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

441.11 St 23/75

The Chargé in Great Britain ( Atherton ) to the Secretary of State

London , July 10, 1928 .
[Received July 19.]

No. 2888

Sir: I have the honor to refer to the Embassy’s despatch No. 1836, May 4, 1927,²⁶ stating that a note had been transmitted to the Foreign Office on May 2, 1927,²⁷ upon the subject of the claim of the Romano-Americana arising from the destruction of its property in Roumania in 1916, and in this connection to enclose a copy, in quintuplicate, of a Foreign Office note in reply, stating inter alia that the version of the facts transmitted with Mr. Houghton’s note to the Foreign Office cannot be regarded as complete or accurate, and, in view of the full and exact facts forwarded, expressing the hope that the Government of the United States will agree that the circumstances are not such as to establish any claim against His Majesty’s Government.

I have [etc.]

Ray Atherton

[Enclosure]

The British Secretary of State for Foreign Affairs ( Chamberlain ) to the American Chargé ( Atherton )

[ London ,] 5 July, 1928 .

No. C 4918/40/37

Sir: His Majesty’s Government have given their most careful attention to the note which the United States Ambassador addressed to me on May 2nd, 1927, regarding the claim of the Standard Oil Company of New Jersey arising from the destruction in 1916 of the properties of the Romano-Americana Company in Roumania.

2. In that note it is affirmed that the Government of the United States are unable to accept either the statements of fact or the conclusions of law set out in my note of April 15th, 1926;²⁸ and expression is given to the view of the Government of the United States that the facts of the present case are so clear and the principles of law so elementary that there is occasion only for discussion of the amount of indemnity to be paid. Mr. Houghton adds that, should His Majesty’s Government be unwilling to appoint a representative to discuss that question with a representative of the Government of the United States, the latter would feel themselves under the necessity of insisting that the question of the liability of His Majesty’s Government and, if that liability be established, the amount of the indemnity to be paid, should be submitted to arbitration in accordance with the arbitration treaty concluded in 1908 between the United States and Great Britain.²⁹

3. In previous correspondence on this claim His Majesty’s Government have contented themselves with stating the conclusions of fact to be drawn from the evidence in their possession relating to the circumstances in which the property in question was destroyed; but in view of the version of those facts contained in Mr. Houghton’s note, His Majesty’s Government entirely agree that an accurate exposition of such facts is an essential preliminary to the discussion of the legal principles involved.

4. They, therefore, deem it desirable to set out briefly the actual facts as they know them, and to indicate, where it seems necessary to do so, the sources from which the information was obtained—sources which, I need hardly observe, cover a much wider field than the testimony given in the Consolidated Oilfields case. In the interests of clearness the texts of the more important documents to which reference is made are set out in an Appendix³⁰ to this note, in the hope that they, of themselves, will afford sufficient proof that the conclusions reached by His Majesty’s Government regarding the facts of the destruction of the Romano-Americana properties, with which the Government of the United States are already acquainted, are neither illogical nor unjustified.

5. Mr. Houghton states that the version of the facts put forward by the Government of the United States is based chiefly on the evidence given in the course of the suit brought in His Majesty’s courts by the Roumanian Consolidated Oilfields Company. It is therefore right that I should point out that the question in dispute in that case was whether or not a contract had been made with that Company which entitled them to claim compensation, and that the manner in which the property was destroyed was not of paramount importance to the issues thus raised. In any case, a description of events relating to the destruction of the property of the Roumanian Consolidated Oilfields Company at Targoviste (the point nearest the enemy on the west), which began on November 26th, 1916, cannot be regarded as an accurate statement of the facts in regard to the destruction of the property of the Romano-Americana Company at Moreni (a point farther east), which was not undertaken until November 30th and was not completed until much later. Nevertheless, insofar as the Government of the United States rely on the testimony given in the Roumanian Consolidated Oilfields case, I would invite your attention to the evidence of Colonel Norton Griffiths, and of Messrs. Masterson, Hayward and Sullivan in that case, which indicates plainly the vital distinction between the circumstances of destruction in the two areas.

6. Mr. Houghton’s note begins with a statement of instructions alleged to have been given to Colonel Norton Griffiths in November 1916, the implication being that the history of the matter starts from that point. In the opinion of His Majesty’s Government, however, it is necessary, if an accurate appreciation of the case is to be obtained, to refer to the steps taken by the Roumanian Government themselves and by the other Allied Governments before that date, in consequence of which Colonel Norton Griffiths was sent to Roumania.

