362.115 St 21/324a: Telegram
The Secretary of State to the Commission to Negotiate Peace53
3532. For Polk.
Pursuant to our 3451, October 16, 4 p.m., please present confidentially a memorandum in the sense of the following to your British and French colleagues on the Supreme Council and request that the matter be taken up as soon as possible by the Supreme Council.
- “(1) The Government of the United States is not satisfied with the decision of the Supreme Council in regard to the German tankers originally exempted under the Brussels Agreement. It has always maintained that these tankers are beneficially owned by citizens of the United States and until the war had been under the complete operative control of its citizens.
- (2) The Deutsch-Amerikanische Petroleum Gesellschaft, the German corporation which holds the legal title to the nine tankers in question has since 1905 been owned and controlled by the Standard Company of New Jersey. In 1905 the Standard Company acquired all of the 9,000,000 marks capital stock of the D.A.P.G. which carries voting powers. Since 1911 it has owned all but 26 of the 21,000 D.A.P.G. share warrants and also owns the entire issue of debenture bonds totalling 30,000,000 marks.
- (3) The investment of the Standard Oil Company in the D.A.P.G. was appraised in 1914 at $48,500,000.
- (4) The control of this company and of the operation of the ships has resided in and been fully exercised by the Standard Company until hostilities rendered the operation of the ships impracticable.
- (5) The beneficial ownership of these ships in an American corporation has been recognized by the Allied Powers.
- (6) The Leda a D.A.P.G. tanker captured in 1914 was condemned by the Bermuda Prize Court (volume I, British and Colonial Price [Prize] Cases, page 233). The Standard Company, the beneficial owner having made claim for the release and redelivery of the vessel, the British Crown on this ground released the Leda by instructions through the British Embassy in Washington and by final order of the Court.
- (7) A bond required and taken by Great Britain in consideration of the release recited that application had been made on the ground of beneficial ownership and that on said application the King had agreed to release the ship to the Standard Company. A bill of sale by the British Admiralty and a certificate by the Supreme Court of Bermuda (January 13, 1915) were given to the Standard Company.
- (8) Twenty-six tank steamers were transferred in 1914 and 1915 from the German to the American flag and the legal ownership from D.A.P.G. to the Standard Company with the assent of the British and French Governments. It would seem clear that such transfers could be only effective with the assent in fact of Great Britain and her Allies and the employment of the ships on the high seas as only possible with Allied recognition of their ownership and registry. In addition, however, these transfers were discussed with the British and French Embassies in Washington and consent was embodied in official letters therefrom. The Daimler case in the House of Lords July 1916 and other recent cases recognize that the corporate fiction may be disregarded in favor of the ultimate beneficial interests involved.
- (9) It is the recollection of those present at the negotiations culminating in the Wilson-Lloyd George agreement of May last, which had in part to do with the recognition and satisfaction of the beneficial ownership of Allied nations in ships which had been under the German flag, that the agreement was made with the special case of the tankers in mind and that Mr. Lloyd George was prepared to admit the beneficial ownership of the United States in these tankers but that he was not satisfied in his mind whether its satisfaction called for specific transfer of the ships to the American flag or for financial compensation. In regard to financial compensation, the United States takes the position that the long vested right of control and operation of the specific ships is the essence of the beneficial ownership exercised by its nationals and cannot be compensated by financial remuneration.
- (10) The Department understands that among the reasons for which under the Brussels agreement the ships were provisionally exempted were first that American oil might be carried to Germany and second that they should be operated as before the war under control of American interests. It is noted that the accomplishment [Page 556] of the first purpose could have been affected [effected] by allocation to that purpose by the A.M.T.E. but that the exemption accomplished directly and more simply the second purpose stated.
- (11) After the sinking by the Germans of their fleet at Scapa Flow a special committee was appointed by the Supreme Council to consider demanding special reparation from Germany. It was proposed before this committee that as such special reparation the exemption of tankers under the Brussels agreement should be cancelled and the tankers delivered by Germany for allocation among the Allied and Associated Governments. Realization, however, that so-called reparation in this form would really be at the expense of the American interests led to the proposal being rejected by the Committee whose conclusions were approved by the Heads of States. Thus again the essential character of the tankers as American vessels was affirmed.
