441.11 St 23/46
The Secretary of State to the Ambassador in Great Britain (Houghton)
Sir: The Department has received the Embassy’s despatch No. 1340 of September 10, 1926, transmitting a copy of the note of the Foreign Office dated April 15, 1926 answering the Embassy’s communication of February 16, 1925, in regard to the claim of the Standard Oil Company against the British Government growing out of the destruction of the property of Romano-Americana in Rumania in 1916.
You will please address a further communication to the Foreign Office textually as follows:75
I duly referred to my Government Your Excellency’s note of April 15, 1926 setting forth the attitude of His Majesty’s Government regarding the claim of the Standard Oil Company growing out of the destruction of the properties of Romano-Americana in Rumania in 1916, and am now in receipt of a reply from my Government directing me to discuss the matter further with Your Excellency in a note substantially as follows:
My Government regrets that the statements of fact purporting to set forth the circumstances under which the property was destroyed and the conclusions of law expressed in Your Excellency’s note are such that my Government finds itself unable to concur therein. My Government recognizes the necessity of having an accurate exposition of the facts as a foundation for the discussion and application of legal principles. I am therefore directed to set forth at the outset my Government’s version of the facts as revealed chiefly by the testimony presented at the hearings in the suit in His Majesty’s courts of the Rumanian Consolidated Oilfields, Limited.
An examination of the testimony presented at the trial of the suit of the Rumanian Consolidated Oilfields, Limited, reveals that Colonel Griffiths, an officer in His Majesty’s Army, was instructed by the highest authority of his Government to proceed to Rumania to destroy the oil properties there, including stocks, plants, equipment and wells; that he was authorized and commanded himself to accomplish the complete destruction of the property beyond the possibility of restoration to productivity, and that he was to accomplish his mission at any cost and by the employment of any means necessary to that end. It is obvious from the testimony that Colonel Griffiths and other officers in His Majesty’s Army, planned the work and supervised and wrought the destruction of the oil properties, including [Page 327] the property of Romano-Americana, for the most part, against the opposition of the Rumanian authorities, and that in rendering the slight aid which the Rumanians gave Colonel Griffiths they were attached to Colonel Griffiths’ staff or carrying out his wishes and were acting under his direction against the opposition of the Rumanian authorities, which continued until most of the property was destroyed. It is apparent from the testimony also, that the Rumanians did not desire the oil wells, plants and equipment destroyed but were willing that the stocks only be destroyed; that they did not take the initiative to accomplish the destruction, but that in several instances they opposed with force the prosecution of the work of destruction by Colonel Griffiths and his men. In the light of indisputable facts the acts of demolition can not be regarded as other than the acts of His Majesty’s Government. The declared purpose of the destruction of the properties was to prevent their falling into the hands of the enemy.
The question presented for consideration by the clear and definite state of facts to which the present case is readily reducible, is whether His Majesty’s Government is responsible, and obligated to indemnify the American company, for losses sustained through the destruction of the property of its Rumanian subsidiary by a high official of His Majesty’s Army under specific instructions from His Majesty’s Government to prevent the property from falling into the hands of the enemy.
My Government is confident that an examination and analysis of the evidence by His Majesty’s law officers to whom Your Excellency states the case was referred, will convince them that the state of facts and the question for discussion are as described.
In proceeding to a discussion of the legal question which my Government concludes to be presented by the facts in the case, it is deemed necessary to consider two principal propositions advanced in Your Excellency’s note of April 15, 1926.
1. In disclaiming liability to indemnify the Standard Oil Company for losses sustained under the circumstances of this case Your Excellency states:
“The principle that ‘war losses’ do not give rise to a legal right to compensation is not limited to war losses in the sense of loss or damage inflicted by the enemy, but covers also loss and damage which the commander in the field is himself obliged to inflict upon the owners of property in the area under his authority”.
The Hardman case is referred to as authority for this proposition.
