441.11 St 23/13

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

My Dear Mr. Kellogg: May I refer to despatches from your Embassy No. 779 of October 10, 1924; No. 801 of October 21, 1924; No. 819 of October 28, 1924, together with your personal and confidential note of October 21, 1924,69 and to the various enclosures accompanying these communications, in relation to the claim of the Standard Oil Company of New Jersey against Great Britain arising from the destruction of the properties of its subsidiary, the Romano-Americana Company, in Roumania. I advert particularly to Mr. Ramsay MacDonald’s note to yourself of October 6, 1924,70 and to your comments thereon.

I share your view as to the weakness of Mr. MacDonald’s note. It … calls for a careful and detailed reply. I assume that the opinion of the Honorable Geoffrey Lawrence71 accompanying your despatch of October 28, 1924, satisfied the doubts which you earlier expressed as to whether there was a remedy in the British courts against the British Government for the destruction of property unless based on contract. Should the Foreign Office still assert that the claimant could maintain a petition of right under the issue as we have defined it, the Attorney General might, nevertheless, take a different stand and even challenge the jurisdiction of the court, or the court itself might do so. It would be unreasonable to force a foreign claimant into a domestic tribunal where the matter of jurisdiction remained an unsettled question. We have been, as you know, confronted with such a situation with respect to the case of Swift and Company v. the Board of Trade.

I enclose a memorandum setting forth what, in my judgment, might well be communicated to the Foreign Office for the purpose partly of making our record clear, and partly of emphasizing the basis of our contention and the nature of the redress desired. You will observe the extent to which it reflects your own strictures upon Mr. MacDonald’s note. In view of your close knowledge of the case and of your understanding of the relation which it bears to other American claims against Great Britain, you will, of course, exercise discretion with respect to the wisdom of submitting the document to the Foreign Office at the present time.

Should our request for reconsideration of the matter and for arbitration be refused, the path would be clear for the further mutual [Page 316] consideration of this and numerous other British claims arising from the war. These are vast in number and present a problem demanding a fair and conciliatory attitude on the part of both countries. The Department is undertaking a survey of these claims with the expectation of ultimately gaining British acquiescence as to some amicable mode of adjustment. To that end it would be useful at this time to draw out the views of the British Government in the present case as a means of accentuating the issue involved, and as a preliminary step toward the solution of the larger question in relation to which the Standard Oil case is merely an incident. Our immediate need is to secure acknowledgment by Great Britain of its obligation to give American claimants who deny the propriety of the acts of Great Britain while a belligerent or who assert that the commission of those acts was productive of an obligation to pay compensation for losses occasioned thereby, their day in court before some international forum. That forum should be one the scope of whose jurisdiction should not be challenged by Great Britain or by the tribunal itself.

If arbitration be refused, there remain other available modes of adjustment, such as recourse to a Joint Commission. At the present time, however, it seems to me worth while to make a definite request for arbitration, regardless of the consequences, and as the initial step in the direction to be generally followed.

In the hope that you may share my views in regard to this matter, I am [etc.]

Charles E. Hughes

Memorandum by the Solicitor of the Department of State (Hyde)

The note from Mr. Ramsay MacDonald of October 6, 1924, in relation to the claim of the Standard Oil Company of New Jersey for compensation for the destruction of oil properties in Roumania, has received the most attentive consideration of the Government of the United States. My Government feels that the precise contention of the claimant has been misunderstood by His Majesty’s Government; and that, therefore, the analysis of it by Mr. Ramsay MacDonald and the conclusions which he draws therefrom fail in a large degree to meet the precise issue involved.

Mr. Ramsay MacDonald states, first, that the contention of the Standard Oil Company is, roughly, “that they possess no legal remedy in this country, and that they must therefore formulate their claim through the diplomatic channel”. This is believed to be substantially correct.

[Page 317]

He states that the company contends, secondly, “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”. The Standard Oil Company does not rest its claim upon a moral liability, but upon a legal basis, asserting that the British Government is under an obligation imposed by international law to make compensation for the losses sustained by the company. This contention was, moreover, made clear by the American Ambassador in the course of his conference with the Foreign Secretary.

It is said that the company contends, thirdly, “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”. With respect to this statement it may be said, briefly, that the Standard Oil Company is not understood to be claiming under this agreement. It asserts that no contractual relationship between Great Britain and Roumania has any bearing on the legal obligation of Great Britain toward the claimant. On the other hand the company has contended that it would be inequitable for Great Britain to point to an agreement with Roumania as a means of encouraging claimants to proceed against that country if in fact through any process of set off by reason of Roumania’s debt to Great Britain, Roumania was to receive no funds from Great Britain to enable her to pay claimants against herself.

The statement that the company suggests, fourthly, that the matter be submitted to arbitration, is correct, although the reasons for that demand differ to the degree that has been noted from those imputed to the claimant.

