures for distributing the funds domestically, control over these procedures, and hence more power for domestic politicians. For the paying state the benefits include a final sum, a final release of obligations, usually without admitting responsibility, and without the high costs of an international tribunal. The lump sum agreement removes tensions in the bilateral relations of the two countries linked to the issue of compensation, and facilitates quick return to normal relations.

The difficulties in verifying the individual claims are relegated to the national level. National claims commissions face a large number of claims that involve complex questions of facts and law. It will be interesting to examine in this context the unfolding implementation of the German scheme for restitution and compensation of property in East Germany under the Unification Treaty. It is expected that the process will be lengthy. But unlike most refugees, most of these claimants, who reside in the affluent western part of Germany, speedy relief is not a major concern.

The same principles of a lump sum agreement have been offered by the U.N. Secretary General, Dr. Boutros-Ghali, to the governments involved in the Cyprus problem, as a possible solution of the Cypriot refugees’ claims. The plan was designed specifically to exchange title to property among the displaced members of both Greek and Turkish communities as means for both resolving the problem of titles to land and for providing funds for monetary compensation. The Secretary-General's suggestion contains the following essential provisions:

76. Each community will establish an agency to deal with all matters related to displaced persons.

77. The ownership of the property of displaced persons, in respect of which those persons seeking compensation, will be transferred to the ownership of the community in which the property is located. To this end, all titles to properties will be exchanged on a global communal basis between the two agencies at the 1974 [time of the Turkish invasion] value plus inflation. Displaced persons will be compensated by the agency of their community from funds obtained from the sale of the properties transferred to the agency, or through the exchange of property. The shortfall in funds necessary for compensation will be covered by the federal government from a compensation fund.

Such lump-sum agreements seem to be best suited to solve such large-scale disputes. Indeed, as will be noted in the following section, such a plan was suggested already in 1951 by the U.N. Conciliation Commission for Palestine (CCP) with respect to the Middle East refugees.

One of the major drawbacks of lump sum agreements (from the point of view of individual citizens, not from that of the governments…) lies with the domestic disbursement of the funds. Typically, such agreements leave to each government to decide on the modalities of the domestic process of indemnifying the citizens. Without attention to this process, individuals may ultimately remain uncompensated.

(c) International Institutions for Compensation

In the 1990s, two new international institutions were established to settle claims on a large scale. They combine some of the ideas already mentioned but offer innovative ways to deal with some of the problems encountered in previous efforts, such as backlog of claim, difficulties in assessing damages, and lack of transparency.

The United Nations Compensation Commission

The United Nations Compensation Commission, established in 1991 to deal with claims against Iraq stemming from its invasion and occupation of Kuwait, resembles the post war international claims tribunals in one perspective: it presupposes the responsibility of the defeated state, in this case Iraq's, for war-related property damages, and does not provide access to Iraqi claims against Iraq or against the allied coalition forces. In view of the continuing confrontation between the Iraqi government and the U.N. Security Council, an agreement on Iraq's payment of compensation could not be reached. The prospects of large volume of claims against Iraq, and the generally unsatisfactory experience with international claims tribunals, necessitated fresh thinking over the design of an institution that could process efficiently a large number of claims. The result was the innovative structure of the United Nations Compensation Commission. In essence, the idea behind this commission is to combine elements from both international claims commissions and national commissions (commissions that some states have established to allocate funds obtained through lump sum agreements). The U.N. commission does not deal directly with individual petitions. Governments collect and submit their citizens’ and residents' claims before the Commission. The Commission may decide in the initial stages to allocate funds to each government, in respect of its consolidated claim and according to the available funds at its disposal. It is probably expected that the governments in turn would establish procedures to distribute these amounts to their nationals. The funds are obtained from proceeds of Iraq's oil sales.

The Guidelines reflect a particular effort to address personal suffering. Fixed payments of $2,500 backed by "simple documentation" are to be provided for departure from Iraq or Kuwait, serious personal injury, or the death of a family member. Above these sums, individuals may claim their actual losses, the Commission giving "expedited priority" to claims up to $100,000 per person, and requiring "a lesser degree of documentary evidence" for smaller claims, below $20,000.