7. Shortly after their entry into the war, the Roumanian Government issued a decree dated September 10th, 1916 (document No. 1) declaring the Roumanian petroleum industry to be in the service of the State, and appointing a special commission to supervise the industry under the general control of the Minister of War. At the beginning of October 1916, this commission, impressed by the capture of all the oil reserves at Constanza following the enemy operations in the Dobrudja, began to take precautionary measures, and to give instructions for preventing the large stocks of oil products on the fields from falling into the hands of the central powers in the event of an invasion from the west. By October 28th, 1916, as is clear from document No. 2, the Roumanian Government shared the apprehension of the commission and assured His Majesty’s Minister in Bucharest that all possible preparations were being made to prevent the enemy from profiting by an occupation of the Roumanian oilfields by the destruction of the richest wells and by the dislocation of machinery. These assurances were repeated to His Majesty’s Minister on November 3rd (document No. 3) during an interview with the Roumanian Minister of Commerce, who stressed the point that the oil companies had been placed under the control of the commission, and outlined in detail the proposed methods of destroying the stocks and paralysing the industry. At about this time (i. e. before Colonel Norton Griffiths reached Bucharest which he did on November 17th, 1916) definite orders were in fact issued to the commission (largely at the instance of a French military officer who had been sent to Roumania by the French Government) to render useless the means of oil production. Independent testimony showing that the commission were duly carrying out the tasks thus imposed upon them will be found in document No. 4 in the form of a telegram sent through His Majesty’s Legation at Bucharest from the Manager of the Astra Romana Company to his principals in London. From this document it will be seen that the commission was taking action, under instructions from the Roumanian Government, some three weeks before Colonel Norton Griffiths arrived at the first oilfield where destruction took place in his presence.

8. Towards the end of October, however, it seemed to the Allied Governments that the Roumanian Government for various reasons might not take effective steps to secure that object which they, nevertheless, recognised as vital to the successful prosecution of the war, and accordingly on November 2nd, 1916, it was proposed to the Roumanian Government that the Allied Governments (i. e. His Majesty’s Government and the Governments of France and Russia) should undertake to share the expenses incurred by the Roumanian Government in destroying the stocks of corn and oil, provided that the local French, Russian and British military authorities were satisfied that the necessity for this destruction had, in fact, arisen.

9. It was in pursuance of this proposal, which was accepted by the French and Russian Governments on November 4th and December 24th, 1916 respectively, that Colonel Norton Griffiths was sent out by His Majesty’s Government to Roumania, with instructions to cooperate with the Roumanian General Staff and with the local French and Russian military authorities, acting under similar instructions.

10. By the time Colonel Norton Griffiths arrived in Bucharest on November 17th the strategical position in that country had changed seriously for the worse, and it had become obvious both to the Roumanian Government and to the Allies that the mere destruction of the stocks of oil would not be sufficient to prevent the Germans obtaining from Roumanian sources those supplies of oil which they urgently required.

11. Colonel Norton Griffiths realised that there were only two ways in which he could secure that complete destruction of the industry which in the opinion of the Allied Governments had become necessary, in view of the critical nature of the strategical position, viz. either by the action of the Roumanian Government, who alone possessed both the legal right and the physical power to accomplish that destruction or by the consent and active assistance of the persons whose property was to be destroyed.

12. On his arrival at Bucharest Colonel Norton Griffiths found indeed that the Roumanian Government had themselves realized the necessity for more drastic measures, and on November 23rd they set up for that purpose a special military commission, consisting of Roumanian military officers and engineers, to supervise and expedite the work of destruction and demolition of the oil wells and plant under the orders of the Roumanian General Staff. On this commission Colonel Norton Griffiths and a French military officer were co-opted as members.

13. Notwithstanding the appointment of this special commission, the general attitude of the Roumanian Government at that time was such as to lead Colonel Norton Griffiths to believe that the best hope of accomplishing the desired end lay in purchasing outright the properties the destruction of which was desired. With this object in view he initiated negotiations with the main oil companies for the purpose of buying outright the whole of their interests and thus obtaining a free hand to do what might be necessary. Negotiations were begun with representatives of the Romano-Americana Company amongst others; but they proved abortive. Similar negotiations were on foot with representatives of the Roumanian Consolidated Oilfields Company, but before they reached a concluded stage the Roumanian authorities had themselves begun to take action, and Colonel Norton Griffiths, realising that action on their part would be the more effective, thereafter addressed his efforts to ensure that the destruction, to which the Roumanian authorities had already set their hand, should be adequate to secure the purpose in view, and he accordingly decided to join his colleagues on the special commission who were then in the oil-producing districts.

14. The first date on which Colonel Norton Griffiths came into direct contact with the oil-producing areas was on his arrival at Targoviste (where the Roumanian Consolidated Oilfields properties were situated) on November 26th, 1916, when he found his colleagues on the commission undecided as to the measures to be taken in consequence of two sets of orders which they had received. The first of these was an order issued by the Ministry of Industry on November 24th authorising the destruction of the oil stocks. The second was an order from the General Staff authorising the destruction of the industry (see evidence by Mr. Masterson in the Roumanian Consolidated Oilfields case). In view, however, of the fact that executive authority was vested in the General Staff, Colonel Norton Griffiths considered that the commission, if they merely proceeded to the destruction of the stocks of oil, would not be complying with the instructions received from that authority, and in this opinion he was supported by his French colleague. He accordingly urged, as he has stated in evidence, that a telegram should be sent to the Roumanian General Headquarters for definite orders and this was done on the evening of November 26th with the concurrence of his colleagues who took similar action. That Colonel Norton Griffiths’ anxiety to ascertain the wishes of the Roumanian military authorities was reasonable is shown by the fact that a week earlier (November 19th) an order had been issued by the Roumanian general commanding the lines of communication, which ran through the oil-producing areas, to the Headquarters Staffs of the First, Second, Northern Armies and Danube Defence Groups, contemplating inter alia the destruction of the oil wells and working machinery by dynamite (document 5)—a method which, so far as the wells were concerned, would have been attended by far more drastic consequences than the method of plugging which the commission eventually used.

