362.115 St 21/427

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

Sir: Referring to my telegram H–124, of July 20, 1926,11 I beg to enclose herewith five copies of the English translation of the decision of Messrs. Sjoeborg and Lyon (Amiex 2953b) and five copies of the dissenting opinion of Colonel Bayne (Annex 2953c) in the D. A. P. G. Tanker case. I am also enclosing five copies of the transmitting letter.11

The decision of Messrs. Sjoeborg and Lyon was rendered in French and the translation was only received today in time to go in the pouch. I have not yet had an opportunity therefore to study it.

I am sending, two copies of the English text of the decisions to Mr. Piesse, the Counsel of the Standard Oil Company in New York.

I am [etc.]

Ralph W. S. Hill
[Enclosure 1]

Annex 2953b

Majority Award in the Case of the Tankers of Standard Oil Company



It is fitting, before examining the question in any way, to recall the following facts and documents:

By Paragraph I of Annex III to Part VIII of the Treaty of Versailles,12 the German Government “on behalf of themselves and so as to bind all other persons interested, ceded to the Allied and Associated Governments”, represented for the purpose by the Reparation Commission, “the property in all the German merchant ships which are of 1,600 tons gross and upwards”.

The third paragraph of the same Annex lays down that “the ships and boats mentioned in paragraph 1 include all ships and boats which (a) fly, or may be entitled to fly, the German merchant flag; or (b) are owned by any German national, company or corporation”.

In execution of the above provisions, the German Government delivered to the Reparation Commission nine tankers (Helios, Mannheim, [Page 167] Sirius, Niobe, Pawnee, Hera, Loki, Wotan and Wilhelm Riedemann) which belonged to a company having its Registered Office at Hamburg and known as the Deutsche Amerikanische Petroleum Ge-sellschaft, hereinafter referred to as the D. A. P. G.

There was no doubt that, from the point of view of the German Government, the ships in question came under Annex III, seeing that they flew the German merchant flag and also belonged to a company which was indisputably German.

It must be pointed out at once that, subsequently, one of these vessels, the Wilhelm A. Riedemann, was recognized as not deliverable as a vessel under construction under Annex III and that three others, the Helios, Mannheim and Sirius, were sold by agreement between the parties.

The present arbitration is concerned with the tankers Niobe, Pawnee, Hera, Loki and Wotan, with the proceeds from their working and with the proceeds from the sale of the tankers Helios, Mannheim and Sirius.

In March 1919 and subsequently, through the intermediary of the American Delegations to the Peace Conference and to the Reparation Commission, the American “Standard Oil Company” of the State of New Jersey protested against the delivery to the Powers of the vessels in question, of which it claimed the ownership.

In support of this claim, the Standard Oil Company relied upon the fact that the D. A. P. G. had been created by it, with the help of capital supplied by it and employed for the construction of the vessels claimed. It explained that the capital of the D. A. P. G. was 60 million marks, divided into 9 million shares, 21 million share-warrants and 30 million debentures. It alleged that at the time of the coming into force of the Treaty of Versailles, it owned of this capital the whole of the shares and almost all the share-warrants and debentures, except for an infinitesimal part.

It concluded that it had a right of ownership in the disputed vessels of a special kind known as “beneficial ownership”, which made it impossible to say that they were the property of German nationals in the meaning of Annex III.

It further invoked considerations of equity which, in its opinion, justified the return of these vessels.

As the Governments of the Principal Allied Powers represented on the Reparation Commission did not see fit to allow the claim of the Standard Oil Company, a convention was concluded, after many discussions which will be mentioned later, on June 7, 1920,13 between the Reparation Commission represented by M. Dubois and Sir John Bradbury, and the United States Government, represented by Mr. Boyden.

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Under this convention the disputed tankers were temporarily handed over to the Government of the United States of America on the understanding that they were to fly both the flag of that country and the interallied flag.

In order to settle the dispute, Article 1 [sic] of this Convention provided for the constitution of an independent tribunal in the following form:

Paragraph I: “If the United States has not on July 1, 1920, ratified the Peace Treaty and an American representative is not qualified and acting on the Commission, then the Standard Oil Company’s claim shall, at the request of the United States or other interested Governments, be adjudicated by an independent tribunal to be agreed upon between the United States and the several Governments concerned so that all parties interested may be properly heard. The Reparation Commission and the United States pledge themselves to use their best efforts to arrange this tribunal without delay”.

The problems to be submitted to this Tribunal were formulated as follows in Paragraphs F and G:

Paragraph F. “As soon as the Reparation Commission or Independent Tribunal mentioned in paragraph I has declared its decision upon the claim of the Standard Oil Company, the United States will transfer tankers in accordance with such decision, it being agreed, however, that if Standard Oil Company makes good its claim to beneficial ownership of all or any of the tankers in question, then such tankers shall by the terms of the decision be awarded to that Company and transferred to the United States flag”.

Paragraph G. “If Standard Oil Company fails to make good its claim to beneficial ownership of tankers, but is found to be entitled to financial reimbursement, then Standard Oil Company shall be entitled to liquidation of the award by transfer of tankers to a value equal to the award, the tankers to be valued by the Reparation Commission or Independent Tribunal in its award, and the particular tanker or tankers to be selected by the Standard Oil Company and accepted by the Company at the valuation aforesaid”.

By a decision of October 14, 1921, the Reparation Commission proceeded, with the approval of the American Unofficial Delegate, to set up the Tribunal provided for in Paragraph I of the said Agreement. It appointed as Arbitrators: Colonel Hugh A. Bayne, Attorney at the Supreme Court of the United States, and M. Jacques Lyon, Avocatà la Cour d’Appel de Paris. Moreover, it was provided by this decision that in the event of disagreement between them a third Arbitrator previously appointed for the purpose would become a member of the Tribunal and the decision of the majority of the members of the Tribunal thus constituted would be final.

The two Arbitrators appointed by the Decision of October 14, 1921, received the memorials and heard the observations of the Parties concerned, but, as they were unable to come to an agreement and had [Page 169] previously obtained a promise of co-operation from M. Erik Sjoeborg, former Sectional President of the Franco-German Mixed Arbitral Tribunal and Envoy Extraordinary and Minister Plenipotentiary of the King of Sweden, they requested the latter to join them on the Tribunal.

The Tribunal thus constituted proceeded to a further examination of the question. All the documents were submitted to the new Arbitrator for examination.

M. Lyon and Colonel Bayne, acting respectively on behalf of the Reparation Commission and the American Government, waived any further hearing and the Parties confined themselves to adding a short written Note to their previous memorials, the arguments and conclusions of which they maintained.

Thus after various meetings in Paris for deliberation, MM. Sjoeborg and Lyon formulated the majority decision, the text of which is given below, to which Colonel Bayne appended a minority opinion.

The Sale of the Shares in February 1917

Whereas, in support of its claims, the Standard Oil Company asserts that at the time to which it is necessary to go back to determine the validity of these claims, that is, January 10, 1920, the date of coming into force of the Treaty of Versailles, it was owner of all the shares and almost all the other securities of the D. A. P. G;

Whereas the Reparation Commission objects that at a date previous to that time the Standard Oil Company had sold all these shares;

Whereas, in fact, it is indubitable that in February 1917, when America’s declaration of war was imminent, the Standard Oil Company, desiring to save its shares from confiscation by the German Government, sold all its voting shares to a German national, Herr Riedemann; and whereas the price not having to be paid until a later date, the purchaser made over to the Standard Oil Company as partial guarantee, some securities which he held in the United States;

Whereas, however, it is necessary to examine the juridical effects of this sale;

Whereas the above-mentioned securities made over by Riedemann to the Standard Oil Company were seized as enemy property by the Alien Property Custodian, the latter, when opposition was lodged by the Standard Oil Company, asserted his belief in the good faith of the sale, but none the less, by a decision of February 6, 1919, declared it to be null and void;

Whereas this decision being prompted only by reasons of public order could not lead the Tribunal to consider the sale as null;

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Whereas, in order to determine the validity of the latter it is necessary to refer to German law;

Whereas this contract was concluded in Germany; whereas it is necessary in this connection to note that in reply to a cable of February 5, 1917, in which, after formulating his offer of purchase, Herr Riedemann added: “Purchase to be perfect on receipt of your confirmation”, to which the Standard Oil Company replied the same day: “Terms stated accepted and sale confirmed”.