2. Your Excellency states further:
“His Majesty’s Government would, if necessary, maintain that the claim, being in respect of damage to the property of a company incorporated in and still carrying on business in Roumania, must be regarded as a claim on behalf of a company which is a Roumanian national. The ownership of the shares, even if it extended to the totality of the shares, by an American corporation would not in the opinion of this Government justify the diplomatic protection of the Roumanian company by the Government of the United States on the footing that it was an American national”.
These two propositions will be discussed in the order in which they are stated:
The Government of the United States does not assert that a belligerent is liable to indemnify property owners for property which may be destroyed by it as acts of war as that term is used to indicate acts for which no liability attaches. My Government has not admitted, as Your Excellency seems to think it has done, that the destruction of the property of Romano-Americana was an act of war as so understood. It is the view of the Government of the United States, which it is prepared to sustain with respectable authorities, some of which His Majesty’s Government have had occasion to employ in support of claims of its nationals, that under some circumstances a belligerent is obligated to indemnify owners of property which it takes or destroys. The occasions on which private property may be taken and destroyed with or without compensation are authoritatively defined with clarity. The taking of property by a belligerent to prevent its falling into the hands of an enemy comes within the category of cases in which a belligerent is obligated to indemnify the owner.
Your Excellency refers to the Hardman case which was decided by the Tribunal established pursuant to the Convention between the United States and Great Britain concluded August 18, 1910.77 In that case the military forces of the United States in Cuba destroyed houses for the purpose of preserving the health of the soldiers. Hardman, a British subject, had some furniture and other personal property in one of the houses, which was destroyed with the house. The law applicable to such a case is entirely different from the law applicable to the destruction of property to prevent its falling into the hands of the enemy. In the United States, and this appears also to be the rule in England, it is not obligatory on the government to compensate owners of property which it is necessary to destroy in time of peace to prevent the spread of a conflagration or the outbreak of disease. There is no more reason why a government should pay for property destroyed by its military forces as an act of war to prevent the outbreak or spread of disease than there is why it should pay for property destroyed for the same purposes in time of peace. Established principles of law exempt a government from payment for property destroyed to prevent the outbreak or spread of disease in times of war. Equally well established principles of law impose on a government an obligation to compensate the owner of property destroyed to prevent its falling into the hands of the enemy. The Hardman case being one in which the property was destroyed to prevent the outbreak of disease, and the case under discussion being one in which the property was destroyed to prevent its falling into the hands of the enemy, the distinction between them is obvious.
Happily, there is no dearth of respectable authority on the question of the liability of a government to indemnify owners of property destroyed to prevent its falling into the hands of the enemy. There have been several suits in the Courts of the United States in which this question was adjudicated. The earliest case was that of Grant vs. United States (1 C. C. 41). Property belonging to the claimant was destroyed to prevent its falling into the hands of the enemy. In a [Page 329] well-considered decision in support of which quotations from Vattel and Grotius were liberally employed, the Court of Claims held that the Government of the United States was obligated to compensate the claimant for property destroyed to prevent its falling into the hands of the enemy, pointing out that writers on public law do not distinguish between property destroyed to prevent its falling into the hands of the enemy and property taken by a government for the actual sustenance of its military forces. It was stated in the opinion that the obligation of the government was conditioned on the justification of the destruction and that the danger which it was sought to avert by destroying the property must be immediate and impending. Inasmuch as the forces of the enemy were momentarily expected at the oil fields in Rumania when the work of destroying the property of Romano-Americana was under way, and since the work of destruction was scarcely completed before the enemy reached the oil regions and took possession of the ruins there seems to be no doubt that the circumstances of the case under discussion meet the condition laid down by the court as justification of destruction.