15. It was not until he reached Moreni on November 27th, that Colonel Norton Griffiths first came into touch with any property belonging to the Romano-Americana Company. As no reply had been received from the Roumanian authorities to the telegram referred to in the preceding paragraph no action regarding the destruction of the property could be or was in fact taken by the Commission, beyond making certain preparations which could be put into effect if and when instructions were received. In consequence of the delay in obtaining a reply, which was due to the great confusion following the withdrawal of the Roumanian Government from Bucharest to Jassy on November 25th, Monsieur Chrissoveloni, a member of the Commission, was sent to endeavour to obtain direct from the Roumanian General Headquarters definite instructions, and it was only on his return on November 29th, with instructions which satisfied all the members of the commission that it was the desire of the Roumanian General Headquarters that the wells and machinery should be destroyed, that the work of destruction was proceeded with. The instructions conveyed by Monsieur Chrissoveloni were confirmed in an urgent order issued on November 29th by the Roumanian General Headquarters (document No. 6) authorising the immediate destruction of the wells and on the following day (November 30th) the Roumanian engineers on the special commission were instructed by the Roumanian military authorities (document No. 7) to act according to the military requirements of the situation and to inform their foreign colleagues of their instructions.

16. It was not until late in the afternoon of November 30th, i. e. after the above orders had been issued and received, that the derricks and machine shops at Moreni, including those which belonged to the Romano-Americana Company, were destroyed by fire and the wells adequately plugged. The destruction of the oil reservoirs, stores, power houses and other plant was completed by the night of December 1st. This completes the review of the main incidents in the destruction of the properties of the Romano-Americana Company on the west side of the river Prahova.

17. As regards the remainder of that Company’s properties which were situated east of the river Prahova, I would refer you to a self-explanatory order of December 4th (new style) signed by General Iliescu, Chief of the General Staff, which was issued to the Second Army, and repeated to the subordinate commands (document No. 8). This document makes it clear that the Roumanian Government, having embarked on a policy of thorough destruction insofar as the oil properties on the west of the river were concerned, were prepared to carry that policy into effect in the districts of which Ploesti was the centre, as the circumstances of the enemy’s advance warranted. While the General Staff required that the destruction should be completed at the earliest possible moment they were anxious to do nothing to impede the lines of communication during the period when the Roumanian armies were passing through the oilfields. They intended, however, that the work of destruction should be completed after the Roumanian armies had left the oilfields behind them, and the commission were duly authorised on December 4th by General Anastasiade commanding the Third Division at Ploesti, to fire all the oil plant east of the Prahova, after he had received the orders to that effect from General Avarescu set out in Document 8 part 2.

18. In the opinion of His Majesty’s Government the foregoing account represents the true history of the destruction of the oil wells in Roumania so far as is relevant to the present claim. There are, however, two points in the account contained in Mr. Houghton’s note on which I desire especially to comment.

19. Mr. Houghton states that the Roumanian authorities opposed with force the prosecution of the work of destruction by Colonel Norton Griffiths and his colleagues. So far from that being the case, the destruction of the property of the Romano-Americana Company was actually carried out by a number of Roumanian troops under the command of a Roumanian officer. I may add that there were no British troops present in the oilfields at that time, nor at any other time; and Colonel Norton Griffiths only engaged two or three employees of the Roumanian Consolidated Oilfields Company as members of his staff. In these circumstances His Majesty’s Government are at a loss to understand on what information the statement to which I have referred is based, since it was physically impossible for Colonel Norton Griffiths to have withstood any forcible measures adopted by the Roumanian authorities.

20. Also, to suggest, as Mr. Houghton does, that His Majesty’s Government despatched Colonel Norton Griffiths to Roumania for the purpose of exercising in Roumanian territory and against Roumanian subjects those sovereign rights and duties inherent only in the Roumanian Government, for the defence of its territory, is to suggest that His Majesty’s Government were guilty of a deliberate and serious affront to the sovereignty of His Majesty the King of Roumania which, had it indeed taken place, must have led to immediate remonstrance and repudiation by the Roumanian Government. So far from this being the case, that Government has on more than one occasion, as pointed out in my note of April 15th, 1926, asserted that they and they alone are responsible for the measures taken.

