441.11 St 23/10
The Ambassador in Great Britain (Kellogg) to the Secretary of
State
London, October 10,
1924.
[Received October 17.]
No. 779
Sir: I have the honor to refer to the
Department’s telegraphic instruction No. 124 of May 16, 2 p.m., 1924,
and subsequent correspondence with regard to the claim of the Standard
Oil Company of New Jersey against the British Government for the
destruction in Roumania of property belonging to the Romano-Americana,
the Roumanian subsidiary of the Company.
Since then the following developments have occurred. Upon receipt of the
instruction under reference a member of the Embassy called at the
Foreign Office in order to discuss the situation and to request that a
Conference should be held with a representative of the Standard Oil
Company. Subsequently the request for a Conference was confirmed in
writing to Sir William Tyrrell on May 27;65 to this communication
I received a reply, dated June 23, from Sir Eyre Crowe re-stating the
position of the British Government and offering to hold a Conference
although he believed that no useful purpose would result therefrom. A
copy of Sir Eyre’s note is enclosed.
[Page 310]
Mr. Hayes, representative of the Standard Oil Company appeared in London
at this juncture and after going into the whole subject very thoroughly
with him, and, as you will recollect with you also during your stay in
London as President of the American Bar Association, I deemed it wise to
confer with the Minister of Foreign Affairs personally.
On September 23 I placed before the latter a full presentation of the
American contentions and on that day also wrote you a confidential
letter giving the details of my conversation with Mr. MacDonald.66 Mr. MacDonald promised
to go into the matter personally. He has now written me under date of
October 6, a copy of which is also enclosed, giving reasons in detail
why the British Government cannot alter its position in the premises.
Mr. Hayes, having been informed of the contents of Mr. MacDonald’s
communication, is considering what action can now be taken and will
consult further with me.
I venture to invite your serious consideration to this adverse decision
and to request your further instructions.
I have [etc.]
For the Ambassador:
F. A.
Sterling
Counselor of
Embassy[Enclosure 1]
The British Permanent Under Secretary of State
for Foreign Affairs (Crowe) to
the American Ambassador (Kellogg)
London, 23 June,
1924.
No. C 9478/8593/37
My Dear Ambassador: Sir W. Tyrrell referred
to me your letter of the 27th May66 regarding the compensation claimed by oil
companies operating in Roumania for the destruction of their
properties by the Allies in 1916.
The attitude of His Majesty’s Government towards this very complex
matter was set forth in two notes addressed to your Embassy on
November 19th, 1919, and July 2nd, 1920,66 respectively, in answer to
questions (similar to those raised in your letter of May 27th) put
forward by your predecessors, enquiring as to the arrangements which
were being made for compensating American companies whose
properties, in common with others, were destroyed during the
critical days following the defeat of the Roumanian armies in 1916.
For convenience of reference I enclose copies of these notes.
[Page 311]
When the Roumanian oil fields were in hourly danger of occupation by
the Germans, the British, French and Russian representatives in
Bucharest, for reasons of urgent military necessity, urged the
Roumanian Government to destroy such oil properties as were likely
to fall into German hands, and a general arrangement was made
whereby such destruction could be put immediately into effect. At
that time events followed each other in such rapid succession that
there was no time for the Allied Governments to enter into separate
compensation agreements with each individual company, nor was it
either desirable or possible that they should do so, as it clearly
rested with the Roumanian Government, under whose aegis and in whose
territory foreign companies were operating, either to consent or to
refuse to destroy the properties. After a good deal of urgent
negotiation, the Roumanian Government agreed to the destruction of
the wells, plant etc. and ipso facto became
responsible for any subsequent liability towards individual
companies.