The model of the U.N. Compensation Commission seems more suitable for one-sided solution, in situations similar to those dictated by the victorious Allied powers following the two World Wars. It is unlikely that any government would accept willingly such fact-finding procedures, and the across-the-board assumption of responsibility. Such a model does not suit parties that must fashion peaceful relationships. Therefore, this model does not seem to be appropriate in the Israeli-Palestinian context.

Bosnia’s Commission for Displaced Persons and Refugees

The parties to the Dayton Accords of 1995, The Republic of Bosnia and Herzegovina, the Federation of Bosnia and Herzegovina, and the Republika Srpska, agreed to establish a Commission to implement the provisions of the agreement relating to refugees’ return or compensation. On paper, this Commission is eminently suited for the task of resolving the task. Without political will, however, it is doomed to fail.

The Commission is composed of nine members, four appointed by the Federation of Bosnia and Herzegovina, two by the Republika Srpska, and three by the President of the European Court of Human Rights (who also designate the Commission’s Chairperson). The Commission may sit in panels. It may decide by a majority vote.

[a]ny person requesting the return of property who is found by the Commission to be the lawful owner of that property shall be awarded its return. Any person requesting compensation in lieu of return who is found by the Commission to be the lawful owner of that property shall be awarded just compensation as determined by the Commission.

A person who is awarded return of property has the option of leasing it instead of gaining repossession. To facilitate its work, the agreement empowers the Commission to establish fixed rates to determine the value of all real property in Bosnia and Herzegovina that is the subject of a claim before the Commission. The Commission has powers also to effect any transaction with respect to claimed property (overcoming conflicting domestic laws) and award monetary grants from a special fund, established in the Central Bank of Bosnia and Herzegovina and administered by the Commission.

This sophisticated and ambitious framework, if it was ever designed to emerge from paper, has so far failed. International efforts could not overcome the animosity among the rival communities. The goals of refugees’ return or compensation remain unaccomplished.

III. In Search for the Appropriate Compensation Plan in the Israeli-Palestinian Context

The Compensation Commission for Palestine (CCP) put forward in 1951 a scheme to settle the issue of the compensation for refugees. This scheme had much in common with the lump sum agreements that characterized international practice of the last five decades. According to this plan, Israel would have paid

as compensation for property abandoned by those refugees not repatriated, a global sum based upon evaluation arrived at by the Commission's refugee office; that a payment plan, taking into consideration the Government of Israel's ability to pay, be set up by a special committee of economic and financial experts to be established by a United Nations trustee through whom payment of individual claims for compensation would be made.

The CCP found the establishment of a special committee to be necessary to work out the details of the payment procedures, and probably also to overcome the problems of the representation of the refugee community. In light of the limits of Israel's economy, the CCP suggested that Israel make piecemeal payments to the special committee over a period of many years. Until the full payment would be made, other sources would provide that committee with funds for disbursement to the refugees.

Israel did not reject this specific suggestion, but added a few reservations to it. Israel declared its readiness "to contribute to the settlement of the question of compensation for Arab property abandoned in Israeli territory," and suggested that concrete discussions be held on the question of evaluation, which would also take into consideration the following factors: that the Arab property had been abandoned as a result of Arab aggression in 1948; that Israel's ability to pay was affected by the Arab boycott, and the need to absorb Jewish refugees from Arab countries; that Jewish property had been abandoned in the West Bank and the Gaza Strip during the 1948 War; and that Jewish property had been confiscated in other Arab countries. In Israel's opinion, the "final agreement on the global amount of Israel's contribution towards compensation should put an end to the refugee problem in so far as Israel is concerned." The Arab side demanded prompt payment based on the "true value" of the property, on an individual basis rather than by a lump sum, and refused to link the payment of compensation with Israel's financial capacity. In addition, the Arab states demanded payment for the value of part of the public property located in Israel (roads, railway lines etc.). These conflicting attitudes could not have been reconciled at that stage in Arab-Israeli relations.

