441.11 St 23/10

The Ambassador in Great Britain (Kellogg) to the Secretary of State

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)

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.]

Eyre A. Crowe
[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:—

That they possess no legal remedy in this country, and that they must therefore formulate their claim through the diplomatic channel.
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.
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.
The company therefore suggest that the matter should be submitted to arbitration.

These points call for the following observations:

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.
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:—
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.
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.
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.
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.
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.]

J. Ramsay MacDonald
  1. Not printed; Sir William G. Tyrrell was British Assistant Under Secretary of State for Foreign Affairs.
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