Whereas, moreover, in this case, it was a question of the sale of the shares of a German company, and under the contract the shares sold were, in accordance with the express intention of the parties, to be transferred on the books of the company to their new owner;

Whereas in order to understand the effect of such a sale in German law, two legal opinions were submitted to the Tribunal, the one emanating from Professor Riesse of the University of Berlin, communicated by the Managing Board of the Standard Oil Company, and the other from Herr Max Bonnem, Advocate at the Court of Berlin, directly consulted by M. Lyon and Colonel Bayne;

Whereas it appears from these opinions that since the shares in question are registered shares, German Law, which is strictly formalists on this point, considers their sale as perfect only as and when the securities representing the shares have been the subject of a material transfer from the seller to the purchaser;

Whereas it is not denied that the certificates issued by the D. A. P. G. representing shares which formed the subject of the convention of February 1917, never left the Head Office of the Standard Oil Company in the United States;

Whereas, therefore, failing their handing over to the purchaser, the sale in question must be considered, in German law, as never having been put into execution;

Whereas it is consequently certain that at the time of the coming into force of the Treaty of Versailles, the Standard Oil Company was still owner of the whole of the shares, as well as of almost all the other securities of the D. A. P. G.;

Whereas, this point being established, it is necessary to consider successively the problems arising for the Tribunal out of Paragraphs F and G of the Agreement of June 7, 1920;

Paragraph F

Whereas, under this paragraph, it is for the Tribunal to decide whether the Standard Oil Company has made good its claim to the “beneficial ownership” of all or any of the tankers;

Whereas, at the outset, a question of interpretation of the terms of reference arises;

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Whereas this question is: whether the proof of the ownership by the Standard Oil Company on January 10, 1920, of all or nearly all the various categories of securities issued by the D. A. P. G. is the sole and only condition of its alleged right to the “beneficial ownership” of the tankers, or whether this right does not involve a factor in addition to the right of ownership of the securities, the nature of which factor it is for the Tribunal to determine;

Whereas, in other words, it has to be ascertained whether the previous finding of the right of ownership of the Standard Oil Company in the securities of the D. A. P. G. ends the task of the Tribunal, or whether it is only the point of departure necessary, but in itself insufficient;

Whereas the Tribunal cannot find that the Agreement of June 7, 1920, may be interpreted to mean that the ownership of the securities of the D. A. P. G. would suffice to confer upon the Standard Oil Company the “beneficial ownership” of the tankers;

Whereas, in the first place, such an interpretation is belied by the preparatory reports of the said Agreement, especially paragraphs F and G, as communicated to the Tribunal by Colonel Bayne;

Whereas the Reparation Commission had entrusted the drafting of these two Articles to Sir John Bradbury and Mr. Boyden, representing respectively Great Britain and the United States on the Reparation Commission;

Whereas in a telegram sent on May 19, 1920, to the State Department,15 Mr. Boyden summarised as follows the attitude of Sir John Bradbury with regard to the American proposal for the drafting of Paragraph F:

“He has no objection to Standard Oil Company making any claim of any kind before Tribunal. His objection is to instructing Tribunal that proposal [proven?] ownership of securities shall necessarily lead to any particular result. He wishes whole matter to be determined by Tribunal. If your language ‘claim of beneficial ownership’ means beneficial ownership in tankers themselves, he would accept your idea. It would then be possible for Tribunal to consider whether ownership of securities as proved did or did not constitute beneficial ownership of the tankers, but if your language means, as he thinks, that ownership of securities necessarily determines the question of beneficial ownership, then he is unwilling to accept your suggestion.”

Whereas it further appears from this same cable that Sir John Bradbury, not accepting the American suggestion concerning the drafting of Paragraph F, proposed another wording for this paragraph, namely that which was afterwards inserted in the Agreement;

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Whereas in a Note of May 20, 1920, transmitted to Mr. Boyden, Sir John Bradbury, who drafted it, declared: “If the Reparation Commission rightly understands the contention of the United States Government, it is that the vessels in question are substantially the property of United States citizens by reason of the fact that an American Company is the proprietor of practically the whole of the securities of the German Company to which they belong”;

Whereas it follows from the facts set forth above that prior to the signing of the Agreement of June 7, 1920, the Reparation Commission, through its spokesman Sir John Bradbury, had clearly stated to Mr. Boyden, representing the American Government, that in its opinion Article F, as it stood, could not be interpreted to mean that the problem submitted to the Tribunal was limited to examining the right of ownership of the Standard Oil Company in the securities of the D. A. P. G.;

Whereas, moreover, and independently even of the conclusion to which the preliminary reports necessarily lead, if the Parties concerned had meant to submit to the Tribunal only the problem of the ownership of the securities, they would certainly not have failed to say so expressly and would not have concealed this problem, which it would have been easy to state, under cover of the “claim to beneficial ownership”;

Whereas, moreover, it would be difficult, if the agreement of June 7, 1920, had been interpreted by the Standard Oil Company as limiting the task of the Tribunal, to explain why the introductory memorial of this company, signed by three eminent Counsels was almost entirely devoted to discussing the juridical rights of the shareholders in the corporate assets;

Whereas, finally, such an interpretation of Paragraph F seems to render Paragraph G unnecessary; for either the Standard Oil Company, making good its right of ownership in all or part of the securities, thereby establishes directly, from this very fact, its right of ownership in all or part of the disputed vessels, or else, the Standard Oil Company having failed to get itself recognised owner of the securities, it is difficult to understand on what basis an indemnity could be awarded to it under Paragraph G;

Whereas, since the Tribunal concluded on this point that if the problem of “beneficial ownership” could only arise in so far as the Standard Oil Company had previously established its right of ownership in the securities of the D. A. P. G., the two problems remain distinct, and “beneficial ownership” is only conceivable in the form of a special kind of right, distinct from the right of ownership of the securities and additional to it;

[Page 173]

Whereas it is consequently necessary to ascertain what this right may be from the definition given of it by the Standard Oil Company, to whom it falls to make good its claim to “beneficial ownership”;

Whereas, indeed, the two memorials submitted to the Tribunal in the name of the Standard Oil Company, that of Mr. John B. Moore of December 31, 1921, and that of Mr. Piesse of August 31, 1923, furnish a twofold definition of this expression;


a) Whereas the first definition appears in Nos. 16 and 17 of the De facto and de jure Summary” at the close of the first memorial, (p. 114) as follows;

—“The right of beneficial ownership, derived from the substantial, i. e. the lucrative or economic interest, is universally recognised. This right, although subject to the agreed conditions of legal control, reaches the property itself and comprises the right to the continued present enjoyment and ultimate possession”.
—“The right of beneficial ownership is most frequently assured through corporate organisation, in which individuals unite their resources for purposes of business, and while the control and use of the property are subject to the terms of the corporate agreement, yet the contributing individuals, as the ultimate owners of the assets, have in the capital and business a distinct and positive right of property which the law recognises and protects. This right, no matter by what form of security it is evidenced, is recognised under all legal systems;[”]

Whereas the argument of the Standard Oil Company is perfectly unambiguous since it lays down very clearly that in its view the shareholder in a company has in the assets of that company “a distinct and positive right of property which the law protects”, a right sui generis known as ‘beneficial ownership’ which is essentially a right which “reaches the property”;