In order to secure the cooperation of the Roumanian Government,
without which this essential step was impossible, it was necessary
for the Allied Governments to compensate the Roumanian Government
for any losses which might fall upon it as the result of the
exercise of its sovereignty. In 1916 the intention was that the
British, French and Russian Governments should each bear one third
of the compensation to be eventually paid and His Majesty’s Minister
at Bucharest notified the Roumanian Government in general terms and
in writing of the willingness of His Majesty’s Government to
compensate them. But neither then nor since have His Majesty’s
Government ever intimated that they could be considered as having
incurred direct liability towards individual companies. They have
consistently maintained their attitude towards all British and
foreign companies alike from whom compensation claims have been
received.
The effect of the undertaking given by His Majesty’s Government to
the Roumanian Government was thus solely to create a potential claim
against His Majesty’s Government by the Roumanian Government, which
was indebted to His Majesty’s Government in considerably larger sums
in respect of war advances. In 1920 therefore an agreement was
reached between His Majesty’s Government on the one hand and
Monsieur Titulesco, representing the Roumanian Government, on the
other, whereby it was laid down that sums owing by His Majesty’s
Government to the Roumanian Government in respect of compensation
for the destruction of oil properties should be set off against a
corresponding total of the debt owing by the Roumanian Government to
His Majesty’s Government. The relevant portion of this arrangement
reads as follows: “The Chancellor of the Exchequer and the Roumanian
Minister of Finance agree in principle that it is
[Page 312]
desirable that the sums due by the
British Government to the Roumanian Government in respect of damage
done to Roumanian oil wells at the time of Roumania’s entry into the
war should be set off against a corresponding total of the Roumanian
Government’s debt to the British Government, subject to satisfactory
arrangements being made for the settlement, as between the Roumanian
Government and the proprietors of the oil wells, of the claims of
the latter against the Roumanian Government for compensation in
respect of damage to the wells.” It is further agreed that it is for
the “Roumanian Government and not the British Government to arrive
at an arrangement for settlement of claims for compensation
above-mentioned”.
Having adopted this principle in regard to our own and foreign
companies, His Majesty’s Government cannot possibly make an
exception in the case of American claims. The Conference which you
suggest in your letter would no doubt afford an occasion to restate
and to explain our attitude, but I fear that there is no prospect
whatsoever of our being able to modify it. If you feel that a
Conference would none the less be of use to you, I have little doubt
that arrangements could readily be made to suit your
convenience.
Believe me [etc.]
[Enclosure 2]
The British Secretary of State for Foreign
Affairs (MacDonald) to the
American Ambassador (Kellogg)
My Dear Ambassador: Since our conversation
on 23rd September at which you raised the question of compensation
for the destruction of certain oil properties in Roumania, I have
examined all the papers bearing on the subject and have seen in
particular a letter addressed to you by Sir Eyre Crowe on the 23rd
June last.
I need scarcely tell you that in studying the question afresh I have
made every endeavour to keep in mind the point of view of your
government and of the American company which is primarily
concerned.
On thoroughly examining the question, and having due regard to the
actual circumstances in which the destruction was carried out I
cannot but again endorse the views set out in Sir Eyre Crowe’s
letter, and I trust that you also will on consideration come to
admit that no government, with the facts before them, could decide
otherwise than we have felt bound to decide.
The contention of the Standard Oil Company is roughly as follows:—
- (1)
- That they possess no legal remedy in this country, and
that they must therefore formulate their claim through the
diplomatic channel.
- (2)
- That there exists a moral liability upon His Majesty’s
Government to make good the damage which they practically
forced the Roumanian Government to inflict and which was in
fact largely carried out by British officers.
- (3)
- That the promise which was made, to repay the Roumanian
Government the costs of compensation, was in substance a
joint and several guarantee to compensate the companies
concerned, and that His Majesty’s Government are not
justified in setting a liability arising out of this
destruction against the Roumanian war debt to us, which
arose from quite distinct and different
circumstances.
- (4)
- The company therefore suggest that the matter should be
submitted to arbitration.
These points call for the following observations:
- (i)
- It is inaccurate to say that the Standard Oil Company are
debarred from action in the British Courts. There is nothing
to prevent a foreign company from bringing a petition of
right against the Crown, and His Majesty’s Government would
not dream of resisting a petition on the ground of the
nationality of the Company.
