362.115St21/337: Telegram

The Secretary of State to the Ambassador in France ( Herrick )

457. L–20. For Logan.

Department astonished at proposed decision of Tanker Tribunal indicated in your letter of November 13, which seemingly not only disregards principles underlying tanker agreement but terms of agreement itself.

[Page 214]

While Department recognizes that the agreement is not couched in the clearest terms possible, this is due to the circumstances surrounding its negotiation. In its inception the tanker dispute related to the temporary allocation of tankers during armistice. Dispute not having been settled when treaty came into force the question of their permanent disposition was incorporated into the negotiations which were carried on with the other governments concerned, first through their representatives on the Supreme Council, then through Kemball-Cook47 and finally through Bradbury.48 In view of necessity of obtaining approval of a number of states to each provision it was not practicable, upon the change in situation, to reopen provisions of the agreement on which concurrence had been reached. It should be borne in mind that the Reparation Commission in finally signing the agreement acted not only for itself but for the other interested states. These states therefore can be considered to have acquiesced in any decision by the tribunal regarding the disposition of the tankers in pursuance of the agreement.

The views of the United States in the case were set forth at length in the Department’s 3532 of October 22, 1919, to American Mission, Paris,49 and were communicated to the Supreme Council. This Government has consistently maintained these views. It stated therein that “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’ …” The telegram also pointed out that the United States was entitled to the “pre-execution of paragraph 20 of Annex II (Reparations) and of the latter part of the Lloyd George agreement50 which were both adopted in contemplation of the tanker situation.”

Examination of the files indicates clearly that the views of the United States embodied in these quotations were acquiesced in by those representing the other governments in the negotiations and showed clearly that the agreement was based on the principles embodied in paragraph 20 of Annex II, Part VIII and in paragraph 5 of the Wilson-Lloyd George agreement which in part provides “that if any Allied or Associated or Neutral Government, person or corporation, a national of such Government and acting through such Government, notifies the Commission that they have an equitable claim against any vessel which has not been, or is not being satisfied [Page 215] by the enemy governments, that claim will be considered on its merits by the Commission which may adopt any procedure it thinks fit, provided it is expeditious and is calculated to do substantial justice as between the Allied and Associated Governments on the one hand and the claimant on the other.”

While Wilson-Lloyd George agreement has not been ratified its provisions must nevertheless be considered in interpreting the meaning of the tanker agreement since it was contemplated by the parties that the principles embodied in paragraph 5 were applicable in respect to the disposition of the tankers. The decision of the Separation Commission referred to in paragraphs 23 and 24 of the brief filed on behalf of the Commission with Tanker Tribunal in answer to the claim of the Standard Oil Company is binding neither on the Tribunal nor the United States. Moreover the Reparation Commission expressly stated this decision to be without prejudice to the tanker claim.

In consonance with above principles this Department, throughout the negotiations, has, as Mr. Wallace was instructed to inform the Conference of Ambassadors in telegram 529 of March 13, 1920,51 taken the position that “this Government cannot consent that legal or equitable interests of its citizens can be used to indemnify another power or its citizens for losses inflicted by Germany.”

The indicated view of the Tribunal that a stockholder has neither legal nor equitable interest in the assets of the corporation, not only violates the terms of the tanker agreement but is contrary to the position taken by the Allied Governments. The beneficial ownership of the D. A. P. G. tankers by the Standard Oil was recognized by the Allies in 1914, and in view of this beneficial interest these governments permitted transfer of a number of tankers to American flag. In case of the Leda 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 Oil Company. There has since been no change in status of ownership of German company save possibly with respect to the 9,000,000 marks of voting shares representing approximately one sixth of total financial interest of Standard Oil in that company. The right to vote has no direct bearing on beneficial interest. However, even assuming the validity of such sale the Standard Oil concededly still owned, in addition to 30,000,000 marks of debentures, 21,000,000 marks of nonvoting shares, and thus retained a vastly preponderant financial interest in the German company with respect to which, in accordance [Page 216] with principles embodied in the agreement, it should not suffer a loss through the action of states associated with the United States in the war.

In evidence of the broad meaning given the term beneficial ownership as used in the negotiations and agreement, attention is called to Department’s statement in its 273 of February 3, 1920, to Embassy at Paris52 that it understood the claim to mean “that on proof by the Standard of its preponderant financial interest in the D. A. P. G. by whatever name such interest may be called, whether described as beneficial ownership or as value, and whether based on ownership of shares, of share warrants, or of debentures, the tankers shall remain with the Standard Company finally and under the American flag.”

In considering phraseology of agreement it should be remembered that during the negotiations it was not feasible to pass upon proof of Standard Oil’s claim of interest in German company nor upon validity of attempted stock sale, but these were deemed matters for determination by the Tribunal: Also that everyone understood that Standard Oil did not claim any lien, mortgage or other direct proprietary interest in tankers: Furthermore, while there was never any dispute of principle that Standard Oil should be compensated for any financial loss suffered were tankers taken under treaty, however, tankers being vital to company’s business, some negotiation was necessary in order to reach an agreement that such compensation should be in tankers rather than money.

Department considers that the meaning of paragraph G is that should Standard Oil fail to establish beneficial ownership, nevertheless it should be compensated for any loss suffered, such compensation being in tankers. It was recognized that such payment might involve adjustments with Reparation Commission or Germany and this paragraph contains express provisions on this point. It even provides for adjustment of any payment for tankers made by Germany to German company, so the payment by Germany to which you refer, of 75,000,000 marks in the greatly depreciated paper currency in no way prejudices the case. The Tribunal has authority to adjust this amount which in no way represented the actual value of the vessels.

It is possible that the Tribunal may not have had before it the background of the agreement. You may therefore submit the substance of the foregoing to Mr. Bayne and if the Tribunal still holds the views indicated in your letter he may in turn bring these views to the attention of the other members of that body.

  1. Mr. Basil A. Kemball-Cook, assistant British representative on the Reparation Commission; in 1920 Mr. Kemball-Cook was director of naval sea transport, British Ministry of Shipping.
  2. Sir John S. Bradbury, British representative on the Reparation Commission.
  3. Foreign Relations, 1920, vol. ii, p. 554.
  4. ibid., p. 512.
  5. ibid., p. 588.
  6. Foreign Relations, 1920, vol. ii, p. 584.