Whereas the existence of such a right can be affirmed by the Tribunal only in so far as it could be proved that this right has been recognised by doctrine and sanctioned by jurisprudence;

b) Whereas indeed the memorials of the Standard Oil Company quote passages from authors and appeal to the works of doctrinal authorities;

Whereas, however interesting these opinions may be from the theoretical point of view and for the effect they may possibly have on future jurisprudence, the Tribunal must remark that up to the present they have encountered the opposition of most doctrine and nearly all jurisprudence, which in all countries accord to the legal entity known as a company a personality and a patrimony entirely distinct from those of its shareholders;

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Whereas in fact the decisions of principle of the highest courts of most countries continue to hold that neither the shareholders nor their creditors have any right to the corporate assets other than to receive, during the existence of the company, a share of the profits, the distribution of which has been decided by a majority of the share-holders, and, after its winding up, a proportional share of the assets;

Whereas it is sufficient in this connection to quote, in so far as concerns the United States, the case of Eisner v. Macomber (1919—252 U. S. 189), in which, the point being to determine whether stock dividend should be considered to be dividend which as such became the property of the share-holders or to be capital which remained the property of the company, in this case the Standard Oil Company of California, the Supreme Court of the United States declared that: “The stock holder’s interest pertains not to any part, divisible or indivisible, but to the entire assets, business, and affairs of the Company. Nor is it the interest of an owner in the assets themselves, since the corporation has the full title, legal and equitable, to the whole”;

Whereas this decision must be compared with the decision of the New York State Appellate Court in the case of Riggs v. Insurance Co. (123 [125?]. N. Y. 71890), in which, replying in the affirmative to the question as to whether a share-holder as such had the right to insure certain corporate property, the Court declared: “It seems to us, both upon authority and reason, that the insurance now in question is a fair and reasonable contract of indemnity founded upon a real interest, though not amounting to an estate, legal or equitable, in the property insured”;

Whereas numerous similar decisions have been rendered by the British courts, and whereas it will be sufficient to quote in this connection the following decisions which have established a precedent:

Bulmer v. Norris (1860. 9 C. B. N. S. 19), in which it was decided that the share-holder in a joint stock company had no legal or equitable interest in lands belonging to the company, his interest being limited to a proportional share in the profits of the Company;

R. v. Arnaud (1846, 9. Q. B. 806), in which Lord Denman, deciding the case of a limited liability company which was the owner of a vessel, declared that “the corporation is, as such, the sole owner of the ship, and individual members of the corporation are not entitled, in whole or in part, directly or indirectly, to be owners of the vessel”;

Gramaphone Co. Ltd. v. Stanley (1908. 2. K. B. 89), in which Lord Cozens Hardy declared: “The fact that an individual by himself or his nominees holds practically all the shares in a company may give him the control of the company in the sense that it may enable him by exercising his voting powers to turn out the directors and to enforce his own views as to the policy, but it does not in any way diminish the rights and powers of the directors or make the property and assets his, as distinct from the corporation’s. Nor does it make any difference if he acquires not practically the whole but absolutely the whole [Page 175] of the shares. The business of the company does not thereby become his business. He is still entitled to receive dividends on his snares but no more”;

Whereas a decision of the House of Lords of April 3, 1925 (Macaura v. Northern Assurance Company Ltd.) (Times Law Reports, May 8, 1925, page 447), summing up and confirming all this jurisprudence, declared null and void a contract insuring a stock of building timber belonging to a company, concluded by a person who was at the same time the owner of all the shares of the company and by far its most important creditor;

Whereas in support of this conclusion it is pertinent to quote the following passages by Lords Buckmaster, Sumner and Wrenbury:

Lord Buckmaster: “Turning now to his position as shareholder, this must be independent of the extent of his share interest. If he were entitled to insure holding all the shares in the company, each shareholder would be equally entitled, if the shares were all in separate hands. Now no shareholder has any right to any item of property owned by the company, for he has no legal or equitable interest therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up”;

Lord Sumner: “He stood in no legal or equitable relation to the timber at all. He had no concern in the subject insured. His relation was to the company, not to its goods, and after the fire he was directly prejudiced by the paucity of the company’s assets, not by the fire”.

Lord Wrenbury: “This appeal may be disposed of by saying that the corporator, even if he holds all the shares, is not the corporation and that neither he nor any member of the company has any property, legal or equitable, in the assets of the corporation”;

Whereas, in so far as concerns French jurisprudence, it will be sufficient to quote Professor Thalier, who is one of the most eminent opponents of the classic theory of the personality of companies, but who adds, on page 189 of the 1916 edition of his Traité élémentaire de droit commercial: “Jurisprudence has immutable faith in it and does not seem even to suspect the existence of the other constructions which doctrine advances in opposition”;

c) Whereas the memorials of the Standard Oil Company rely also on various legal or administrative decisions on the seizure of ships or the sequestration of property belonging to companies during the war, according to which courts and administrations of the belligerent countries admitted that the nationality and personality of a company could not constitute an obstacle to a seizure or a sequestration if it could be proved that the company was “controlled” by enemy subjects;

Whereas however the decisions and circulars relied on have avoided placing themselves in direct opposition to the classic theory and the [Page 176] established doctrine; whereas they never denied that the company should in private law be considered to be the legitimate owner of the property seized or sequestrated; whereas reasons of public weal and national safety alone led them to admit that the enemy nationality of the share-holders must affect the character and functions of the company;

Whereas, in order to bring out the real nature of the decision of the House of Lords in the case of Daimler Company Ltd. v. Continental Tyre & Rubber Company (1916 App. 2 Cas. 307), and to show the error in the conclusions which the Standard Oil Company seeks to draw from it in favour of its theory, it is sufficient to quote the following passage from Lord Parker’s opinion: “No one can question that a corporation is a legal person distinct from its corporators; that the relation of a share-holder to a company which is limited by shares, is not in itself the relation of principal and agent or the reverse; that the assets of the company belong to it, and the acts of its servants and agents are its acts while its shareholders as such have no property in the assets and no personal responsibility for those acts”;

Whereas the decision quoted above, without ignoring either the personality of a company or its right of ownership in the corporate assets, merely draws certain conclusions from the control which is or may be exercised by a share-holder or a group of share-holders over the activity of the company;

Whereas to state that a physical person, a legal person or a group of physical or legal persons exercise a preponderating influence over a given legal person is obviously not equivalent to declaring or admitting that they have a right of ownership in the property of the latter;

Whereas this is so true that when the legal person controlled is an enemy its property can be seized, no account being taken of the fact that the third parties vested with this control are allied or neutral;

Whereas, although it has happened that, for the reasons above set forth, Allied companies have been found to be enemy in character and have been treated as enemies, it has not happened—no legal decision is quoted to this effect—that enemy companies have not been treated as such, even when some or all of the share-holders were of Allied or neutral nationality;

Whereas the Supreme Court of the United States sustained a similar theory in the case of the Pedro (175 U. S. 354), in which a vessel belonging to a Spanish company and captured by the American Navy during the Spanish-American war was declared lawful prize by the Supreme Court, although all the shares of this company were held by British nationals;

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d) Whereas finally the awards of international arbitration relied on by the Standard Oil Company, in particular those rendered in the cases of the “Delagoa Bay,” “El Triunfo,” “Alsop” and “Orinoco Steamship” Companies cannot be held to support its theory;

Whereas in none of these cases has it been a question of granting or assigning to claimant share-holders or debenture-holders rights in any part of the corporate assets, but merely of granting them indemnity for damage caused by unjustified intervention on the part of the government;

