394.1154 T 13/4
The Chairman of the United States Shipping Board (O’Connor) to the Secretary of State
Sir: The United States Shipping Board has just received from its agent for Japan at Kobe the following cablegram:
3196 Takata Case. Hirata advises Professor Takayagi, court expert on immunity, has rendered decision attorney not competent to plead immunity unless specially so instructed by United States. Hirata requests ‘Please ask State Dept. to send through American Embassy Tokio to Hirata telegraphic instructions to the effect that United States Government consider Bank of Chosen and Hong Kong and Shanghai Bank Corporation case to be proper case to claim immunity from Japanese jurisdiction, and that the attorney is hereby instructed to plead immunity.’
The Hirata mentioned is the attorney who has been retained by the United States Shipping Board to defend the Government’s interest in the two suits mentioned.
The two suits mentioned are as follows: The first was brought by the Hong Kong and Shanghai Banking Corporation against the United States Shipping Board in the Yokohama Local Board of Justice on [Page 479] December 3, 1925, for 520,500 yen. The plaintiff attached the SS. President Grant as the property of the Government. It is also believed that the Admiral Oriental Line is a defendant in this suit although not particularly named in the copy of the complaint on file in this office.
The second suit was brought by the Bank of Chosen in the same court on December 3, 1925 against the United States Shipping Board and the Admiral Oriental Line. This suit is for 272,955.03 yen. An attachment was also made in this case of the SS. President McKinley.
The two suits grew out of the operation by the Admiral Oriental Line of passenger and freight steamers belonging to the Government and sailing between Seattle, Washington, Japan and other ports of the Orient.
Takata & Company, a very large and apparently responsible firm, dealer in electrical supplies, purchased in the United States in 1924 and shipped to itself in Japan large consignments of electrical supplies and machinery much of which was destined to and was actually used in Japanese government contracts.
Takata & Company borrowed from New York banks including the New York Offices of the two plaintiff banks, money on the strength of the consignments of goods and pledged with the banks as security the bills of lading, which were all with one exception “order” bills. The drafts were for the most part for ninety days. When the goods arrived at Yokohama, Takata, instead of following the usual custom and securing from the banks holding the bills of lading, those bills of lading or guarantees in place of them, went to other banks, and secured from those banks signed contracts agreeing to deliver to the Admiral Oriental Line the bills of lading when received and also to protect that Line against any claims that might arise against it by reason of the delivery of the goods without insisting upon the surrender of the bills of lading.
Finally, in January or February, 1925, Takata & Company was compelled to go into the hands of a creditor’s committee for liquidation because of its inability to meet its obligations.
As soon as this happened it was found that there were many banks holding bills of lading, many carriers and many banks who had given contracts of guarantee involved in the situation and that many of the consignments had arrived and been delivered to Takata & Company nearly a year previously. The banks holding the bills of lading demanded the goods of the carriers including the Admiral Oriental Line and the carriers referred the demands to the banks who had given the guarantees. All of the guaranteeing banks which had been accepted by the Admiral Oriental Line recognized and paid their obligations except the Daini Bank which repudiated its obligations and refused to recognize them.[Page 480]
This Daini Bank is a local Yokohama Bank which acts as the fiscal agent for the Japanese Government.
Examination into the situation disclosed the above described facts and also showed that the lending banks had been relying almost exclusively on Takata’s credit and not on the bills of lading. The lending banks had extended and re-extended the drafts and had given the carriers no notice of the fact that they were the holders of the bills of lading. All this in face of the fact that these banks must have known of the widespread practice in Japan and the Orient of consignees lifting goods from carriers immediately upon arrival and delivering the carriers bank guarantees to protect them. Also in face of the clear provisions of the bills of lading requiring that notice be given the carrier of any claim on the bill of lading within a short specified period of the arrival of the goods.
Under the circumstances, the United States Shipping Board believes that it has several valid fundamental defenses to the Actions and that these defenses must be asserted in order to protect the Government’s rights against the Daini Bank on the contracts of guarantee and against any claim which the Government might have against the Admiral Oriental Line, its operator. The Daini Bank has insisted that the Shipping Board take advantage of all defenses and the Bank will undoubtedly attempt to secure release from its obligations if the United States Shipping Board fails to do so.
The Japanese Government appears indirectly as interested in every angle of the suit brought by the Bank of Chosen. As pointed out above, much of the goods secured by Takata were used in completing Japanese Government contracts. The Bank of Chosen holding the bills of lading and the plaintiff in the suit is largely owned and controlled by the Japanese Government. The Daini Bank which has repudiated its contract is the fiscal agent of the Japanese Government.
The suits are clearly suits against the United States in that the United States Shipping Board is the main defendant in both of them. The attachment of the ships appears to be merely incidental to the suit and follows the Japanese Court practice.
It is believed that the claim for immunity requested in the above quoted cablegram should be asserted not only because the case appears to be on all fours with the Compania Mercantil Argentina case brought against the United States Shipping Board in the Courts of England, decided March 25, 1924, in which such a claim was made but also because it is felt that the letter of February 20th, 1923 from the United States Shipping Board to the Secretary of State which was transmitted to the foreign offices of foreign governments including Japan20 was a bi-lateral suggestion and that the foreign government taking [Page 481] advantage of the waiver of immunity should recognize the credit of the United States Government and take steps to provide for the release of any Government owned vessel from libel or attachment in accordance with the provisions of Section 7 of the Suits in Admiral[ty] Act21 in return for such waiver. Japan has failed to accord the United States this privilege although earnestly solicited to do so by His Excellency, The United States Ambassador, Mr. Warren.
It is respectfully requested that such instructions as the Secretary deem proper be issued to the United States Ambassador in Tokio asserting the rights of the United States Government and placing before the Courts of Japan the claim of sovereign immunity in the United States Shipping Board.