The observations of Mr. Ramsay MacDonald respecting the claim deserve close examination. He states, first, that it is inaccurate to say that the Standard Oil Company is debarred from action in the British courts; that there is nothing to prevent a foreign company from bringing a petition of right against the Crown; and that His Majesty’s Government would not dream of resisting a petition on the ground of the nationality of the company. This statement is believed to be based on the theory that the claim is one founded on an express contract. The claim of the Standard Oil Company is, in fact, however, based primarily upon a different theory—upon the contention that for the destruction of its properties caused by or directly resulting from the acts of British authorities, the British Government is burdened with an obligation under international law to make full compensation. [Page 318] It is unnecessary to discuss whether the conduct productive of this obligation was essentially tortious. The Government of the United States is advised that for a claim based on such a theory no legal remedy exists in the British courts. Thus, the statement in Mr. Ramsay MacDonald’s note with respect to the right of a foreign claimant to bring a petition of right against the Crown seems to be inapplicable to the present case, at least in so far as the claimant may be unable to prove the existence of an express contract.

It would seem unnecessary to make response to Mr. MacDonald’s point “a” of his second main contention—that the company’s claim has a moral rather than a legal basis; for, as has been observed, such is not the fact. Having what is believed to be a solid legal foundation, this Government cannot admit that the fact that the Romano-Americana Company (which is wholly owned by the Standard Oil Company of New Jersey) is a Roumanian corporation has any bearing on the question of the liability of the British Government. The views of Lord Salisbury expressed September 10, 1889, with respect to the Delagoa Bay Railway case72 are in harmony with the view that the state whose nationals are the owners of the shares of a foreign corporation may interpose in their behalf in case the corporation suffers wrong at the hands of a foreign state when those nationals have no remedy except through the intervention of their own Government.

In this connection, it is contended by Mr. MacDonald that the Standard Oil Company in reaping benefits accruing from the operations of the Roumanian corporation must have been prepared to accept all the risks of trading in a country which, from the outbreak of the war, is said to have had every appearance of becoming involved in the general hostilities. Such an assumption of risk cannot be admitted, if at least it is to be implied thereby that the neutral owners of the shares concerned relinquished by reason of their corporate investment in Roumania rights which their neutral sovereign might have normally preferred against a belligerent had they made their investment there as individuals. In a word, the Roumanian corporate garb of the American interest did not free the British Government from any obligation to make reparation which it would normally have owed to any neutral national doing business in Roumania. To such a national there long engaged in profitable enterprise involving the use and development of immovable property, the foreign belligerent destroyer of that property owed a distinct obligation to make reparation for the loss which it occasioned. That [Page 319] obligation was imposed by the law of nations; and the neutral national assumed no risk that the belligerent destroyer would not fully respect it. Nor can it be admitted that an American neutral corporation engaged in business in Roumania through a Roumanian subsidiary lost any rights for reimbursement for property destroyed by a belligerent through the circumstance that the country within whose territory plants were owned and stocks accumulated ultimately had the appearance of becoming involved in the general conflict.

It is asserted by Mr. MacDonald in his point “b” that 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; and that whatever influence may have been exercised by the Allied Ministers at Bucharest, the legal position was unaltered. He contends that the Roumanian Government were directly responsible for measures said to have been carried out under the Roumanian prerogative in the interests of all the Allies, and that in these measures the United States was itself the beneficiary when it subsequently entered the war. This statement is not believed to reflect accurately either the situation as it was in November 1916 or the law applicable to the present claim.

The British Government, learning of the offensive designs of the enemy in Roumania, evolved the plan of destroying the oil properties therein in order to prevent them from falling into the hands of the enemy. The British authorities were determined to carry out that plan regardless of the approval of Roumania. The properties of the Romano-Americana Company were accordingly destroyed under the direction of British military authorities; much of it being destroyed before the Roumanian Government consented to destruction, and practically all of it was destroyed under the direction of British rather than Roumanian officers. The work of destruction was thus an essentially British war measure carried out pursuant to a deliberate British policy under British direction on Roumanian soil. It reveals a situation where a strong belligerent for a purpose primarily its own arising from its defensive requirements at sea, compelled a weaker Ally to acquiesce in an operation which it carried out on the territory of that Ally. Instead of placing an efficient weapon of destruction at the disposal of Roumania, Great Britain itself made use of that weapon on Roumanian soil and compelled Roumania to yield consent. From that consent no freedom from responsibility was attained by the primary actor.