Whereas moreover in all these cases, and notably in the first two, which are the most important, it was clearly specified that the shareholders and debenture-holders were admitted, in view of the circumstances, to be exercising not their own rights but the rights which the company, wrongfully dissolved or despoiled, was unable thenceforth to enforce; and whereas they were therefore seeking to enforce not direct and personal rights, but indirect and substituted rights;


Whereas, it is true, the conception of “beneficial ownership” has taken, in the oral argument of the Standard Oil Company as reproduced and completed in its supplementary memorial of August 31, 1923, a new form which this memorial presents as follows:—

“The owner of property may, or may not, be the beneficial owner of that property, and a beneficial owner may not be the owner, when that word is used in the proprietary sense. The owner may be the legal owner of the title to the property, but the beneficial owner is he who has or owns the beneficial interest in that property. The words beneficial owners as used in paragraphs F and G of the Agreement of June 7, 1920, must and can only have been used in the sense of the owner of the beneficial interest without the legal title” (page 42);

“The words beneficial owner when used together can have but one meaning, and that is, the owner of the benefit, or the owner of the beneficial interest. In the case of a corporation, the corporation itself is entitled to receive the income from the property owned by the corporation, but the share-holders of the corporation are the parties for whose ultimate benefit such income is received. In the present case the D. A. P. G. were entitled to receive the profits derived from the tankers in question, but such profits were received by the corporation for the benefit of its share-holders, and therefore the shareholders were the beneficial owners of the tankers” (page 44);

Whereas, according to this new and alternative interpretation, the share-holder would be owner of the corporate assets, not in the legal but in the economic sense, in that he would be owner of the income produced by the operation of the corporate assets;

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Whereas however it is not correct to state that the share-holders have a right of ownership in the profits of the operation; whereas indeed the profits belong to them only in so far as and when they are distributed; whereas before this date they are precisely the property of the company, which at the General Meeting will decide as such, by the majority vote of the share-holders, on the use to be made of the profits;

Whereas from that time the share-holders have a right of ownership only in that share of the income which it has been decided to allot to them;

Whereas this right, and the right to share in the division of the assets of the company when dissolved, seem indeed to constitute the two essential characteristics of the right of the share-holder and to be merged with it, so that it is impossible to discern the distinct aspects of any “beneficial ownership” which might be added;


Whereas, in fine, according to the commentaries furnished and the documents produced by the Standard Oil Company, “beneficial ownership” constitutes a right of ownership for the shareholders either in the corporate assets or in the profits from the operation of these assets;

Whereas, in the first hypothesis, this alleged right would be in contradiction with universal jurisprudence, in particular with that of the United States, Great Britain and France;

Whereas, in the second hypothesis, it would be merged with the shareholder’s right of ownership in his shares, and is therefore only a new expression for the same legal fact;

Whereas, finally, in the course of its written and oral observations the Standard Oil Company has sometimes seemed to maintain that the beneficial ownership on which it relied was not included in the classic legal categories, but must be considered and recognised as a right of an economic nature;

Whereas, however, to proclaim the economic character of an alleged right is not sufficient to vest it with the privileges and sanctions of a right of ownership; whereas the right which the shareholder derives from his share is indisputably of an economic nature, but cannot confer upon him a right of ownership either in the corporate assets or in the corporate earnings, as has just been shown;

Paragraph G

Whereas the Standard Oil Company, not having made good its claim to the beneficial ownership of any of the tankers under paragraph F of the Agreement of June 7, 1920, it is for the Tribunal [Page 179] to ascertain whether this company is justified in claiming indemnity under paragraph G of the same Agreement;

Whereas—in vain, so far as this paragraph is concerned—the Standard Oil Company seems at times to seek to maintain that the right to financial reimbursement necessarily arises from its possession of the shares of the D. A. P. G.;

Whereas, since compensation under paragraph G should take the form of a surrender of boats, and since paragraph F provides for the event of the Standard Oil Company’s establishing its beneficial ownership of some of the boats only, which alone would be assigned to it, the difference between the two paragraphs, in such a construction, is not evident;

Whereas moreover the arguments previously adduced in connection with paragraph F to set aside the identity between beneficial ownership and ownership of shares may be extended to paragraph G, in respect of the alleged identity between the possession of shares and the right to financial reimbursement;

Whereas, just as the ownership of shares can imply beneficial ownership in the corporate assets represented by the tankers only in so far as it is re-inforced by a legal factor of which the Tribunal finds no trace in doctrine or jurisprudence, so the possession of these shares can confer a right to financial reimbursement only in so far as this right is founded on some express text or on considerations of justice involving a judicial sanction;

Whereas, finally, when paragraph G lays down that a certain number of tankers, to be determined later, will be handed over to the Standard Oil Company only in so far as it may be found to be entitled to financial reimbursement, it clearly leaves it to the Tribunal to examine and to judge whether it is so entitled;

A) Whereas the essential if not the only title relied on by the Standard Oil Company is paragraph 20 of Annex II to Part VIII of the Treaty of Versailles;

Whereas this article reads as follows in French and English:

“La Commission, en fixant ou acceptant les payements qui s’effectueront par remise de biens ou droits déterminés, tiendra compte de tous droits et intérêts légitimes des Puissances alliées et associées ou neutres et de leurs ressortissants dans lesdits”;

“The Commission, in fixing or accepting payment in specified property or rights, shall have due regard for any legal or equitable interests of the Allied and Associated Powers or of Neutral Powers or of their nationals therein”;

Whereas it is to be remarked that there is a notable discrepancy in these texts, for while the English stipulates that due regard shall be had to any “legal or equitable interests”, which corresponds to [Page 180] very clear and well-known conceptions of English and American law, of which equity is a form, the French employs the infinitely vaguer phrase of “droits et intérêts légitimes”, which corresponds to no definite legal idea;

Whereas therefore everything points to the conclusion that the French phrase is merely the translation of the English, in which alone the expression employed has legal sense, and which makes clear the general tenor of the articles;

Whereas if we rely on the meaning in English law of the words “legal or equitable interests” and if we consider that the hypothesis envisaged in paragraph 20 is the “remise” to the Reparation Commission of “specified property or rights”, it is obvious that the “legal or equitable rights” to which, according to this same paragraph, due regard shall be Thad, are only the real rights, the jura in re”;

Whereas it has just been shown that the rights of share-holders in the corporate assets cannot imply such a limitation;

Whereas it is to be noted that according to the decisions of American and British courts above mentioned the right of the share-holder implies no legal or equitable interest in the corporate assets;

Whereas it will be sufficient in this connection to recall that, in the case of Eisner v. Macomber, the Supreme Court of the United States declared that “the corporation has the full title, legal and equitable, to the whole (the entire assets, business and affairs of the company)”, and that in the case of Macaura v. Northern Assurance Company Ltd. Lord Wrenbury, interpreting the opinion of the members of the House of Lords, declared that “no member of the company has any property, legal or equitable, in the assets of the corporation”;

Whereas moreover the Reparation Commission, in its interpretation of paragraph 20, agreed with this jurisprudence in so far as it confirmed the report of its Maritime Service of January 13, 1922, on “legal and equitable claims under paragraph 20”;

Whereas this report rejected all claims advanced by Allied or neutral share-holders in German shipping companies whose boats had been handed over in execution of Annex III, because “a shareholder’s interest in a shipping company owning a ship or ships cannot be regarded as a legal or equitable interest in the ship or ships under paragraph 20;”

B) Whereas, it is true, it was a question only of claimants possessing some shares of these companies, and whereas the Standard Oil Company has several times relied on the fact that it was practically the sole share-holder and the sole creditor of the D. A. P. G.;

Whereas however paragraph 11 of Annex II, which may be relied on in this discussion with as good reason as paragraph 20 of the same Annex, specifies that the decisions of the Reparation Commission must [Page 181] follow “the same principles and rules in all cases where they are applicable”;

Whereas this provision makes it obviously impossible to draw a distinction between the holder of a share in a company and the holder of all the shares;

Whereas only the extent and not the nature or the essence of his right can vary with the number of shares that a share-holder may possess;

Whereas moreover it is inconceivable in practice that during the existence of a company and the transfers of shares that take place the rights of share-holders in the corporate assets could vary with the number of shares held by each of them;

Whereas these rights must be identical, whether the company’s shares are distributed among many holders or are owned by a single holder;

Whereas it will be sufficient to recall in this connection the decisions of the House of Lords above quoted in the cases Gramaphone Company Ltd. v. Stanley and Macaura v. Northern Assurance Company Ltd.