21. In the opinion of His Majesty’s Government the facts of the case establish beyond any question that the destruction of the property of the Romano-Americana Company was carried out under the direct orders of the Roumanian Government, and was therefore in law and in fact the act of that Government; and that any action taken by Colonel Norton Griffiths was taken by him in his capacity as a member of a Roumanian commission appointed by the Roumanian Government.

22. His Majesty’s Government do not deny that, in company with the French and Russian Governments, they urged the Roumanian Government, through their accredited representative in Bucharest, to make the fullest use of the powers assumed by them early in the campaign to prevent the enemy from obtaining the means of prolonging a war disastrous alike to all involved in it at that time, but I must reaffirm that they could not and did not in any way go beyond the limits of persuasion and good counsel as between governments associated in a common cause.

23. When the British, French and Russian Governments realised that any hesitancy on the part of the Roumanian Government to carry out to the end the policy of destruction to which they had set their hand would be mainly caused by the fear of eventual claims which might be brought against them by the several companies, they (the Allied Governments), as a measure of inducement, offered to indemnify the Roumanian Government for any such claims made against them by the Companies for the destruction of their properties. This verbal guarantee, after the receipt of which the Roumanian authorities issued the detailed destruction orders outlined above, was later embodied in a formal note addressed by His Majesty’s Minister at Bucharest to the Roumanian Government on December 3rd, 1916. This pledge has been duly honoured. The British and French Governments agreed with the Roumanian Government on the amount of the claims of the oil companies concerned, which were assessed in 1920 by a joint British, French and Roumanian commission at an approximate total of ten million pounds sterling. (The cooperation of Russia was not forthcoming owing to the Bolshevist régime in that country). The British and French Governments, in settling with the Roumanian Government the terms of war debt repayment, have each reduced by five million pounds sterling the amounts owing to them by Roumania, in full execution of the undertaking given to the Roumanian Government by the British, French and Russian Governments in 1916. The Roumanian Government on their part recognised their liability to compensate the companies concerned, and have accordingly concluded agreements to this effect not only with the British companies but also with practically all the companies in which there is a substantial foreign interest.

24. His Majesty’s Government have every reason for believing that the Roumanian Government would be willing to offer the same terms of settlement to the Romano-Americana Company as have already been accepted by the British, French, Dutch and Belgian companies and by those Roumanian corporations such as the Astra Romana and the Steaua Company, in which the shares are mainly held by non-Roumanian shareholders. His Majesty’s Government therefore must decline to accept any responsibility whatever for the compensation which may be due to the Romano-Americana Company arising out of the destruction of their properties in Roumania in 1916. They have honoured the undertaking given by them to the Roumanian Government in 1916, and in doing so, have acquitted themselves of their one and only liability in the matter. Consequently they cannot entertain Mr. Houghton’s suggestion that the question of the indemnity due to the Romano-Americana Company should form the subject of a discussion between representatives of His Majesty’s Government and the Government of the United States.

25. Mr. Houghton goes on to suggest that failing such a direct discussion the United States Government’s claim should be submitted to arbitration. As His Excellency makes certain propositions of law in support of this request, it seems desirable that I should state shortly the grounds on which His Majesty’s Government find themselves unable to accept as applicable to the present case the contentions there advanced.

26. Mr. Houghton states that “Neither approval by the Roumanian 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 Roumanian Governments …³¹ relieves His Majesty’s Government from liability to indemnify the owners of the 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 agreement amongst several Governments”.

27. In the sphere of private law there are few principles more generally recognised than that which affirms that the ratification by a principal of the act of a person purporting to act as an agent makes that act for all purposes the act of the principal. This principle was held to apply to the ratification by a sovereign power of acts of its servants in the case of Buron versus Denman, 2 Exchequer Reports, 167. The views expressed by the Government of the United States in the case of the “Caroline” (Moore, Digest of International Law, Column II, Page 209^31a are to the same effect. His Majesty’s Government are not aware of any case in which it has been held that the principle thus clearly established in private law does not apply equally to cases where a claim is raised through diplomatic channels, to which principles of international law would be applied. Even if therefore, contrary to the view held by His Majesty’s Government, it should be considered that the action taken by Colonel Norton Griffiths was at the time unauthorised by the Roumanian Government, His Majesty’s Government would none the less contend that the subsequent ratification by the Roumanian Government of those acts made them for all purposes the acts of the Roumanian Government and that, in consonance with the principles set out in Mr. Houghton’s note, the persons whose property is destroyed must look to the Government responsible for the destruction of the property, or its successors.

28. With regard to the authorities cited in support of the contention that the destruction of property by a belligerent for the purpose of preventing it from falling into the hands of the enemy is a ground on which compensation can be claimed by the owner of that property, I need only observe that those authorities are in every instance confined to the assertion that the right of the owner of the property destroyed is to claim against the Government which actually destroyed the property. Having regard, therefore, to the view of the facts taken by His Majesty’s Government, I am unable to admit that those authorities are in any way relevant to the claim sought to be made against His Majesty’s Government.