The case of Wiggins against the United States (3 C. C. 412) is of interest in relation to the claim of the Standard Oil Company to recover indemnity for the destruction of the property of its subsidiary in Rumania. In the Wiggins’ case, as in the case of the Standard Oil Company, the property was situated in one country and destroyed by the forces of another. A large quantity of ammunition was stored at Punta Arenas, Nicaragua. Greytown, Nicaragua, had been bombarded by a United States ship of war. It was feared that the inhabitants of Greytown to avenge the bombardment might seize the powder and use it to destroy American property. The Commander of the United States ship of war seized the powder and cast it into the bay destroying it. Following the precedent in the Grant case, the United States Court of Claims awarded compensation for the property. The Court stated that the obligation to compensate resulted from the principles of natural justice and equity as well as from the constitutional injunction to pay for private property devoted to public ends.
The distinction between the destruction of property to prevent its falling into the hands of the enemy and the destruction of property as an act of war in military operations is shown by Perrin versus the United States (4 C. C. 453 ). Property for which the claimants sought compensation was destroyed in the bombardment of Greytown by a United States man-of-war. Suit was brought in the Court of Claims. The Court sustained a demurrer and dismissed the petition, distinguishing this case from those of Grant and Wiggins, discussed above, as being one in which the property was destroyed in operations against an enemy, while in the cases of Grant and Wiggins the property had been destroyed to prevent its falling into the hands of the enemy.
In the opinion of the Supreme Court of the United States delivered by Chief Justice Taney in Mitchell versus Harmony (13 Howard 115) the question of compensation for property destroyed to prevent its falling in the hands of the enemy was discussed as follows:
“There are, without doubt, occasions in which private property may lawfully be taken possession of or destroyed to prevent it from falling into the hands of the public enemy; and also where [Page 330] a military officer, charged with a particular duty, may impress private property into the public service or take it for public use. Unquestionably, in such cases, the government is bound to make full compensation to the owner; but the officer is not a trespasser.
“But we are clearly of opinion, that in all of these cases the danger must be immediate and impending; or the necessity urgent for the public service, such as will not admit of delay, and where the action of the civil authority would be too late in providing the means which the occasion calls for. It is impossible to define the particular circumstances of danger or necessity in which this power may be lawfully exercised. Every case must depend on its own circumstances. It is the emergency that gives the right, and the emergency must be shown to exist before the taking can be justified.”
In view of the verdict of the jury that circumstances warranting the seizure did not exist the defendant, Mitchell, was held personally responsible for his acts. This decision, however, is in no way contrary to the decisions of the Court of Claims in the cases of Grant and Wiggins, as is clearly apparent from the quotation set forth above giving the views of the Supreme Court on the question of the liability of the Government to indemnify owners for the destruction of property to prevent its falling into the hands of the enemy.
The question of the liability of a belligerent to indemnify owners for the destruction of property to prevent its falling into the hands of the enemy was considered by the Commission established pursuant to the Treaty of May 8, 1871, between the United States and Her Majesty’s Government.78 The case of Turner versus the United States was clearly in point and was described in the report of the British Agent, (Mixed Commission on British and American Claims) page 27, as follows: “Property destroyed by the United States Army to prevent its falling into the hands of the enemy”. It is believed to be pertinent and appropriate, as well as useful, to set forth here the following excerpt from the brief of counsel for Her Britannic Majesty in this case:
“Upon the whole evidence there can be no reasonable doubt that the houses were destroyed by the Federal army to prevent their falling into the hands of the enemy with the hospital stores therein contained. It is, therefore, precisely within the principle settled by the Court of Claims in Grant’s case heretofore cited. That judgment, as the Commission will recollect, was expressly founded, as well upon the principles of the public law as upon that clause of the Constitution of the United States which declares that private property shall not be taken for public use without just compensation. The destruction of Grant’s property to prevent its falling into the hands of the enemy, was held to be a taking of private property for public use.” (Volume IV, British and American Mixed Commission.)
An award in favor of Turner in a substantial amount was made by the Commission to indemnify him for the destruction of property to prevent its falling into the hands of the enemy.