C) Whereas, it is true, this same paragraph 11 of Annex II states that the Commission “shall be guided by justice, equity and good faith” and that the Tribunal is equally bound to consider the Standard Oil Company’s claim from the point of view of equity, above all since this company has on several occasions made a final appeal to reasons of equity;

Whereas however the entire theory of the Standard Oil Company rests on the establishment of its right of ownership, on January 10, 1920, in the shares of the D. A. P. G. that is, shares involving, together with the right to vote, the control of this company;

Whereas in fact it is obvious that if the Standard Oil Company had been able to rely only on the ownership of share-warrants and debentures on this date, if it had been unable to come forward only as a creditor, even a first creditor, of the D. A. P. G., its claim would have been deprived of all legal basis and devoid of any consideration of equity;

Whereas the sale of shares to which it proceeded in February 1917 in favour of a German national was, according to the Standard Oil Company, a regular and valid sale ergo omnes; whereas the Standard Oil Company has not ceased to contend, before the Alien Property Custodian, that in its view the sale preserved this character;

Whereas, although the Tribunal has nevertheless deemed it necessary to set aside this contract of sale, thereby allowing the right of ownership of the Standard Oil Company in the shares on January 10, 1920, to stand, it was only by strict application of the German law, which has remained exceptionally formalistic on this point;

[Page 182]

Whereas the Standard Oil Company was able to submit its claim to the Tribunal only by the application of strictly legal considerations;

Whereas therefore it does not seem that the Standard Oil Company, which, in order to be able to take advantage of paragraph 20, was obliged to rely on strictly legal arguments, can be allowed, in order to escape from the interpretation which this paragraph implies and from the application of it made by the Reparation Commission to shareholders in other shipping companies, to rely on mere considerations of equity;

D) Whereas moreover, even if we set aside this argument and rely solely on arguments based on equity, they do not justify granting financial reimbursement to the Standard Oil Company;

Whereas, first of all, the Standard Oil Company cannot, in support of its claim for reimbursement, rely on the arbitral awards rendered in the cases mentioned above;

Whereas, in fact, the damage involved in these cases, for which the foreign shareholders or debenture-holders obtained reparation through international channels, was damage caused by government intervention recognised to be wrongful; whereas thus, in the cases of the Delagoa Bay and El Triunfo companies, the Portuguese and Salvador Governments, in appropriating without compensation the property of these companies by arbitrary measures which affected them alone, had committed acts that might be ranked as overstepping of authority or abuse or [of?] law;

Whereas in the present case no such grievance could be or has been brought forward; whereas it was in execution of an international undertaking that the German Government proceeded to the confiscation of the tankers; whereas moreover it has not been claimed that the indemnity paid under this head to the D. A. P. G. by the said Government was comparable to that which in the same circumstances has been granted to other German shipping companies;

Whereas, in application of a generally accepted principle, any person taking up residence or investing capital in a foreign country must assume the concomitant risks and must submit, under reservation of any measures of discrimination against him as a foreigner, to all the laws of that country;

Whereas therefore an Allied or Associated national having invested capital in Germany has no ground for complaint if for this reason he incurs the same treatment as German nationals;

Whereas this principle of equality of treatment, and not of discrimination in favour of Allied and Associated nationals, has moreover been consecrated by the Treaty of Versailles in Articles 276 C and D and 297 J dealing with the treatment to be accorded in Germany [Page 183] to the property and interests of the said nationals after January 10, 1920;

Whereas this same principle seems also to have been followed by the Reparation Commission in the case of laws for the execution of the Dawes Plan;

Whereas in fact several metallurgic and mining companies, indisputably German but of which most or all the shareholders were Allied nationals, having protested to the Reparation Commission against the subjection of their concerns to the mortgage charge represented by the industrial debentures of the Dawes Plan, the Commission merely transmitted their claims to the Trustee for these Debentures, together with the unanimous opinion of its Legal Service (Opinion No. 527 of November 27, 1924); whereas this opinion rejected the claims because all foreign nationals, including Allied and Associated nationals, residing in Germany or possessing property there, must be considered to be subject, on the same footing as German nationals, to the payment of the charges provided for by the laws carrying out the Dawes Plan;

Whereas, in fine, at the time of the confiscation of the tankers of the D. A. P. G., the German Government committed no act of discrimination against this company as compared with other German shipping companies;

Whereas therefore the granting of compensation to the Standard Oil Company cannot be justified, as against these companies, by any consideration of equity;

Whereas such compensation could not in equity be justified as against the other Allied or neutral share-holders in German shipping companies, since the claims for compensation advanced by these share-holders have rightly been rejected by the Reparation Commission;

Whereas it is true that these same share-holders held only a few shares, but whereas it seems that equity would be thwarted a fortiori if a share-holder could collect, as the holder of a large number of shares, an indemnity which had been refused to less important share-holders;

For These Reasons

The Tribunal

Declares that the Standard Oil Company has not made good its claim to beneficial ownership of any of the tankers in question, under paragraph F of the Agreement of June 7, 1920;

Declares that neither is the Standard Oil Company justified in claiming indemnity under paragraph G of the same Agreement;

Finds, therefore, that the tankers Niobe, Pawnee, Hera, Loki and Wotan, as well as the proceeds of their operation and the proceeds [Page 184] of the sale of the tankers Helios, Mannheim and Sirius, shall remain, under Annex III to Part VIII of the Treaty of Versailles, the property of the Allied and Associated Governments represented by the Reparation Commission.

The present award is drawn up in two copies signed by MM. Erik Sjoeborg and Jacques Lyon.

One of these copies is deposited with the General Secretariat of the Reparation Commission at Paris.

The other copy is delivered to the Government of the United States of America, by the intermediary of Mr. Hill, Unofficial Delegate of the said Government to the Reparation Commission.

Done and signed at Paris this fifth day of August, one thousand nine hundred and twenty-six.

  • Erik Sjoeborg
  • Jacques Lyon
[Enclosure 2]

Annex 2953c

Dissenting Opinion in the Case of the Tankers of Standard Oil Company

Paragraph F

I regret that I cannot concur in the decision of my learned colleagues.

I am of the opinion that the Standard Oil Company has made good its claim to beneficial ownership of all of the tankers in question, except the Riedemann and that, therefore, under Paragraph F of the Arbitration Agreement of the 7th of June 1920, those tankers should be awarded to it.

In applying Paragraph F of the agreement the point of divergence which separates me from my learned colleagues is not one of law, but of interpretation of the language of the above agreement.

They interpret the Standard Oil Co.’s “claim to beneficial ownership” to mean a claim that its ownership of the shares of the D. A. P. G. vested it with an “estate legal or equitable” in the assets of the D. A. P. G. in the technical sense of that expression as a term of private municipal law.