29. When stating that, in the absence of an amicable settlement of the present dispute, the Government of the United States would feel bound to insist on the matter being referred to arbitration Mr. Houghton specifically invokes the Treaties of April 1908 and June 1923 between the United States and Great Britain.³² I would however, point out that the terms of those Treaties expressly exclude disputes in which third parties are interested. The Roumanian Government have, as mentioned in my note of April 15th, 1926, acknowledged their responsibility for the acts of destruction and have stated that they would object to any interference in the matter as being an infringement of their sovereign rights. It has already been explained that the obligation resting on His Majesty’s Government to indemnify the Roumanian Government is also shared by the French Government and it has been shown above that that obligation has been implemented by both those Governments. A French officer was moreover a member of the Roumanian Commission and took part in the deliberations of that body. In view of these facts, His Majesty’s Government feel compelled to dissent from the view that the present dispute is one falling within the terms of the Treaties of April 4th 1908 or June 3rd, 1923.

30. Mr. Houghton observes that the Government of the United States is seeking to recover indemnity for the losses sustained by the claimants through the destruction of the property of their Roumanian subsidiary. It will not be denied that the Roumanian Company itself is, so far as nationality can be predicated of a corporation, a Roumanian national, and that no claim on its behalf could be advanced in international law by a foreign Government. Mr. Houghton urges, however, that the interests of the American stockholders of the Roumanian Company are such as to justify a claim being made on their behalf against His Majesty’s Government, notwithstanding that the property alleged to have been destroyed was in fact that of a Roumanian national. His Majesty’s Government cannot admit that such a claim is supported by any recognised principles of international law.

31. It is not disputed that in certain circumstances the destruction of property may give rise to a claim by the owner of that property against the Government of a State, but in the case of a corporation the distinction between the property of the corporation in the corporation’s assets and the interest of the stockholders of the corporation is well settled. “No shareholder has any right to any item of property owned by the company, for he has no legal or equitable interests therein. He is entitled to a share in the profits while the company continues to carry on business and a share in the distribution of the surplus assets when the company is wound up”.

“The corporator, even if he holds all the shares, is not the corporation and neither he nor any member of the company has any property legal or equitable in the assets of the corporation”. These two citations from a recent judgment of the highest English tribunal represent, as His Majesty’s Government believe, the law on the subject both in England and in the United States and were referred to with approval in the majority decision of the tribunal appointed in the arbitration between the Reparation Commission and the Government of the United States relating to certain oil-tankers, the property of the Deutsche Amerikanische Petroleum Gesellschaft, under the agreement of June 7th, 1920.³³

32. This decision is particularly important since it affects a claim made by the Standard Oil Company raising a legal issue precisely similar to that now raised by the same Company.

33. Under the Treaty of Versailles, the German Government ceded to the Allied and Associated Governments all German merchant ships of one thousand six hundred tons gross and upwards. In pursuance of this provision the German Government handed over to the Separation Commission, among other vessels, certain tankers which belonged to a German Company known as the Deutsche Amerikanische Petroleum Gesellschaft (commonly referred to as the D. A. P. G.). The Standard Oil Company protested against the delivery of these vessels of which it claimed the ownership on the ground that at all material times it owned practically the whole of the capital of the D. A. P. G.³⁴ The Tribunal decided that the Standard Oil Company had failed to make good its claim to beneficial ownership, on the above ground, of any of the vessels in question, and that they were not entitled to demand any compensation in respect thereof.³⁵

34. On the strength of these precedents His Majesty’s Government deny that in the present case any property of the claimants was in fact destroyed or damaged or that a right to compensation has accrued to the claimants on the ground only that they are shareholders in the Roumanian Company.

35. Mr. Houghton, however, refers to a number of precedents which, it is alleged, show that international law recognises the right of shareholders or stockholders as such to claim in respect of damage done to the corporate property of the Company, and, as a corollary, the right of a Government to intervene on their behalf, even though the corporation of which they are stockholders or shareholders is a foreign corporation. His Majesty’s Government propose briefly to examine these precedents which in their view fall far short of establishing the proposition which His Excellency puts forward.

36. His Majesty’s Government readily admit that many cases might be cited in which a Government has used its good offices in the interests of its own nationals who are stockholders in a foreign corporation; but it will be found upon examination, that the cases in which the right of a Government to intervene on behalf of the shareholders of such a corporation, for the purpose of establishing a claim against another Government, has been admitted, are few in number and exhibit certain marked characteristics none of which are present in the case now under consideration. Cases of this kind fall, generally speaking, into two classes (1) where the action of the Government against whom the claim is made has in law or in fact put an end to the Company’s existence or by confiscating its property has compelled it to suspend operations; (2) where by special agreement between the two Governments a right to claim compensation has been accorded to the shareholders. From the second class of case it is plain that no principle of international law can be deduced. The first class, so far from being an exception to the general rule, is in fact an example of its application; for it is not until a Company has ceased to have an active existence or has gone into liquidation that the interest of its shareholders ceases to be merely the right to share in the Company’s profits and becomes a right to share in its actual surplus assets. Moreover, though it is well settled that no Government will intervene on behalf of a claimant who has not exhausted all his remedies under the municipal law of the country, it would be manifestly unjust to refuse diplomatic support to the shareholders of a foreign corporation where the foreign Government had by its own wrongdoing rendered illusory all remedies which might otherwise have been asserted by the corporation itself.