Reference is also made to the brief of Her Britannic Majesty’s counsel in the case of Haddon versus the United States before the same Commission. The following quotations from that brief are set forth because of their reference to the decision of the Supreme Court of the United States in the case of Mitchell versus Harmony, and the decision of the Court of Claims in the case of Grant versus the United States:
“The case of Mitchell v. Harmony, grew out of facts which occurred, not in the United States, but in Mexico, with which the United States were then engaged in war. The effect of this case is not to be avoided by the assertion that the language of the Chief Justice is merely obiter dictum. In no just sense is it liable to such criticism. It was of the very essence of the question whether the destruction of the property in that case was in the public service or by an unwarrantable private trespass, and it was only because the Court held that the act complained of was not required by the public service, that the defendent was held to be personally responsible in that action. He had set up the ground in his defence that the Government and not he was liable; it became, therefore, necessary for the Court to consider and determine the effect of this defence and how far it applied to that case, and in determining that, the Court used the language which the Counsel for the United States characterizes as obiter dictum. Subsequently, however, the United States believing the officer to have acted bona fide, and for the public good, assumed the responsibility and paid the judgment which had been rendered against him.
“The case of W. S. Grant, v. The United States, (1 Court of Claims, 41), heretofore cited, does certainly decide that property destroyed under the same military necessity as is here alleged by the United States, and to prevent its falling into the hands of the same belligerent in the same war, was property taken for public use. The language of the Constitution is simply that private property shall not be taken for public use without just compensation. We suppose it is to be admitted on all sides, and settled by repeated decision[s] of this Commission, that the property of Her Majesty’s subjects in the United States, whether in the insurgent or loyal States, was not liable to be taken by the United States for public use without just compensation; and Grant’s case is a direct and controlling authority to show that property destroyed as was that of these claimants, is property taken for the public use. But the opinion of the Court in that case is not based exclusively on the Constitution or laws of the United States. It proceeds upon the doctrines of the public law common to all civilized nations. The Court in that case, after citing authority from the publicists, said: ‘The limitation imposed on the Government of the United States in the exercise of its right of eminent domain by the fifth article of the Constitution [Page 332] is a solemn recognition of this settled and fundamental law of the States, and binds the Government to the observance of the principles of justice and right in its dealings with the citizen with the force of organic law.’
“It is plain, therefore, that these cases do not depend upon the doctrine of eminent domain, but rest upon the broader foundation of the public law and the principles of natural justice and equity.’ (Report of British Agent, page 432, 433)
It will be perceived from the foregoing discussion that according to the most eminent authorities on international law, by decisions of courts of the United States which His Majesty’s Government has seen fit to endorse and employ in supporting claims of its nationals, and by at least one decision of the Commission established pursuant to the Treaty of May 8, 1871, between the United States and Her Majesty’s Government, the liability of a government to indemnify owners of property destroyed to prevent its falling into the hands of the enemy is established. There seems to be no occasion to doubt that the claim of the Standard Oil Company falls within the declarations in decisions cited.
Adverting now to the second of the propositions enumerated above, namely, that in the opinion of Your [His?] Majesty’s Government, the Government of the United States is not justified in according diplomatic protection to the Rumanian company notwithstanding that all its shares were held by an American company, it is observed that the Government of the United States is seeking to recover for the American company indemnity for losses sustained by it through the destruction of the property of its Rumanian subsidiary. In the exercise of its discretion to protect American interests abroad, my Government, like His Majesty’s Government, does not withhold protection from American interests merely because those interests happen to be represented in corporations of foreign states. The practice of the Government of the United States in this regard is not unlike that of His Majesty’s Government. There are numerous precedents showing the practice of governments to intervene in behalf of stockholders of foreign corporations. Among those may be mentioned the Delagoa Bay case (Moore’s International Arbitrations, Volume 2, page 1872 ); El Triumpho case (Foreign Relations of the United States, 1902, page 873 ); the Alsop case (Foreign Relations of the United States, 1910, page 138, and 1911, page 38); and the Tlahualilo case (Foreign Relations of the United States, 1913, page 993).