- (12) After the ratification of the Treaty by Germany it was thought by the American delegates that the Allied and Associated powers by the raising of the blockade and allowance of freedom of commercial intercourse with Germany had waived their right of capture on the high seas of German vessels so exempted and that there remained no further obstacle to the carriage of oil from the United States to Germany on these ships. The Standard Oil representatives were so advised. They were notified, however, by Allied shipping representatives at Hamburg that no licenses would be issued to permit the ships to proceed to sea and that if they proceeded without license they would be seized by Great Britain and taken before a Prize Court. Mr. Dulles, the American representative on the Interim Reparations Commission, immediately both in writing and orally, brought to the attention of his colleagues on the Commission the necessity, from the point of view of reparations, of importing oil to Germany. It was this aspect of the matter which the various delegates on the Reparations Commission individually, but not as action of the Commission as a body, stated they would present to their Governments. The Reparations Commission never purported to confer on the A.M.T.E. jurisdiction to cancel the exemption of the Brussels agreement, first, because it was never supposed that the A.M.T.E. could have such jurisdiction and further because the Interim Reparations Commission did not itself have any such power of cancellation.
- (13) There can be hardly any doubt that the action of the President of the N.A.C. in cancelling the exemption was irregular and without jurisdiction and done without the concurrence of his colleagues. The pursuant allocation by the A.M.T.E. was without jurisdiction. Reports conflict as to the position of the American representative on the A.M.T.E. in regard to the jurisdiction of the Supreme Economic Council. Whatever position was taken by him, however, the Economic Council was notified as soon as possible that the jurisdiction to cancel the exemption was not admitted by the United States. It is felt that the American representative on the Supreme Council when the question of the tankers came up for action was not in possession of the full facts of the case. The United States Government with the additional information it possessed did not agree with the opinion expressed at that time by its representative.
- (14) The final basis for allocation under the Treaty is a proportional ton-for-ton replacement of shipping losses incurred by the Allies and a due regard for the legal and equitable interests of nationals of Allied and Associated Powers. The provisions of Annex III paragraphs 1 and 3 (Reparations) are to be applied only with regard to the principle established by paragraph 20, Annex II (Reparations) which requires in the broadest sense recognition of “legal or equitable interests” or as in the French text “Tous droits et interêts légitimes”.
- (15) The only basis of provisional allocation concurred in by the Allied and Associated Governments after satisfaction of repatriation needs was that proposed by the American representative, to the Supreme Economic Council and by its direction used by the A.M.T.E. This basis was that those powers which by action of the Reparations Commission under the Treaty and the Wilson–Lloyd George agreement, would be entitled to certain tonnage for replacement purposes, should have such tonnage provisionally allocated to them, for use and management during the armistice period.
- 16. Up until the arbitrary action of the President of the N.A.C. and the resultant allocation by the A.M.T.E. it was assumed by the American delegates that the situation of the tankers as regards use and management during the armistice period was taken care of by the Brussels exemption which in practicable application gave provisional effect to the provision of the Treaty and the Wilson–Lloyd George agreement with reference to the protection of equitable interests and that a scheme of provisional allocation such as outlined above could have no possible application to these tankers. It was with marked surprise, therefore, that the Government of the United States heard of the provisional allocation of the A.M.T.E. The natural inference of the effect of such allocation on final distribution was recognized. Provided beneficial ownership of the United States was admitted, a broad principle of provisional allocation which gives use and management during the Armistice period to powers which would by the eventual action of the Reparations Commission be entitled thereto, should in logical application give use and management of the tankers to the United States during the armistice period. The agreement of the United States to the pre-execution of the Treaty and that part of the Wilson–Lloyd George Agreement which guarantees the major part of the pooled German ships to France and England reasonably entitles the United States to a substantially similar pre-execution of paragraph 20 of Annex II (Reparations) and of the latter part of the Lloyd–George agreement which were both adopted in contemplation of the tanker situation.
- (17) The United States Government feels that in view of the importance of the political effect which is of such moment in regard to the expeditious ratification of the Treaty by it, it cannot consent to even a temporary allocation which would be at the expense of long vested American interests; and further that this government cannot agree that the vested right of control of the specific ships be appropriated by Germany for payment of her reparations obligation to others of the Allied powers. The United States Government in addition [Page 558] is satisfied that if the Allied Powers will so consent a more satisfactory and expeditious final settlement of the tanker controversy can be reached by the powers involved through the medium of the Supreme Council at once rather than waiting for a similar decision by the same powers through the Reparations Commission.”
Dulles has approved this memorandum. You may change reference to your position in the latter part of paragraph 13 in any way you see fit.