37. The cases which may be referred to as illustrating and indeed establishing the principle that a Government is entitled to intervene in a case where the action of the Government against whom the claim is made has in law or in fact put an end to the Company’s existence, or has made it impossible for it to take any action on its own behalf, are those commonly known as the Delagoa Bay case and the El Triunfo case.³⁶

38. As Mr. Houghton observes, the facts and the decisions in these cases are so well known that it is unnecessary to set them out in detail. It seems to His Majesty’s Government sufficient, so far as regards the Delagoa Bay case, to refer to the following extracts from the instructions given by His Majesty’s Government and the Government of the United States to their respective representatives. The Marquis of Salisbury in his instructions to the British Minister at Lisbon said “His Majesty’s Government hold the action of the Portuguese Government to have been wrongful and to have violated the clear rights and injured the interests of the British Construction Company which was powerless to prevent it, and which, as the Portuguese Company is practically defunct, has no remedy except through the intervention of its own Government”. Similarly Mr. Blaine in his instructions to the United States Minister at Lisbon said: “In any case, the Portuguese Company being without remedy and having now practically ceased to exist, the only recourse of those whose property has been confiscated is the intervention of their respective Governments”. (Moore, International Law Digest, VI, 648).

39. As regards the El Triunfo case, the position was that the Company had been declared bankrupt and a receiver had been appointed. The grounds on which the intervention of the Government of the United States was admitted seem to His Majesty’s Government to be correctly and sufficiently summed up in the following extract from the decision of the majority of the Arbitrators:³⁷ “We have not discussed the question of the right of the United States under international law to make reclamation for these shareholders in the El Triunfo Company, a domestic corporation of Salvador, for the reason that the question of such right is fully settled by the conclusions reached in the frequently cited and well understood Delagoa Railway Bay [Delagoa Bay Railway] arbitration”. (Moore, ibid., 651).

40. On the other hand, where the Company is still in effective existence the shareholders have no status to claim in respect of damage to the corporate property, and intervention on their behalf is inadmissible. In support of this contention His Majesty’s Government would refer to the following cases with which you are no doubt well acquainted.

41. In the case of the Antioquia (Moore, ibid., 644), the Government of the United States declined to intervene on behalf of United States stockholders in a Colombian Company. Mr. Seward in explaining the reasons for this decision observed that if individual shares belonging to a United States citizen in a foreign company should be unjustifiably confiscated, he might properly call for the intervention of his Government, but as a corporator he had no individual property in the chattels or credits of the corporation. “If it (the corporation) has sustained a wrong, is it not for it to pursue such remedy as it may have in the same manner as a private Colombian would be obliged to do, without the aid of any Government external to Colombia?”

42. Intervention was again denied by the Government of the United States in the case of the nitrate establishments of Tarapaca (Moore, ibid., 646). The grounds for the decision were that “the rights and privileges held by the Company were in every sense Peruvian …³⁸ that the existing interest of the American shareholders was reduced to an equitable right to their distributive share of the funds of the corporation; that the rights of the corporation were involved and not the individual rights of the shareholders, and that even if all the individual members of the corporation were duly qualified American citizens they could not present their complaint in their individual names as owners but must present them as belonging wholly to the corporation as owner”. Nor could an individual shareholder prosecute a corporate cause of action because the corporation failed or refused to do so. It was finally stated that the “good offices” of the United States might with propriety be exercised in behalf of the United States claimants when the claims of the Company were properly presented to Chile, but that the request that prompt and efficient diplomatic steps be taken in support of their individual interests as shareholders was out of the question.

43. The same question arose in a number of cases in the course of the Venezuelan Arbitrations of 1903. I may refer you in particular to the case of Kunhardt and Company (Ralston, Venezuelan Arbitrations, 63). This case is of particular interest in that while the members of the Commission differed as to the correct inferences to be drawn from the facts presented to them, they expressed the same views as to the legal principles involved. His Majesty’s Government would especially refer to the following extracts from the opinions of the Commissioners who adjudicated in the case:

“The shareholders of a corporation are not co-owners of the property of the corporation during its existence: they only have in their possession a certificate which entitles them to participate in the profits and to become owners of proportional parts of the property of the corporation when the latter is by final adjudication dissolved or liquidated. This corporation has not been dissolved or liquidated in accordance with the laws of Venezuela and therefore the claimants have no standing to claim before the Commission”.