- (ii)
- The Standard Oil Company, while stating that they have no
legal remedy against His Majesty’s Government (which as I
have shown is inexact), proceed to admit, as far as I
understand their argument, that their claim is not a legal
but a moral one. I am unable to follow them for these
reasons:—
- (a)
- The Romano-Americana Company, even were its
capital one hundred per cent. Standard Oil, was, and
is, a Roumanian and not a United States corporation.
The Standard Oil Company, in reaping the benefits
accruing from the operations of such a corporation
in Roumania, must have been prepared to accept all
the risks of trading in a country which, from the
outbreak of the war, had every appearance of
becoming involved in the general hostilities.
- (b)
- The only part which His Majesty’s Government
played in the matter of destruction was to place at
the disposal of the Roumanian authorities an
efficient weapon of destruction. Whatever influence
may have been exercised by the Allied ministers at
Bucharest, the legal position is unaltered. The
Roumanian Government were directly responsible for
the measures carried out under the Roumanian
prerogative in the interests of all the Allies,
measures from which the United States themselves
benefited when they entered the war a few months
later.
- (c)
- The British agreement in respect of compensation
for the Roumanian Government was, by way of
indemnity, given to the Roumanian Government
conjointly with other Allies, and not by way of
guarantee to the Companies or persons affected by
the destruction. When the Standard Oil Company were
asked whether they were causing representations to
be made to the French Government similar to those
which were being made in London, they admitted that
they were not taking any such steps.
- (iii)
- His Majesty’s Government have always declared that no sort
of guarantee was assumed by them in regard to the several
companies. The Courts have upheld this view, and the
Standard Oil Company themselves admit that there exists no
contract on the basis of which they could bring legal
action.
- (iv)
- As regards arbitration, His Majesty’s Government fail to
see on what basis a recourse to arbitration could be
founded. How could His Majesty’s Government and the United
States Government go to arbitration in regard to damage
done, under the authority of the Roumanian Government, to a
Roumanian company? And how could His Majesty’s Government
accept arbitration as between His Majesty’s Government and
the United States Government unless the French and Russian
Governments, who are in exactly the same position as
ourselves, were also involved?
Such, my dear Ambassador, are the specific arguments with which His
Majesty’s Government justify the attitude they have adopted. They
appear to me to be conclusive. Indeed I must ask you to place
yourself for a moment in our position. If, in our desire to meet the
wishes of your government, (and, as you know, such a desire is ever
present with us) we were to make ex gratia
payments to the Standard Oil Company, you will admit that we could
not possibly refuse to do the same for all the other British and
foreign interests involved. This would entail the payment on the
part of the British tax payer of some ten million pounds or more. Do
you really expect that the House of Commons would approve such a
payment, when the Courts in this country have expressed the definite
opinion that His Majesty’s Government are under no liability to make
it, and when, even if there did exist such a liability, it would
have to be shared by France and Russia? Nor do I quite see how we
could defend such a proposal by contending that the cancellation of
a portion of the Roumanian war debt equivalent to the compensation
to be paid by the Roumanian Government to the companies is not a
real compensation but represents merely a paper arrangement. To do
this would be to establish a theory that we do not regard Allied
debts as having any existence in fact—a theory which no creditor
government would wish to father, and which has indeed been
frequently and unequivocally repudiated by the Government of the
United States.
I have explained to you frankly the considerations on which our
attitude is based, since I conceived it better that you should know
all our arguments and all our difficulties. To me these arguments
appear incontrovertible and these difficulties inevitable. If,
however, you can devise some means by which the difficulty can be
turned, such as joint action on the part of the creditor states to
oblige Roumania to pay the compensation which is legally incumbent
upon her, then I should be most ready to consider your suggestions
with every desire to reach an agreed solution.
Believe me [etc.]