The prominence which these cases have attained as precedents and the familiarity of His Majesty’s Government with them renders unnecessary any extensive discussion of them. In the Delagoa Bay case the Government of the United States and Her Majesty’s Government intervened jointly as well as severally in behalf of American and British stockholders in a Portuguese corporation. In the El Triumpho case the Government of the United States pressed to arbitration the claim of its nationals, shareholders in a Salvadoran corporation, against the Government of Salvador. The Honorable Henry Strong, Chief Justice of the Dominion of Canada, was one of the arbitrators and joined in an award granting compensation to the nationals of the United States who were shareholders in the Salvadoran [Page 333] corporation, to indemnify them for losses resulting from the destruction of the property of the Salvadoran company. The Alsop case against Chile was pressed to settlement by the Government of the United States and the case was submitted to His Majesty King Edward VII as an amiable compositeur, to determine the amount due the American claimants. In the report of the Committee appointed by His Majesty to study the case it was stated:
“The Chilean Government, in the case presented to Your Majesty, again suggest that, as the firm was registered in Chile, and is a Chilean company, their grievances can not properly be the subject of a diplomatic claim, and that the claimants should be referred to the Chilean courts for the establishment of any rights they may possess.
“We hardly think that this contention is seriously put forward as precluding Your Majesty from dealing with the merits of the case. It would be inconsistent with the terms of the reference to Your Majesty, and would practically exclude the possibility of any real decision on the equities of the claim put forward.
“The remedy suggested would probably be illusory, and, so far from removing friction, an award in this sense, transferring the real decision from an impartial arbitrator with full powers to the courts of the country concerned, which in all probability have no sufficient power to deal equitably with the claim, could afford no effective solution of the points at issue or do otherwise than increase the friction which has already arisen between the two states.
“We are clearly of opinion, looking to the terms of reference and to all the circumstances of the case, that such a contention, if intended to be seriously put forward by Chile, should be rejected. We think that it may be disregarded by Your Majesty.”
The Tlahualilo case was that of a Mexican corporation, the preponderant interest in which was British. In answering the decimation of the Mexican Government to settle or arbitrate the case because the Tlahualilo company was a Mexican company, established in accordance with Mexican laws, His Majesty’s Government stated in a note to the Mexican Government dated August 2, 1911, as follows:
“His Majesty’s Government being desirous to cause no additional embarrassment to the Mexican Government during the period of political unrest in the Republic, delayed for a time their reply to the above note, but I am now instructed to inform you that they can not accept the validity of the second contention put forward by the Mexican Government, namely, that the Tlahualilo Company being a Mexican Company is not susceptible of intervention in its affairs on the part of a foreign Government. While His Majesty’s Government are prepared to await the result of the suit in the Court of Appeal, yet, should the verdict not give the Company that relief to which they are entitled, they will feel obliged to make diplomatic representations on behalf of the British interests which are involved.”
The practice of Governments to protect their nationals in the matter of losses sustained by them through damages suffered by foreign corporations in which they are interested, is exemplified by the provisions of the Treaty of Versailles. Article 297, paragraph E, and the first paragraph of Article 298 of that Treaty may be cited.79 Conventions recently concluded between the United States and Mexico regarding claims,80 contain provisions contemplating the adjudication of claims of American and Mexican citizens for damages suffered by them as a result of losses sustained by corporations in which they are interested. It is understood that other Governments have concluded conventions with the Government of Mexico containing similar provisions.
It would seem from the foregoing that the failure of Governments to protect their nationals in any case rests on other grounds than that their interests are represented in foreign corporations and that it is the established practice of Governments to protect the interests of their nationals in foreign corporations in appropriate cases.