The CCP proposal reflects solid policy considerations. It has the merit of divorcing pecuniary claims from political and nationalistic ones thus minimizing tensions both between individuals of one community with the authorities of the other community as well as between the governments themselves. It relegates the process of ascertaining individual entitlements to the domestic phase of the settlement, which is controlled by the claimants’ own government. But this is also its major drawback. Effective and transparent domestic process for compensating individuals must be designed to ensure the satisfaction of individual claims.

Such a separation into two stages seems especially important in the Israeli-Palestinian context, due to the complexity and the large scale of the claims involved. This process should include an identification of ownership and various other property rights at the time of abandonment. In certain exceptional instances, such as rights in land registered during the Mandate period in the land registry, individuals may be expected to be able to support their claims with ample evidence. However, in areas where there had been no orderly system of registration, and where the substantive provisions in the property law were archaic and complicated, as was the situation in Mandatory Palestine, the identification may prove extremely difficult. The land law in Palestine was comprised of antiquated Ottoman legislation, together with a few British ordinances. Needless to say, only a small number of Israelis and Palestinians are familiar with the authoritative Turkish texts. Moreover, land registration was very sparse, and the boundaries of those plots which were registered during the Ottoman period (until 1917) were described only literally, without reference to maps. Therefore, it is extremely difficult to locate those registered plots. Furthermore, due to local usages of land cultivation and rules of succession, large unregistered plots were jointly owned by several owners, each owning only a fraction of the title. Identification of property rights and their holders is further complicated when it is sought following dozens of years of separation of the original owners from their property, especially when such a separation occurred in a time of political and military turbulence, as existed in this area, especially between the years 1947 and 1949. Further complications in identifications may be caused by inaccurate registration of titleholders and inaccurate transliteration of Arabic and Hebrew names into the official English records.

An identification of individual claims after half a century will also require a factual and legal examination of all subsequent transfers of titles, both inter vivos and through successions. The validity of title changes must be examined under internal and international law. In cases of succession to property, the validity of such transfers of title would also need to be examined under the various laws governing such questions, namely, the laws of the newly acquired domicile or nationality of the deceased rightholders. Due to conditions of war, military occupation, and dislocation, formal requirements (for wills and contracts) are often difficult to keep, and thus transactions made without meeting the necessary requirements might not be respected nor sufficiently proven. A further difficulty, which becomes increasingly complicated with the passage of time, is the need to appraise the value of property in 1948 and then to translate that value into current terms. With many potential owners, co-owners, and witnesses, dispersed throughout the world, such a process may prove too slow and cumbersome. Note that throughout such a lengthy process, the parties involved would remain preoccupied with this issue, which could well strain their relationship during a crucial period of reconciliation. This complexity is exacerbated by the possibility that a comprehensive Arab-Israeli settlement might also involve the claims of Jews who left their property in various Arab countries and found refuge in Israel during, and after, 1948.

While the identification and quantification of each of the individual claims to property rights are extremely complex and long processes, a global inter-governmental assessment of the quantity and value of the bulk of property left by a displaced population may be more feasible. The criteria for such assessment may be negotiated by the parties, and the necessary factual data may be derived from historical, demographic and geographical surveys. The findings of the CCP, along with other sources (including aerial photos of the relevant periods) may prove useful in this respect. The assessed value of private property of the various categories may thus be a significant factor in the calculation of the lump sum payments. However, because the applicable standard is one of "adequate compensation," this factor need not be the only, or even the decisive factor. The present and future needs of the refugees, the financial and economic ability of the parties, and the prospects of contributions and investments by other members of the international community should be considered as well.