Mr. Ramsay MacDonald contends in his point “c” that 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 [Page 320] companies or persons affected by the destruction; that when the Standard Oil Company was asked whether it was causing representations to be made to the French Government similar to those which were being made in its behalf in London, it admitted that it was not taking such steps. This contention is deemed wholly irrelevant. As has been noted above, it is not understood that the Standard Oil Company makes any claim under this agreement. Moreover, the Government of the United States is unable to see how any agreements between Great Britain and the Roumanian Government, whether or not conjointly with its other Allies, have any bearing” upon the legal rights of the Standard Oil Company to obtain satisfaction from the British Government for the consequences of its action. Nor is it believed that the rights of the Standard Oil Company with respect to Great Britain were affected in any degree whatever by the absence of representations made in its behalf to the French Government. For the conduct of Great Britain producing-the destruction for which reparation is sought, no contractual arrangement between Great Britain and its Allies offers an avenue of escape from responsibility.

Mr. MacDonald states as his third point that His Majesty’s Government have always declared that no sort of guarantee was assumed by them in regard to the several companies, that the courts have upheld this view, and that the Standard Oil Company itself admits that there exists no contract on which it could bring legal action. The Government of the United States is not prepared to admit that this statement accurately reflects either the views of the British courts or expressions made in behalf of the Standard Oil Company. Moreover, as the contention of Mr. MacDonald appears to be based wholly on the denial of a contractual obligation on the part of Great Britain, the facts in support of it would not appear to be decisive of what should be the appropriate treatment of the claim of the company in so far as it rests upon a different theory.

Mr. MacDonald states, fourthly, that, as regards arbitration, the British Government fail to see on what basis recourse thereto could be founded. He inquires how Great Britain and the United States could agree to arbitrate in regard to damage done, under the authority of the Roumanian Government, to a Roumanian company. He raises the question “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?”

In response to the first query it may be said that either the United States or Great Britain might fairly be called upon to go to arbitration in regard to damage done with the approval of the Roumanian Government to a Roumanian corporation owned exclusively by [Page 321] nationals of a third state, if that state could establish that that damage was the immediate consequence of acts on account of which the law of nations imposed upon the actor an obligation to make reparation. The second question is believed to be irrelevant, because the Government of the United States cannot deem either France or Russia to be in the same position as Great Britain with respect to the claim under discussion. Great Britain is regarded by the Government of the United States as the direct and proximate cause of acts of a belligerent character committed on Roumanian soil which were productive of the destruction of American-owned property and for which reparation is chargeable to herself. The precise issue here involved is whether she is liable, under international law, for what she accomplished. No contractual relations between Great Britain and her Allies serve to obscure that issue, or, in the judgment of the United States, to weaken the reasonableness of the demand that it be adjudicated in an international forum. Moreover, the reasonableness of that demand is not believed to be affected by the extent of the burden which a decision in favor of the claimant might serve to impose upon the British taxpayer.

The question here involved and as hereinabove defined is not understood to have been the subject of a definite opinion expressed by the British courts. It does not, in the opinion of the Government of the United States, concern France or Russia; and it is wholly unrelated to the matter of the cancellation of the Roumanian war debt. The issue between the United States and Great Britain is one which ought to lend itself to fair adjustment by judicial process and which, after proving incapable of settlement by diplomacy, would appear to fall within the contemplation of the arbitration treaty concluded between the United States and Great Britain April 4, 1908, and extended by the agreement between the Contracting Parties of June 23, 1923.73

Mr. MacDonald concludes with the final suggestion that if the Government of the United States could devise some means by which the difficulty could be solved “such as joint acts on the part of the creditor states to oblige Roumania to pay the compensation which is legally incumbent upon her”, there would be a readiness to consider such suggestions with every desire to reaching an agreed solution. The suggested action with respect to Roumania would not touch the issue here involved and, therefore, could not be regarded by the Government of the United States as offering a solution thereof.

For the foregoing reasons, the Government of the United States finds itself unable to accept Mr. MacDonald’s note of October 6, 1924, as a satisfactory response to the contentions which have been made [Page 322] in conference in behalf of the Standard Oil Company. It feels obliged, therefore, to invite to the earnest consideration of His Majesty’s Government the fact that an issue has arisen which is believed to impose upon Great Britain an obligation to give to the American claimant its day in court before an international forum whose sufficient jurisdiction is neither challenged by the respondent nor questioned by the tribunal itself. The Government of the United States accordingly proposes arbitration as offering an appropriate means by which the difficulty between the two countries may be fairly adjusted.

C[harles] C. H[yde]
  1. Despatches Nos. 801 and 819, and confidential note of Oct. 21, not printed.
  2. Supra.
  3. Counsel for the Standard Oil Co. of New Jersey.
  4. Quoted in part in Foreign Relations, 1902, p. 850; the case is discussed in John Bassett Moore, History and Digest of the International Arbitrations to Which the United States Has Been a Party, vol. ii (Washington, Government Printing Office, 1898), pp. 1865 ff.
  5. Foreign Relations, 1908, p. 382; ibid., 1923, vol. ii, p. 315.