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.]
[Enclosure]
Memorandum by the Solicitor of the Department of
State (Hyde)
[
Washington
,]
January 31, 1925
.
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.