If such had been the basis of the claim I would have no hesitation in rejecting it. Often as the courts have given effect to the obvious fact that the shareholders are the real parties in interest where the assets of the corporation are in question, they have found ways to do so without classifying the interest as “an estate legal or equitable” in the assets. (See Appendix A at page 15 hereof16). Indeed the [Page 185] Courts are so unanimous in holding that a stockholder has no “estate legal or equitable” in the corporate assets, in the technical sense, that, in addition to my other reasons for holding that the claim made was not of that technical character, I should find it difficult to believe that the United States would have advanced or that the Reparation Commission would have supposed that they were basing their claim upon a technical legal proposition which any lawyer could readily have advised them was contrary to the unanimous decisions of the Courts.

The claim of the Standard Oil Co. was simple as to its facts, and, in my opinion, was obvious as to the equity of the appeal for relief which was based on those facts. The simple nature of the claim under Paragraph F has been obscured by what I deem to have been an irrelevant discussion of classification under some of the most technical rules of private municipal law. (Note A.*)

As to the facts claimed they were that the German corporation, the D. A. P. G., in which ownership of the tankers was vested, was organised, owned and controlled by the Standard Oil Co. of New Jersey, an American citizen, and for thirty years had been operated as an integral part of its international commerce; that the total capitalisation of the D. A. P. G. was M.60,000,000 represented by shares, share warrants and debentures as follows: shares M.9,000,000., share warrants, M.21,000,000., debentures M.30,000,000,; that, while only the shares carried voting powers, yet all three classes of these securities represented a substantially identical interest in the property and business of the corporation and participated alike in its earnings; that at the relevant date the Standard Oil Co. owned over 99.91 per cent of the M.30,000,000 of shares and share warrants and over 99.98 per cent of the M.30,000,000 of debentures.

As to the equity of the appeal for relief which was based on these facts, it was that it resulted therefrom that the entire substantial or economic interest in the tankers was vested in an American citizen, and that to take them to indemnify the Allied Powers for Germany’s wrong would be in substantial effect to enrich those Powers (and Germany, who would receive a credit) at the sole expense of a citizen of one of their Allies in the War.

The Justice of the above appeal for relief had already been recognised by Great Britain and France (to whom the tankers here in [Page 186] dispute would be allocated, if retained) when, in the early part of the War, Great Britain surrendered the captured D. A. P. G. tanker Leda to the Standard Oil Co. on exactly the same claim of facts and on exactly the same, equitable appeal, characterised by exactly the same name of “beneficial ownership”, and Great Britain and France, on the same grounds, consented to the transfer to the Standard Oil Co. and to the American flag of other D. A. P. G. tankers in foreign ports.

The respondent replies that, in so doing, these Powers yielded to motives of policy and not to rules of law. That is true, for, under existing rules of law, the beneficial owners, however that term be interpreted, are never entitled to present ownership of the property.

Under the rules of law the tankers, having been legally vested in a German corporation, were, by the Treaty, vested in full ownership in the Allied and Associated Powers who ratified the Treaty. This was the clear and absolute legal situation. Therefore in stipulating by the agreement of June 7, 1920 that the tankers would be awarded to the claimant if it established its “beneficial ownership” thereof, the interested Powers were yielding not to rules of law, but to motives of policy which induced them to deal with a friendly Power equitably rather than legally; to yield their strict legal rights in favour of equitable considerations.

But, since the date when the interested Governments, without requiring any arbitration had transferred the Leda to the Standard Oil Co. and consented to the transfer to it of the other tankers, a new question had arisen, viz: was the Standard Oil Co. in fact owner, as it claimed, of substantially all of the shares, and if not, what was the extent of its interest.

The validity of the attempted sale in February 1917 of the M. 9,000,000 of voting shares was in question. To decide that and the other questions involved in the agreement of 7 June 1920, the present tribunal was constituted.

We are unanimous in holding that all of the disputed questions of fact must be decided in favor of the claimant.

We are divided, however, in our interpretation of what the parties must be held to have meant by the term “beneficial ownership”.

I say “must be held to have meant” by the expression “beneficial ownership” because it is not in itself a term of clear significance; nor has it yet become a term of art. It is not defined nor even referred to in the law dictionaries and digests to which I have had access. It is of modern origin and is mainly in popular use, tho, as I shall show presently, eminent legal authorities have used it to refer not to an “estate legal or equitable” in the technical sense, but to the well-known [Page 187] attributes and rights of a beneficial and proprietary character in the corporate assets and profits which pertain to the shareholders interest.

We know, and the Reparation Commission knew that the claimant used it in that sense. We are not permitted to say that the Reparation Commission agreed to that meaning, for Sir John Bradbury, their representative in the negotiation of the final terms of the agreement of 7 June 1920, refused to define in advance the meaning of the term, tho he never denied that it meant the foregoing kind of interest nor asserted that it meant an “estate legal or equitable” in the ships, in the technical legal sense.

According to a cablegram of April 29, 1920, from Mr. Boyden to his Government,17 Sir John, after first characterizing Paragraph F as follows refused to concede in advance that, under Par. G. tankers should be awarded in mathematical proportion to the proved stock ownership. But he expressed the following view on the claim which is interesting and significant.

“Bradbury expressed subject to further reflection the view that if Standard Oil proved ownership of substantially all securities and based claim on theory that under such conditions tankers should be regarded as property United States citizen, even though flew German flag, and even though technical title in German corporation, then very strong case presented and no dangerous precedent established by decision of tribunal to that effect, but Bradbury did not think that tribunal would decide or that Reparation Commission had power now to concede that Standard Oil ownership of one share or 50 per cent of shares or securities entitled Standard Oil to any tankers. Felt such concession by Commission very dangerous though no objections to Standard Oil’s arguing point to tribunal, but concession by Commission would make possible claim for exemption or indemnity from Reparation Commission in kind or in money by an Allied or Neutral shareholder in German company or any other German corporation affected by reparation”.

And on May 20, 1920, Sir John wrote out his understanding of the claim as follows: “If the Commission rightly understands the contention of the United States Government it is that the vessels in question are substantially the property of United States citizens by the reason of the fact that an American company is the proprietor of practically the whole of the securities of the German Company to which they belong”.

Tho unwilling formally to agree on a definition of “beneficial ownership” Sir John clearly understood that the claim was not that the tankers were the property of an American citizen, but that, because of its ownership of all of the corporation’s securities the tankers [Page 188] “should be regarded as” its property; that, by reason of such totality of stock ownership they were, tho not in form, nevertheless “substantially” the property of the claimant. Tho unwilling to agree on a definition of “beneficial ownership” Sir John was ready to accept as the meaning whatever the Tribunal held that the parties must be held to have meant by it. The responsibility of the decision thus would rest on the Tribunal and not on the Reparation Commission.

My colleagues suggest that the proposed form of Par. F “If the Standard Oil Co. makes good its claim to beneficial ownership the tankers shall be awarded to that Company” was amended by Sir John Bradbury by adding after “ownership” the words “of all or any of the tankers” for the purpose of making it clear that he did not concede that ownership of all of the securities should necessarily mean “beneficial ownership”.

The answer to this suggestion is that the words added were necessary and were added for another reason, namely, that other parties were claiming some of the tankers, and, if, as in the case of the Riedemann, a superior title was proven by these parties, the Reparation [Commission?] could not properly agree to award all of the tankers to the claimant.

But the above argument of my colleagues turns against their view, for it shows that they consider that “beneficial ownership” without the addition of limiting expressions might properly be interpreted in the sense in which I interpret it.

In interpreting “beneficial owner” as synonymous with “proprietor of an estate legal or equitable” I think that my colleagues have exerted a mistaken lawyerlike zeal in endeavouring to bring within the boundaries of familiar legal rules and legal terms the language of an agreement in which the parties disregarded strict legal rules and made the decision depend upon the interpretation of a term of popular rather than of well-defined legal signification.