Your Excellency states that the acts of destruction were carried out in Rumania by individuals acting on behalf of and in cooperation with the military authorities of that country and by the authority of the Rumanian Government; that the Rumanian Government approved and ratified the acts of destruction and that therefore if the acts of destruction gave rise to any claim, the Rumanian Government is the responsible party. As indicated above, my Government does not entirely concur in Your Excellency’s version of the facts nor does it concur in the conclusions of law set forth in Your Excellency’s note. The evidence reveals beyond any occasion for doubt that His Majesty’s Government sent a high officer of His Majesty’s Army, many thousand miles on a perilous journey for the declared purpose and with positive instructions to accomplish the destruction of oil properties in Rumania. This destruction was to be accomplished with or without the consent of the Rumanian Government. That the Rumanian Government was not in sympathy with Colonel Griffiths’ mission is apparent from the testimony of Colonel Griffiths and other evidence which is available.
Neither approval by the Rumanian Government nor ratification by it of the acts of destruction, nor any agreements which His Majesty’s Government might have had with the French, Russian and Rumanian Governments,—agreements to which Your Excellency refers—relieves His Majesty’s Government from liability to idemnify the owners of property destroyed by agencies of His Majesty’s Government under instructions, notwithstanding that those agencies might have been acting as members of a joint commission brought into existence by agreements among several governments. It is not believed that His Majesty’s Government will seriously urge as a legal proposition that one government can enter into agreements with other governments contemplating the destruction of property belonging [Page 335] to persons or concerns who are not a party to the agreements and whose government is not a party thereto and can plead such agreements as a defense to claims for damages. This is a novel proposition in support of which my Government knows of no existing authority. These contracts established no privity between either of the parties to them and the Romano-Americana which was not party to such contracts. Persons or concerns whose property is destroyed pursuant to such agreements are entitled to look to the Government whose agencies are responsible for the destruction of the property. The responsible government must look to other parties to the contracts for contribution if the burden of indemnification is to be distributed. His Majesty’s Government having ordered the destruction of the oil properties in Rumania and agencies of His Majesty’s Government having effected the destruction, American nationals who have suffered losses as a result of the destruction of that property and the Government of the United States in their behalf, are entitled to look to His Majesty’s Government for relief.
My Government feels that the facts of the present case are so clear and the applicable principles of law so elementary that there is occasion only for discussion of the amount of indemnity to be paid. My Government hopes that Your Excellency’s Government will see its-way to authorize a representative to meet a representative of the Government of the United States for the purpose of discussing the amount of indemnity to be paid. Should Your Excellency’s Government be unwilling to participate in such a discussion, my Government feels that it is under the necessity of insisting that the question of the liability of His Majesty’s Government in the premises and, if liable, the question of the amount of indemnity to be paid be submitted to arbitration pursuant to the Agreement of April 4, 1908 between the Government of the United States and His Majesty’s Government, which was extended by the Agreement between the two Governments concluded June 3 , 1923.
I am instructed to add in conclusion that it would be a source of keen regret to my Government were his Majesty’s Government to decline to adjust this claim or to submit the question of liability and the amount of damages to arbitration.
There is enclosed an excerpt from testimony given by Colonel Griffiths at the hearing in the case of the Rumanian Consolidated Oilfields, Limited, referred to above and comments thereon for use by you in any discussions which you may have with the British authorities.81
I am [etc.]
- A note based on this instruction was presented to the Foreign Office on May 2, 1927.↩
- For text of convention, see Foreign Relations, 1911, p. 266.↩
- For text of art. xii, pursuant to which the Commission was established, see Foreign Relations, 1871, pp. 521–522; for report of the American Agent, see ibid., 1873, pt. 2, vol. iii.↩
- Malloy, Treaties, 1910–1923, vol. iii, pp. 3329, 3462, 3464.↩
- General Claims Convention, signed Sept. 8, 1923, and Special Claims Convention, signed Sept. 10, 1923; Foreign Relations, 1923, vol. ii, pp. 555 and 560.↩
- Not printed.↩