“While the property of a corporation in esse belongs not to the stockholders individually or collectively but to the corporation itself, it is a principle of law universally recognised that upon dissolution the interests of the several stockholders become equitable rights to proportionate shares of the corporate property after the payment of the debts”.

44. Similarly in the case of Brewer Moller and Company (Ralston, op. cit., 595), the Venezuelan Government had contended that the property damaged was that of a Venezuelan corporation. The umpire stated that he was “unable to regard the objection of the Commission for Venezuela as a technical one, in the sense of the protocol” page 597 (which had empowered the Commission to disregard provisions of local legislation). “Certainly under the protocol this Commission cannot take jurisdiction of a claim which is now owned by a German subject, and if, as has been stated, [the Company]³⁹ were the owners in law of the property, and their German associates have only a right to an accounting for their contribution and its profits, they are not the legal owners of the debt or of any interest therein”.

45. Again, in Baasch and Romer (Ralston, op. cit., 906) the umpire stated that the claimant “is a Venezuelan Corporation created and existing under and by virtue of Venezuelan law and has its domicile in Venezuela. This Mixed Commission has no jurisdiction over the claim. It is the corporation whose property was injured. It may have a rightful claim before Venezuelan Courts, but it has no standing here. The shareholders being Dutch does not affect the question. The nationality of the corporation is the sole matter to be considered”. Further decisions of the same and other tribunals could, if necessary, be mentioned, but those already cited seem to His Majesty’s Government to establish the principle beyond question.

46. As regards the Alsop case⁴⁰ to which Mr. Houghton refers, His Majesty’s Government desire to draw particular attention to the second paragraph of the extract quoted in his note from the report of the Committee appointed to advise King Edward VII (the “amiable compositeur”) wherein it is stated that “We hardly think that this contention” [i. e. that as the Company was a Chilean Company their grievances against the Chilean Government could not properly be made the subject of a diplomatic claim]⁴¹ “is seriously put forward as precluding Your Majesty from dealing with the merits of the case. It would be inconsistent with the terms of reference to Your Majesty and would practically exclude the possibility of any real decision on the equities of the claim put forward”. This case is therefore clearly an example of the second class referred to in paragraph 36 in which by special agreement between the two Governments a right to compensation has been accorded to shareholders. It is also material to observe that the reference was not to an arbitrator but to an amiable compositeur who, as the name implies, would not necessarily hold himself to be bound by the strict rules of international law.

47. A similar case is that of the case of Cerruti versus Colombia ( Foreign Relations of the United States, 1898, 245) where President Cleveland also considered himself entitled under the terms of submission to award an indemnity to the individual members of the firm on whose behalf the claim was being presented by their Governments.

48. Mr. Houghton refers to a case which presents features perhaps at first sight inconsistent with the principles which have been developed above, namely, the Tlahualilo case ( Foreign Relations of the United States, 1913, 993). It is true that in making diplomatic representations to the Mexican Government in connexion with the confiscation of the property of the Company in that case, both His Majesty’s Government and the Government of the United States refer to the interest of their citizens who were stockholders therein, but it appears from the report that the interests of mortgage creditors were also concerned, and it is clear that the rights of mortgage creditors are rights of an entirely different character from the rights of shareholders, inasmuch as they are rights in rem over specific assets of the corporation and not merely a right to share in the profits. It is moreover clear that the action of the Mexican Government resulted in the complete suspension of the Company’s activities and the case therefore bore a close analogy with that of the Delagoa case. That the Government of the United States so regarded it is shown by the following extract from the instructions given to the United States Ambassador on August 12th, 1912:⁴² “The attitude of the Governments of the United States and Great Britain upon the question of representation in such cases was made clear in the measure mutually taken by them in the now famous Delagoa Bay case, a case practically on all fours with the present, the principle of which has been repeatedly affirmed”.

49. His Majesty’s Government would in conclusion refer to the following passage in a well-known and authoritative American work (Borchard, “Diplomatic Protection of Citizens Abroad”, 1925 Edition, 624): “That the nationality of the corporation rather than that of the stockholders must control the jurisdiction of international tribunals in claims growing out of corporate losses appears evident from the fact that the corporation, the trustee, possesses the entire legal and equitable title to a claim as part of the assets of the corporation, whereas the stockholder possesses only an equitable right, enforceable in a court of equity, to an accounting and to compel the proper management of the Company by its directors. The stockholder, therefore, having no legal title to the corporate property of a solvent corporation, can hardly be recognized by an arbitral tribunal acting under the usual form of protocol as a proper party claimant, and only under exceptional protocols, as will presently be noticed, has this been done.” Though demurring to the description of a corporation as trustee for its shareholders His Majesty’s Government conceive that the above passages accurately represent the present state of the law.

