File No. 441.11 Am 37/198
The Secretary of State to the British Ambassador (Spring Rice)
Excellency: I have the honor to acknowledge the receipt of your excellency’s note of April 22,2 1916, in which you refer to the fact that your Government, in December last, promised not to detain certain vessels belonging to the American Transatlantic Company, unless they should carry contraband, pending the decision of the British prize court in the cases of the steamer Hocking and the steamer Genesee which also belong to this company, and in which you state that Sir Edward Grey has instructed you to inform me that the vessels which have not been seized can no longer enjoy immunity from seizure unless certain assurances respecting their use are given by the company.
These vessels are owned by an American corporation organized under laws which presumably are similar to British laws respecting incorporation. In the name of this corporation these vessels were registered under the American flag, in accordance with laws which it is understood by this Government are similar to British laws governing registration of vessels under the British flag. Under the laws of the United States, the American Transatlantic Company is regarded as a citizen of the United States and must doubtless be so regarded in accordance with the custom of nations.
British prize court decisions in relation to the ownership of different kinds of property, including vessels, appear to make it clear that a British corporation is British in character regardless of what the political nationality of its shareholders may be.
This Government has observed that in a recent case a British prize court, applying an apparently well-established rule, condemned a vessel flying the German flag and refused an application of neutral claimants to establish that they were the beneficial owners of the vessel, owning the entire capital stock of the nominal owners, a subsidiary concern established according to the laws of Germany. The court ruled that the fact sought to be proved would not benefit the claimants.
[Page 389]This Government has also observed that the British authorities have in several instances requisitioned vessels flying the British flag, although the entire beneficial interest in them was owned by American citizens, and in connection with requests on the part of such beneficial owners for the release of such vessels, the British Government apparently has taken the position that the vessels, flying the British flag and being owned by British corporations, must, of course, be regarded as British and not as American vessels.
It appears, therefore, from different cases of the character just mentioned, that the British judicial and administrative authorities have as a rule attached no importance to beneficial ownership in determining the nationality of the vessels owned by corporate organizations but have uniformly proceeded on the theory that nationality in each case must be determined by the flag the vessels fly or by their corporate ownership.
On the other hand, the British authorities in now seeking to condemn the ships of the American Transatlantic Company, which are owned by an American corporation and fly the American flag, on the ground, as they state, that they believe these vessels to be entirely, or to a large extent, enemy owned, apparently attach great importance to beneficial ownership arid no importance to the flag or corporate ownership.
In this relation it should be observed that the company has presented to this Government evidence to show that all the company’s stock is owned by American citizens. This Government has no information that the stock is not so owned.
Having in mind these and other facts as well as the applicable principles of international law, the seizure of these vessels appeared to this Government arbitrary and unwarranted. However, after having informed the British Government to that effect, this Government decided to let the matter rest after receiving from the British Government a promise that they were, in the language of a note addressed by Sir Edward Grey to the American Ambassador at London, “willing not to capture the remaining ships of the company, unless they were found to be carrying contraband, until the prize court has given a decision in the cases which are now pending, provided of course that the proceedings in court are not unduly prolonged by the defendants.” The owners of the vessels have informed the Department that they have complied strictly with the British Government’s conditions, and the Department has no information to the contrary.
If any one of these vessels should carry contraband, the British Government would be warranted in exercising their belligerent right to detain such vessel. But the carrying of contraband by one of these vessels would, of course, furnish no legal justification for interference with other vessels carrying innocent cargoes, and the observance by the British Government of the express language of their promise respecting the immunity of these vessels would prevent any such interference.
I observe from your note that you have been instructed by Sir Edward Grey to inform me that “the immunity from capture at [Page 390] present enjoyed by the American Transatlantic Company’s vessels can only be continued provided that an assurance is given by the company that the vessels will not trade with Scandinavia or Holland.”
Under these circumstances, before giving further consideration to the matters referred to in your note I would like to be informed whether, as would appear from your note, it is the intention of the British Government to repudiate their promise respecting the treatment of these vessels which in good faith has been relied on by this Government and by the owners of these vessels.
I am [etc.]