In so waiving the strict rule of law in favor of equitable considerations, the Reparation Commission, acting for the interested Powers, followed the precedents of the Delagoa Bay Railway case, the Salvador Commercial Co. case and the Alsop case, cited by the claimant in its brief. These were all international arbitrations provoked by diplomatic representations made on behalf of shareholders and security holders damaged by the unjust taking of the corporate assets. Under existing rules of law their interest in the assets was not an estate therein legal or equitable and gave them no right of action. But the interested Powers, by agreements made to meet the particular cases, waived the defenses of the strict rules of law in favor of equity and substantial justice, recognizing that the shareholders and security holders of the corporation were the real parties damaged by [Page 189] the unjust taking of the corporate property, technical rules of municipal law to the contrary notwithstanding.

By interpreting “beneficial ownership” as synonymous with “ownership of an estate legal or equitable”, my colleagues have, I believe, defeated the purpose of the agreement.

Under the strict rules of law, full legal ownership of the tankers was vested first in the German corporation, and then by the Treaty, in the Allied and Associated Powers who ratified the Treaty. Unless these Powers had agreed to waive their rights under existing rules of law no tribunal municipal or international applying existing rules of law could have awarded the tankers to the Standard Oil Co.

It was to meet the alleged inequitable situation created by the law that the parties resorted to an agreement by which the tankers should be awarded, not according to the rules of law, but according to rules formulated by the parties for the particular case. Under no known rules of law is one entitled to present ownership of an object in which his interest is less than full ownership. Neither the proprietors of estates legal or equitable less than ownership nor the proprietors of the entire economic interest, the shareholders are entitled under the rules of existing law to the remedy provided by Paragraph F in favor of the “beneficial owner” of the tankers. In agreeing to award ownership of the tankers on grounds other than complete legal ownership, the parties, for the purpose of doing substantial justice, went outside of the existing rules of the law. Therefore, I believe that, in the absence of clear reasons to the contrary the parties to this international agreement of arbitration ought not to be held to have used the popular expression “beneficial ownership” as synonymous with the technical legal expression “estate legal or equitable”, an interest which, in strict law, would no more carry the right to the remedy provided by the agreement than would the economic interest arising from ownership of all of the shares, an interest whose equitable appeal was not as strong as the equitable appeal of ownership of all of the shares and debentures.

If we had no guide to its meaning save the expression itself, we would have to decide that in relation to the assets of a corporation “beneficial ownership” in the first place did not mean ownership; the prefix “beneficial” shows that it means something different from ownership. It must therefore refer to an interest in the assets having attributes of ownership of a beneficial character.

The shareholders interest in the assets of a corporation is of the foregoing character. They are vested with the entire lucrative or economic interest in the corporate assets, and with the following juridical rights, namely, the right to exploit the assets for their benefit and profits through representatives chosen by them, to receive the benefits [Page 190] of such exploitation in the form of declared dividends; to invoke the aid of the Courts (by suing in the Corporation’s name) to protect their above interest in the assets from loss or waste in certain cases where their authorized corporate representatives fail or refuse to or are incapable of protecting them, and ultimately, on dissolution and payment of the Company’s debts, the right to enter into the full possession and ownership of the assets.

We are not, however, obliged to rely solely on an analysis of the words themselves to determine the meaning of “beneficial ownership”. Eminent jurists have used the expression in the foregoing sense.

In his work on Private Corporations, 2nd edition, Mr. Morowetz one of the most eminent of our American authorities on corporation law, refers to the stockholders as the “beneficial owners” of the corporate assets.

Mr. Morowetz uses the expression “beneficial owners” in the sense in which the Standard Oil Co. used it to characterise its claim. It is perfectly clear that Mr. Morowetz when he uses the term is not asserting any disputed theory relative to the attributes of stock ownership. That he does not by characterising the interest in which he refers as “beneficial ownership” mean to claim that the stockholders are vested with a present estate in the assets in the technical sense is shown, not only by the context in which he uses the term, but by the fact that, elsewhere in his work, he recognised the limitations on the rights and remedies of stockholders which are laid down in the decisions which have been cited by the counsel of the Reparation Commission. In other words, Mr. Morowetz and the other authorities cited below consider that “beneficial ownership” appropriately describes the underlying economic interest which carries important rights and attributes of a beneficial and proprietary character, though among those rights and attributes is not included a present estate in the assets, in the technical sense of that term.

Mr. Morowetz says: “In equity, the conception of a corporate entity is used merely as a formula for working out the rights and equities of the real parties in interest, i. e. the shareholders. … Even in those cases in which only corporate rights and obligations are involved, and the corporation is nominally interested only, as an entity, the courts are constantly obliged to consider that the real persons in interest are the individual shareholders. … The fact that the legal title of a corporation to property held by it becomes extinguished by a dissolution, is no reason why the beneficial owners should lose their rights”. (Morowetz on Private Corporation[s], 2nd edition, I, 22, 222, 225, 231, II, 990, 991)

Mr. Morowetz considers it proper therefore, to refer to the stockholders as the “beneficial owners” of the corporate assets not because [Page 191] he pretends that their interest constitutes an “estate legal or equitable” in the assets (for he concedes that it does not) but because that interest makes the stockholders the real parties in interest in all matters affecting he assets and carries with it attributes of a beneficial and proprietary character which the law recognises and enforces.

In Lynch vs. Turrish No. 236, Fed. Rep. 656 [653] affirmed on appeal by the U. S. Supreme Court, (247 U. S. 221) Mr. Justice Sanborn, now a member of the United States Supreme Court, in giving the opinion of the Court, said that the stockholders were the “beneficial owners” of all of the corporate property. He said:

“It is true that a corporation holds the legal title of and the right to manage, control, convey its property and that a stockholder is without that title and right. But after all, the corporation is nothing but the hand, or tool of the stockholders in which they hold its property for their benefit. They are the equitable beneficial owners of all of its property and it is the mere holder and manager of it for them. … So in reality as against its stockholders, a corporation has no, and they have all the beneficial interest in its property. Even substantial increase in the value of its property immediately and proportionately increases the actual value of their stock and every substantial decrease of its value immediately decreases the actual value of the stock.”

Mr. Justice Sanborn, in this case, while characterising the stockholder’s interest in the assets as “beneficial ownership” conceded at the same time that “a stockholder has no legal title or right to the income, gains, or profits of his corporation until the dividends of that income, or of those gains or profits, have been declared”. Furthermore, in the case of Watson vs. Bonfils (116 Fed. Rep. 157) the same judge (Sanborn) held that where one corporation owned all of the stock and was the sole creditor of another, the two are “existing entities as distinct and separate from their stockholders and creditors as is one individual from another.”

Obviously, therefore, Judge Sanborn, like Mr. Morowetz, while recognising the limitations of the stockholders rights which are laid down in the decisions referred to by the counsel of the Reparation Commission, regarded “beneficial ownership” as an appropriate term to describe the stockholders’ substantial interest which carried important attributes of a beneficial and proprietary character which the law enforced.

In Brock vs. Poor, 216 New York 387 (1915) page 401, the Court refers to the stockholders as “the ultimate or equitable owners of its (the corporation’s) assets”, in the very sentence in which it affirms the principle “that the corporation in respect of corporate property and rights is entirely distinct from the stockholders who are the ultimate or equitable owners of its assets; that even complete ownership [Page 192] of capital stock does not operate to transfer the title to corporate property and that ownership of capital stock is by (no means identical with or equivalent to ownership of corporate property”.

In Flynn vs. Brooklyn City R. R. Co., 158 N. Y. 493, the same Court in recognizing the right of a stockholder to sue on behalf of all of the stockholders to set aside a fraudulent lease of the corporate assets made by the directors, said at page 504:—

“The stock owned by the plaintiff made him the equitable owner of an undivided fractional part of the entire assets of the Company”.