Section 2. The sense of the following is an informal statement of our views which you may unofficially and in strictest confidence tell orally to your colleagues when the memorandum mentioned in section 1 is presented.
“The Department of State of the United States is conscious of the near deadlock which the present decision of the Supreme Council in regard to the tankers, led up to as it was by an irregular and seemingly arbitrary act of the President of the N.A.C., has caused in respect to an expeditious and satisfactory solution of the controversies in regard to the re-allocation of the Imperator group of ships and of the shipping questions between France and the United States.
The Department of State is not in accord with the action of the American Shipping Board and the position it has taken in these particular matters. The independent position of the Shipping Board, however, coupled with the illness of the President presents a situation which complicates the speedy solution of the questions independent of a solution of the tanker matter. The Department feels strongly the great necessity for the speedy and satisfactory solution of all these questions and that full accord between the Allied powers in meeting the difficult problems of reconstruction must be reached and maintained. It is very reluctant to couple the tanker controversy with these other questions but presents for consideration of Great Britain and France the following promises which the Shipping Board has bound itself to fulfil:
‘The Board will agree that on the transfer of the tankers to the American flag they will transfer at once to the powers entitled the Imperator and such of the other seven ships as will not be needed to repatriate the 50,000 Czechoslovak troops from Vladivostok to Trieste. The Board further promises to make a special effort to expedite the repatriation referred to. The Shipping Board binds itself to expedite a satisfactory solution of the French claims in regard to ships requisitioned by the United States provided that suitable financial arrangements can be agreed upon.’
It is requested that the tankers be allowed to proceed to sea at once on their initial voyages between the United States and Germany under the American flag, final management and ownership of these ships to be decided by the Supreme Council.”
For the information of Mr. Polk in reference to the memorandum in section 1. The Department of State in view of the fact that the United States may not be effectively represented on the Reparations Commission when the tanker controversy would in the ordinary course be decided by it, feels that it is of great importance that the tanker matter should be decided by the Supreme Council.
[Page 559]The Solicitor’s Office after careful consideration of the question is of the opinion that the attempted transfer by the Standard Oil Company of the capital stock in February 1917 to German interests was never consummated because of the adverse ruling of the Alien Property Custodian and hence the Standard Oil Company still owns all of the capital stock of the D.A.P.G.
The actual situation as regards the Dulles letter of August 28th54 referred to by Loucheur is explained in the memorandum. There apparently has been confusion in the minds of the Mission as to the meaning of the Department’s reference to the ton-for-ton replacement basis. This is explained in the memorandum.
The case of the Wagner ships was one concerning an American corporation with a certain German stock interest, whereas the present is a case of a German corporation with entire American stock interests. The former position of the Department in reference to the Wagner case has been reversed because of the discovery of further German interests.55 In the case of George Borgfeldt and Company, an American company owning all stock in German subsidiary, the Department decided to protect the interest of the American company in deposits in a London bank made by the German subsidiary and to prevent the taking over of such deposits by British authorities.
In the case of the French requisitioned ships referred to, Mr. Clemenceau on September 5th sent a personal message to the President stating that Mr. Hurley56 had agreed to hand over to France 26 steel ships ordered from American shipyards by the French Government in 1917 and requisitioned by the United States and that Judge Payne had written to the French Shipping representatives that he refused to hand over the ships. On investigation it was found that there had been some negotiations with the French in reference to retransfer of these ships but that a basis of financial settlement had not been reached nor had the French made a definitive offer in reference to such financial settlement.
When requisitioned by the United States the construction of the ships had hardly begun. In only four cases of the larger ships had even the keel been laid. The French had suggested that the United States, if the ships were returned, should pay full charter hire for the use of the ships less only the construction cost paid by our Government. Such a basis would have been far more liberal than the basis used in settlement with ships requisitioned from our own nationals, with whom it is arranged that when ships are returned [Page 560] the transferees pay the costs of construction less only a liberal interest charge on the original capital invested by the transferee. It is thought that the Shipping Board are willing to turn over to France, ships of the same tonnage and style as those requisitioned provided France is willing to settle on the same basis as that used for settlement with our own nationals. Any other basis of settlement would be far more liberal than that arranged for with the British or other countries except Norway in which case a breach of treaty was involved. Our Embassy in Paris has some information in this matter. Please cable as soon as possible re action of your French and British colleagues since if they will not assent to proposal the matter will have to be referred to the President which on account of his condition may delay the matter for several days and which in any event I feel reluctant to do.