Papers relating to the foreign relations of the United States, 1928, Volume I

763.72113/2344

The British Embassy to the Department of State

Memorandum

The memorandum communicated to His Majesty’s Embassy by the State Department of the United States on the 16th June last respecting the test suits instituted in the United States Courts with a view to determining the proper disposal of certain ex-enemy securities now held by the Alien Property Custodian was duly submitted to His Majesty’s Government, who have now furnished their observations thereon.

That document appears to disclose a mistaken conception of the character of the negotiations which took place between Mr. P. F. Swain, of the Public Trustee’s Department, the Alien Property Custodian and the Department of Justice in October 1921. It is suggested in the memorandum that these negotiations resulted in something in the nature of an agreement between the two governments which involved mutual concessions, and it is further suggested that, in bringing the present suit against the Alien Property Custodian, the Public Trustee is endeavouring to repudiate an arrangement entered into in good faith and scrupulously observed by the Alien Property Custodian. His Majesty’s Government regret that they are unable to concur in the construction placed by the Government of the United States upon the discussions between Mr. Swain and the Alien Property Custodian and they must repudiate the suggestion that there has been any breach of faith on the part of the Public Trustee. The issue, indeed, does not appear to be one involving legal or theoretical interpretation but appears rather to have been defined by a clear and unambiguous declaration made by the Secretary of State of the United States at the time when the negotiations took place. In his note of May 5th, 1922 to His Majesty’s Embassy Mr. Secretary Hughes was at pains to leave it beyond doubt that the negotiations were not to be considered as in any respect an endeavour to reach an agreement between the two Governments, but were to be regarded solely as “efforts … to explain the law”. The Secretary of State proceeded:—

“You will of course understand that the Department in transmitting this information does not undertake to enter into any agreement on behalf of the Government of the United States respecting the interpretation or the execution of the law of this country, relating to sequestered property, the administration of which rests with the Attorney General and the Alien Property Custodian. However, in accordance with your request, I take pleasure in setting forth the understanding of officials of the Department of Justice and the Alien Property Custodian with regard to the efforts made by them and by the representative of the British Public Trustee to explain the law of their respective Governments with regard to the return of sequestered property.

“The American officials concerned point out that they did not undertake to enter into any agreement at the conference with Mr. Swain, but that the purpose of the conference was merely to clarify the provisions of the law and regulations of Great Britain and the United States respectively, with regard to enemy property and applications for its return”.

As a result of this communication His Majesty’s Embassy at Washington telegraphed to the Foreign Office on May 10th, 1922 as follows:—

“I have now received State Department’s reply.… It repudiates idea that Mr. Swain’s conference can be said to have resulted in an ‘agreement’ and contends that their object was merely to clarify the provisions of existing laws and regulations on both sides”.

This express disclaimer of any intention to enter into an agreement was reiterated in a letter from the Alien Property Custodian to Mr. Hughes dated 28th June, 1922,⁴⁴ in which he said:—

“This (memorandum) was not an agreement between this office and the British Government, but was merely a conference to arrive at a thorough understanding as to procedure.

. . . . . . . . . . . . . .

“As I heretofore stated the conference was not for the purpose of entering into an agreement but merely for the purpose of clarifying the provisions of the Law of the various Governments with regard to enemy property. The memoranda which were drawn up are merely statements of the explanations rendered in connexion therewith and the procedure adopted by the two Offices. An official approval, if you so desire, may be given to the British Embassy, but such approval need not be in the form of an agreement, but merely a statement that the understanding of this Office and of the British Public Trustee as to the conversations had is correct”.

Having regard to the above declarations on the part of the United States Government themselves and of their officials, His Majesty’s Government, as stated above, cannot agree that the present claim by the Public Trustee constitutes in any way whatsoever a repudiation of an agreement honourably entered into or a breach of good faith as between the two Governments or their representatives. On the contrary, the suit is merely an attempt to obtain from the United States Courts, having jurisdiction in the matter, a definite interpretation of the legal position having regard to pronouncements of the law which occurred subsequently to the above-mentioned negotiations, and which have placed a quite different legal interpretation upon the facts under consideration.

It may be added that all the allegations contained in the memorandum under reply as to the existence of an agreement have been raised as a legal issue in the pending suits. There is no reason to apprehend that the eminent judges of the United States Courts, before whom the case will come, will not find a satisfactory solution to this issue, as well as the other issues raised by the respective parties.

While it is not necessary in the circumstances to enter into a detailed discussion of the various subsidiary questions raised in the memorandum, attention may be usefully drawn to the following points:—

(1) Not only do the United States Government appear to be under a misapprehension in assuming the existence of an agreement, but they are also apparently labouring under some misapprehension when the suggestion is made in their memorandum that any concessions or considerations of value were furnished by the Alien Property Custodian. It is sufficient again to cite a declaration by the Alien Property Custodian on this point. In a letter to Senator Borah on 27th July, 1926, the then Alien Property Custodian wrote:—

“Colonel Miller (the former Alien Property Custodian) did not waive any rights of the United States Government by his agreement not to issue demands for those shares of stock, the actual certificates of which were held by the British Public Trustee, and for which no demand had been issued by this Office. At the time he made this agreement this Office had no right or authority to issue demands for any property not already the subject matter of a demand. Had he issued demands at this time he would have acquired nothing. His act would have been nullity. He simply agreed to do that which under the law he was bound to do.

. . . . . . . . . . . . . .

“He waived no right he was not compelled to waive by law”.