It is evident therefore, that there is no inconsistency between the decisions which designate as “beneficial ownership” the shareholders’ interest in the corporate assets and the decisions which hold that the shareholders have no present legal or equitable estate in and to the corporate assets.

If text writers and courts use “beneficial ownership” to refer to the foregoing economic interest and to the attributes of a beneficial or proprietary character which renders the stockholders the real (as distinguished from the technical) parties in interest in matters affecting the corporate assets, this Tribunal ought not to strain to find that the term was used in a technical sense in an international agreement whose purpose was remedial, in that it accorded to the “beneficial owner” rights and remedies not recognized under existing law, that is, the right of the “beneficial owner” to full ownership and the remedy of present possession in full ownership.

If, as I conclude, the expression “beneficial ownership” as applied to the stockholders interest in the assets does not mean that they are vested with an estate legal or equitable therein, then it would be irrelevant whether the Standard Oil Co. did or did not argue that stockholders, in addition to the other attributes of stock ownership, were vested with such an estate. But my colleagues are mistaken, I believe, in assuming that the claimant did so argue. The quotations from the brief, upon which they rely, separated from their context, do not reproduce the claimant’s real meaning.

The paragraphs quoted or referred to are 17 [16?], 17, 18 and 19 at pages 114, 115 of the claimant’s brief. Read together, the basis of the claim of “beneficial ownership” namely the “lucrative or economic interest” is fairly set forth; the legal title of the corporation in the corporate property is fully recognised, and the right of beneficial enjoyment and ultimate possession are the attributes to which especial reference is made. The statement of the brief that the interest which carries the above attributes “reaches the property itself” does not necessarily imply a claim to a present “legal or equitable estate” in and to the property in the technical sense, for it fairly refers to the right of [Page 193] the stockholder ultimately on dissolution to possess the assets in full ownership.

In paragraph 17, it is fairly conceded that beneficial ownership of the assets is subject to the control and use of the property through the agencies prescribed by the corporate organisation, and the final statement of the paragraph that the shareholders “as the ultimate owners have a distinct and positive right of property which the law recognises and protects” is another way of saying something, which if put in a slightly different form, no one would, I think, deny, namely, that the right of the shareholders, after the dissolution of a corporation and the payment of its debts, to the possession and ultimate ownership of the corporate assets is a distinct and positive right of property which the law recognises and protects.

It is misleading, I think to read the words which are used to characterise the right separately and apart from the entire context which limits and describes the right which is thus characterised.

There is nothing in Paragraph 18 and 19 of the S. O. Co.’s brief inconsistent with the definition of “beneficial ownership” as I have interpreted it.

Paragraph G

Altho the claimant was led to believe, during the negotiations of the Treaty, that its claim would receive equitable consideration under the terms of Para. 20 of Annex II, I am obliged, for the technical reasons set forth by my colleagues, to concur in their interpretation of that paragraph as limited to estates in property legal or equitable in the technical sense of that expression. Paragraph 20 does not therefore afford any equitable relief for the damages suffered by shareholders on account of the inequitable taking of the corporate assets.

I do not, however, concur in the views of my colleagues regarding the equities of the claim for financial reimbursement, but refer to my views on that subject set forth in my above opinion regarding the application of Paragraph F.


For the foregoing reasons I am of the opinion that, by “its claim to beneficial ownership of all or any of the tankers”, as used in Paragraph F of the agreement of 7 June, 1920, the High Contracting parties must be held to have meant the Standard Oil Co’s claim that it was proprietor of the entire economic and substantial interest in the tankers, arising from its ownership of substantially all of the securities of the corporation in which at the relevant date the legal ownership of the tankers was vested.

[Page 194]

Having established its foregoing interest in all of the tankers except the Riedemann, I am of the opinion that the claimant is entitled, under the agreement, to an award of the tankers Niobe, Pawnee, Hera, Loki, and Wotan, and of the proceeds of their operation, and of the proceeds of the sale of the tankers Helios, Mannheim and Sirius.

The present dissenting opinion is drawn in two duplicate originals, each signed by Hugh A. Bayne.

One copy is deposited at the General Secretariat of the Reparation Commission at Paris, and the other copy is delivered to the Government of the United States of America, by the intermediary of Mr. Hill, Unofficial Delegate of the said Government to the Reparation Commission.

Hugh A. Bayne
[Appendix A]

In Ludvigh vs. Woolen Co. 159, Fed. Rep. 796: The Court said:

“For purpose of equity courts will look behind that artificial personality, and, if need be, ignore it altogether.”

In Anthony vs. American Glucose Co. 146 N. Y. 407 (1895), the Court said:

“We have of late refused to be always and utterly trammeled by the logic derived from the corporate existence where it only serves to distort or hide the truth.”

In U. S. vs. Milwaukee Co. 142 Fed. Rep. 247, the Court said:

“When the notice [notion] of legal entity is used to defeat public convenience, justify wrong, protect fraud or defend crime, the law will regard the corporation as an association of individuals.”

Cook, in his work on Corporations (6th ed.) par. 663 at page 1983 says:

“The abstractions of the corporate entity should never be allowed to bar out or pervert the real and obvious truth.”

“The chief application of this statement of law is in cases of fraud, but there is a line of cases which apply this rule where there is no fraud, and where the owner of the stock is held liable merely because he owns all of the stock of the corporation.

“Thus, it has been held that where a railroad company causes a telegraph company to be incorporated, and subscribes to all its stock, and appoints all its officers, and holds it out as the future owner of a telegraph system which the railroad owns, and then sells that system to some one else, a person contracting with the telegraph company on the faith of the scheme being carried out may hold the railroad company liable on the contract, on the principle of a principal being liable on the contract, of its agent. It has also been held [Page 195] that where the corporation does business by organising branch corporations, and the stockholders in the latter are disregarded, and the main corporation pays up the stock and manages it without regard to its corporate character, the property of the branch corporation is subject to the debts of the parent company. A corporation organized by a patentee to infringe a patent, which he sold, is estopped the same as he would be to deny its validity. And there are other decisions to practically the effect that the courts will ignore the corporate existence under certain circumstances”.

And at page 1986–7 (and see p. 1987)

“Where one corporation is merely a ‘dummy’ of another corporation, a mortgage on the property of the latter may attach to property of the former, even in priority to a new mortgage on the property of the former.”

Citing Central Trust Co. vs. Kneeland 138 U. S. 414

And at page 1972:

“Where a bankrupt practically owns the entire capital stock of a corporation, the bankruptcy court will consider the corporation as merely an agent of the partnership and will extend its jurisdiction over its property and determine in the bankruptcy proceedings the respective rights of the creditors of both concerns.”

The Court said: “The fiction of legal corporate entity cannot be so applied by the partners as to work a fraud on a part of their creditors, or hinder and delay them in the collection of their claims, and thus defeat the provisions of the bankrupt act. The doctrine of corporate entity is not so sacred that a court of equity, looking through forms to the substance of things, may not in a proper case ignore it to preserve the rights of innocent parties or to circumvent fraud.” (In re Rieger 157 Fed. Rep. 609).

  1. Not printed.
  2. Not printed.
  3. Malloy, Treaties, 1910–1923, vol. iii, pp. 3329, 3429.
  4. Foreign Relations, 1920, vol. ii, p. 598.
  5. Foreign Relations, 1920, vol. ii, p. 592.
  6. Post, p. 194.
  7. Note A: For instance, the interest of the shareholders in the corporate assets tho it entitles them to full ownership thereof on dissolution of the corporation is not classified, under the rules of private municipal law, as an “estate in the assets legal or equitable”, even at the moment of the dissolution of the corporation when it entitles the shareholders to present possession and full ownership of the assets. Actually and potentially, however, the shareholders’ above interest in the assets is nearer to full ownership than most of the interests therein which are classified as “estates legal or equitable”. [Note in the original.]
  8. Not printed.