The Unofficial Representative on the Reparation Commission (Boyden) to the Secretary of State

My Dear Mr. Secretary: I beg to hand you copy of the brief filed in behalf of the Reparation Commission before the independent [Page 210] tribunal appointed under the agreement between the United States and the Reparation Commission, dated June 7, 1920.46

This brief, which of course is already in the hands of Standard Oil Counsel, was prepared by Mr. H. L. Gwyer, formerly legal advisor to our Maritime Service, to whom the Commission entrusted the duty. It is a strong presentation of the view unfavorable to the claim of the Standard Oil Company.

The reply to this brief will be prepared and presented by the Standard Oil attorneys, and one need not fear that there will be any inadequacy in their argument, but inasmuch as the argument is nominally made in behalf of the United States and in form presented by the United States, it is probably desirable that counsel for the Department should familiarize themselves with this brief before the reply of the Standard Oil is submitted to the Department. It is also true that the Department, under the previous Administration, committed itself to a certain view regarding this case; that the question was debated very hotly and was prominently before the public. For these reasons, the Department may be more interested than in the ordinary case where it would be concerned merely to give American interests proper standing and reasonable support before an international tribunal, without itself taking any position regarding the claims.

Without intimating any doubt as to the case itself, it occurs to me also to suggest that the Department may wish to consider its position in the contingency of a decision unfavorable to the Standard Oil. Under these circumstances, two obligations will be incumbent upon the United States under the terms of the tanker agreement. First, for the return of the tankers; second, for the accounting contemplated by the agreement. If the obligation to return arises, it is desirable that the Department should be in position to accomplish the return with the promptness which ought to be the characteristic of compliance with such an international arbitration. In the same sense the Department ought to be in position to furnish the accounting promptly and in such shape as to carry conviction of its accuracy and completeness, accompanied by whatever payments it might call for.

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The brief takes strongly the position, in substance, that there is no such legal principle as beneficial ownership by a security holder of property of a corporation. I should be inclined to say that this point was foreclosed by the agreement itself, which has always struck me as a recognition of such a principle. Such a term in such an agreement must mean something, though the agreement does not explain what it does mean.

On the question of ownership I understand the facts to be, in substance, as follows:

The Standard Oil now owns all but about one-half of one per cent of the securities of the D. A. P. G. Company. Prior to our entry into the war the Standard Oil owned all the stock (30,000,000 marks) and all the bonds (30,000,000 marks) except 31,500 marks. Its prewar ownership with respect to all the bonds of the Company and with respect to about seventy per cent of the total stock of the Company has never changed, but just prior to the entry of the United States into the war, the Standard Oil undertook to transfer about thirty per cent of the stock (9,000,000 marks) to a German national, and this thirty per cent of the stock was actually transferred on the books of the Company. It may be important also that this percentage of the stock comprised all the voting shares, although it represented only 3/20 of the capital investment, the Standard retaining the remaining 17/20.

Payment by the German national was to be made six months after the end of the war, and as security for payment the German national delivered to the Standard Oil certain of his own American securities. In February 1919 the United States Alien Property Custodian, after considering the transaction, decided that the transaction constituted an illegal attempt at evasion, and that the American securities of the German national still belonged to him, and must be dealt with by the Alien Property Custodian. Such a decision would obviously involve the conclusion, so far as the Alien Property Custodian is concerned, that the sale of the shares in the D. A. P. G. was invalid.

Since the Treaty went into effect the shares transferred to the German national have been re-transferred to the Standard Oil with the exception of 563,000 marks owned by the Hamburg American Line, and secured by it from the German national to whom the Standard made the supposed sale. How the Standard secured the retransfer and whether it involved compensation by the Standard Oil to German nationals, or vice versa, we do not know. The brief of the Standard Oil mentions the re-acquisition of the shares but does not state the details.

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Assuming the principle of beneficial ownership, and assuming also that beneficial ownership results from any holding of obligations or shares which is not total, the proportion of the Standard Oil’s interest in the company would seem to be sufficient, particularly considering the continuous ownership of all the bonds, regardless of the validity of the transfer of thirty per cent of the stock to the German national, but, if, as claimed in Mr. Gwyer’s brief, voting control is an important factor, then the validity of the transfer is a serious element in the case.

Yours very truly,

R. W. Boyden
  1. Brief not printed. The plan for the formation of this tribunal was approved in the following telegram of June 16, 1921, from the Secretary of State to the Ambassador in France:

    “Department agrees to plan proposed for formation of tanker tribunal. This contemplates designation of Colonel Bayne by United States and designation of second member by Reparation Commission and the designation of a third member if it should become necessary, by the first two. It is preferable that an English speaking Dane, Norwegian or Swiss be selected. Standard Oil has also indicated its approval of plan. The company expresses hope however that in view of recent decision of Reparation Commission in the case of Danzig vessels adjudged to belong to Standard Trust Company of Zoppot, it will now be possible to reach a direct settlement without trouble, expense and delays of an arbitration.” (File no. 362.115 St 21/280.)