The Alien Property Custodian is evidently referring to the fact that his right to make further seizures of enemy property terminated on July 2nd, 1921. In these circumstances, it is clear that any assistance which the Alien Property Custodian may thereafter have rendered to the Public Trustee by informing American Corporations that he (the Alien Property Custodian) made no claim to various securities then in the hands of the Public Trustee (which the Public Trustee desired to have transferred on the books of the Corporations) was a matter purely of voluntary courtesy and was not required by the actual terms of the correspondence.

In point of fact the various Corporations, whether so requested or not, refused not unnaturally to enter the Public Trustee upon their registers unless and until he had established in the Supreme Court of the United States his legal right to be registered.

(2) It is stated in the State Department’s memorandum that the Alien Property Custodian handed over to the Public Trustee certificates issued by a British Corporation where demand for the stock had been made by the Public Trustee on the Company. The Administrator of German Property has been unable to trace the delivery by the Alien Property Custodian to the Public Trustee of the certificates relating to any stock or shares in British Corporations which had been seized by both Custodians. In this connexion, it may be pointed out that the certificates of registered stock or shares issued by British Corporations differ from those issued by American Corporations in that they contain no endorsement of a transfer, and thus, unlike those of American Corporations, confer no title upon and are of no value to the person into whose possession they may come.

Moreover, even if there were any shares in British Corporations claimed by the Alien Property Custodian as well as by the Public Trustee, the seizure by the British Custodian would, owing to the fact of the earlier entry of Great Britain into the war, have been prior to the claim of the Alien Property Custodian. The legal right of the British Government to priority with respect to such securities was therefore quite clear and this principle has been expressly recognised in the present claim by the Public Trustee, who has refrained from making any claim to American securities which had been seized by the Alien Property Custodian prior to the seizure of the certificates by the Public Trustee. The delivery by the Alien Property Custodian of securities to which he had no title, even if effected, could, therefore, have constituted no consideration for the delivery by the British Public Trustee of securities to which he had a legal title and which he was therefore under no obligation to surrender.

(3) Reference is made in the memorandum of the State Department to the suit now pending in Canada between the Alien Property Custodian of the United States and the Canadian Custodian, in which the situation presented in the action brought by the Public Trustee is, it is alleged, reversed, the Canadian Custodian claiming title by virtue of vesting orders to securities of Canadian corporations as against the American Alien Property Custodian, who has seized the certificates situated in the United States. The memorandum claims that the contentions of the Canadian Custodian are diametrically opposed to those of the Public Trustee. Such a claim appears to overlook the fact that this argument is equally applicable to the Alien Property Custodian, as the contentions of the Alien Property Custodian, vis-a-vis the Public Trustee, are diametrically opposed to his contentions in the case which he has instituted in the Canadian Courts. This fact only throws into stronger relief the desirability of securing a definitive legal decision on these difficult and highly abstruse questions of jurisprudence. It may be remarked here, however, that there is one not unimportant difference between the position in the Canadian case and that in the case brought by the Public Trustee. In the memorandum of the State Department it is stated that Mr. Swain agreed that, where the Public Trustee held certificates of stock and the Alien Property Custodian had demanded of the companies the right, title and interest in the shares represented thereby, the Public Trustee should forward such certificates to the Alien Property Custodian “for his use and benefit.” So long as the Government of the United States were holding all German property as security for the claims of United States nationals against Germany, His Majesty’s Government might have felt impelled to permit the situation to stand, however mistakenly created and however unevenly it may have operated against British interests. The United States Government have, however, been directed by Congress to return the proceeds in question to German nationals, and His Majesty’s Government, therefore, now find themselves in the position of having, under a mistake as to their title, delivered the possession of the securities for the ultimate benefit of German nationals and not “for the use and benefit of” the Alien Property Custodian. No parallel situation exists in the case of the Canadian securities, for these are claimed by the Canadian Custodian as subject to the charge imposed pursuant to the Treaty of Versailles, and there is no question of the property being claimed with a view to its ultimate release to German nationals.

In the action which he has taken, the Public Trustee is merely exercising the, same right which might be exercised by a citizen of the United States or by certain classes of neutrals who desired to claim that some particular property, which was in the physical possession of the Alien Property Custodian, was not, in fact, enemy property. The whole procedure under the American Trading with the Enemy Acts was based upon the theory that the Alien Property Custodian was entitled to possession of anything that he might see fit to demand, but that all questions of title were reserved for the ultimate determination of the Court upon the application of any interested party.

In the circumstances referred to above, the Public Trustee delivered certain securities to the Alien Property Custodian, who does not appear to have given any legal consideration for or to have changed his position in any way by reason of such delivery. The decision of the United States Supreme Court in the case of Direction der Disconto Gesellschaft versus United States Steel Corporation, Public Trustee, et al indicates that a large part of the securities so delivered were not enemy owned at the time when the Alien Property Custodian made claim to them, or even at the time when the United States entered the war. The Public Trustee has accordingly brought a suit for the purpose of determining which securities or which categories of securities had been divested of all enemy character, either before the entry of the United States into the war or before the enactment of the American Trading with the Enemy legislation or before the American Custodian, in fact, made any claim. The submission of these questions to the American Court especially charged by the Trading with the Enemy Act with the function of determining all questions of title under that Act cannot, in the view of His Majesty’s Government, be properly regarded as departing in any way from any agreement or understanding existing between the two governments. His Majesty’s Government have given the matter most careful consideration but, for the reasons explained above, they regret that they do not see their way to instruct the Public Trustee to discontinue the Court actions.

Washington , October 30, 1928 .

44. Not printed.