Once the lump sum payments have been agreed upon in the inter-governmental level, it is necessary to determine the principles and the procedures for the internal distribution of the funds among the individuals. The reference to past entitlements as the sole, or even the primary criterion for the allocation of funds suffers from major drawbacks, especially when implemented long after the relevant events have occurred. Firstly, as detailed above, the arduous task of ascertaining private claims for abandoned property remains. Secondly, when prompt compensation is needed to rehabilitate individuals, such a process of identification may prove both slow and insufficient. Thirdly, and most importantly, if rehabilitation is the goal, then the aim of the payment, and, hence, its measure, should be prospective as well as a retroactive one. Indeed, instead of referring only to the past, the key to normalization and reconciliation lies also in addressing the current and future needs of the communities and of the individuals. A compensation scheme that is inspired by consequential considerations and distributive justice may be preferable to a right-based scheme, aimed at effecting corrective justice. Such a prospective outlook carries the promise of the rehabilitation of emerging economies during a relatively short period. This policy proved very successful in West-Germany after the Second World War. In addition to reviving the German economy and infrastructure, it helped to absorb and rehabilitate millions of German refugees from the East, to whom no compensation for lost property was provided. Such, indeed, was the U.N. plan regarding the Arab refugees during the 1950s as well as later, a plan the Arab states refused to implement. Half a century later, such a prospective outlook with respect to the refugee problem is all the more appropriate. In fact, one may already find reference to such a policy in the Israeli-Palestinian Declaration of Principles. Annex IV, concerning regional development programs, sets as its first objective the promotion of a Social Rehabilitation Program for the West Bank and the Gaza Strip, which is to include a Housing and Construction Program.

The exact weight given to the individual claims to property rights in the stage of the internal allocation of the funds depends on the characteristics of the relevant population and the claims involved. Thus, for rehabilitated refugees, the primary measure of their compensation may be the value of the property they left, to the extent that their claims can be ascertained today. Such an approach could be taken in the internal settlement of claims in Israel with respect to rehabilitated Jewish refugees from neighboring Arab countries, or Israeli owners of property left in 1948 in the West Bank and the Gaza Strip. Yet, against these claims the authorities may partially or fully offset the value of the lands on which these people were resettled, some of which had been owned by those who left to the other side of the border. For other refugees, who are yet to be rehabilitated, such as Palestinians living in refugee camps, one may expect that the primary (although not the conclusive) criterion for the allocation of funds would be their current and future needs. Furthermore, such refugees may be better compensated by supplying them with decent dwellings, medical facilities and educational institutions, rather than by cash money. The criteria for compensation will, of course, determine the identity and scope of persons entitled to compensation.

The present political situation in the Middle East does not lend much support to the assumption that the concerned Arab governments would agree to entrust to a Palestinian authority the task of administering funds to the Palestinian refugees situated in their respective territories. Any rehabilitation program for the refugees would require not only the distribution of funds to individuals, but also the initiation of public projects, such as housing projects, investments in infrastructure, and the creation of new working places. These projects must be carried out with governmental approval and supervision. It is expected that the governments involved would not tolerate any such activity that would not be at least coordinated with them. This assumption is based in part on the previous experience of UNRWA, which, during the 1950s and 1960s, had to negotiate its activities and status with the Arab governments, negotiations which not always produced satisfactory results from UNRWA's point of view. On the other hand, it would be wrong to entrust the disbursement of the funds entirely in the hands of the Arab governments. The internal political status of the Palestinian refugees in their places of residence does not fully ensure the fair representation of their interests by the governments involved. Therefore, bilateral lump-sum agreements with the Arab states, which would allow discretion on the part of Arab governments in the disbursement of funds, do not seem appropriate.

The drawbacks of any scheme based solely on bilateral relationships, with wide discretion concerning the internal arrangements for the allocation of funds, call for the establishment of a more elaborate mechanisms that would ensure the proper representation of the interests of both Palestinians and Arab governments. Thus it is suggested that any encompassing arrangement of the refugees problem must include not only Israel and the PLO, but also the neighboring Arab states. In addition, it should be expected that contributing states or organizations would also insist on participation in setting the criteria and procedures for the use of the funds and on monitoring their implementation. It is therefore recommended that all the involved parties establish a special institution, which will ensure fair representation of all interest groups, to effectively supervise the allocation of funds based on the standards explored above, thus guaranteeing the successful implementation of the rehabilitation schemes for the Palestinians.

The PRRN/IDRC compensation workshop was funded by IDRC and the Canadian International Development Agency thrrough the Expert and Advisory Services Fund. PRRN is a project of the Interuniversity Consortium for Arab Studies (Montréal).

Last modified 31/7/99. Marc Lanteigne/ mlante@po-box.mcgill.ca , Rex Brynen/ info@prrn.org