50. Reference has already been made in passing to the rule which His Majesty’s Government conceive to be as well established as any in international law, namely, that before a Government can intervene against a foreign Government on behalf of one of its nationals the injured party must first exhaust the other remedies open to him. I would now refer to the following statement of this rule by Mr. Marcy, Secretary of State, to the Minister of Peru on May 24th, 1855 (Moore, International Law Digest, VI, 659) which seems to His Majesty’s Government to be especially appropriate to the circumstances of the present case: “The natives of the foreign country seek redress for wrongs through the judicial tribunals or in the form of petitions to the executive or legislative authorities. Foreigners are bound to pursue the same course unless there should be a positive and unequivocal treaty stipulation imparting to them privileges superior to those enjoyed by the natives of the country”.

51. In applying to the circumstances of the present case the principles of international law enunciated above, His Majesty’s Government deem it sufficient to point out (a) that the Romano-Americana Company which, as Mr. Houghton concedes, is the owner of the property damaged, is still in existence, and (b) that, as explained above, the way appears open to it to apply for and to obtain from the Roumanian Government compensation for the damage to the Company’s property on exactly the same basis as that on which compensation has been granted to other companies whose properties were damaged or destroyed in order to prevent them falling into the hands of the enemy.

52. The various considerations I have thus elaborated have led His Majesty’s Government to the conclusion that they are neither called upon nor able to entertain the request of the Government of the United States that the matters arising from the destruction of the property of the Romano-Americana Company in Roumania should be submitted to arbitration. These considerations may be summarised as follows:

(1) Because the case is one which affects the interests of third parties and is therefore expressly excluded from the scope of the Arbitration Treaties between the United States and Great Britain.

(2) Because the Government of the United States are not entitled under international law to claim against His Majesty’s Government on behalf of, or in respect of damage done to the property of, the Romano-Americana Company (a Roumanian National) merely because the majority of the shares in the Romano-Americana Company are held by the Standard Oil Company. I would like to emphasise that, as the nature of the rights of shareholders in relation to their Company’s property has recently been decided by an International Tribunal in a case to which the Standard Oil Company were themselves a party (I refer to the case of the Tanker arbitration mentioned in paragraphs 31–33 of this Note), His Majesty’s Government cannot admit that they are under any obligation to agree to a further arbitration on the same point.

(3) Because it is open to the Romano-Americana Company to apply to the Roumanian Government for compensation as explained in paragraphs 23 and 24 of this Note.

53. Lastly, inasmuch as Mr. Houghton’s request was based on a version of the facts which, as I have endeavoured to show above, cannot be regarded as complete or accurate, I trust that the Government of the United States, now that they are placed in possession of the full and exact facts, will agree that the circumstances are not such as to establish any claim against His Majesty’s Government in this matter which requires settlement either by arbitration or by any other method.

I have [etc.]

Austen Chamberlain

[Subenclosure 1—Translation]

Document No. 1: Rumanian Decree of September 10, 1916, Relating to the Control of the Oil Industry

Ministry of Industry and Commerce. Decision relative to the organisation of the Petroleum Industry and of petroleum derivatives necessary for the army and in the interests of the country.

No. 404 of 10th September, 1916—Monitor Official, No. 134 16th September, 1916.

On the basis of Articles 1 and 5 and also of Articles 142 and 144 of the Requisition Law and Regulations, and of the authorisation granted in the Journal of the Council of Ministers, No. 1669 of 24th October, 1916.

We decide:

1. That petroleum enterprises engaged in refining, transporting or selling petroleum and its derivatives shall be declared henceforth to be in the service of the State.

2. The Ministry of War is charged with all questions relative to the execution, supervision and control through the State Supervisory Commission for the Petroleum Industry instituted under the Ministry of Industry and Commerce.

[Subenclosure 2—Telegram]

Document No. 2: The British Minister in Rumania ( Barclay ) to the British Foreign Office

Bucharest (via Alexandrovsk), October 28, 1916—midnight .

No. 925. Both Minister of War and Prime Minister decline to sanction any general destruction of corn and although Minister of Commerce who has been deputed to deal with the matter tells me he is taking all possible measures with a view to preventing enemy from profiting by oilfields destruction of richest wells dislocation of machinery etc. in case of emergency, I am not very confident as to results.⁴³

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

(Here follows a paragraph dealing exclusively with the destruction of corn)

As regards the destruction of oilfields, Military Authorities recognize that most sweeping measures are indicated, but as this matter is being dealt with at present by the Minister of Commerce, they cannot act without the approval of the Roumanian Government. Military-Attaché will again urge when oilfields come into the military zone, which will occur if a general retreat takes place, that drastic measures be taken by Military Authorities.

[Subenclosure 3—Extract—Telegram]

Document No. 3: The British Minister in Rumania ( Barclay ) to the British Foreign Office

Bucharest , November 3, 1916 .

No. 946. …⁴⁴ As regards petroleum Prime Minister referred me to the Minister of Commerce. I saw the latter yesterday. His Excellency told me that Roumanian Government was fully alive to the paramount importance of the question and for some time a commission of the best Roumanian experts had been considering how to deal with it. Their work had been as far as possible secret in order not to cause panic. All oil companies had been placed under control of this Commission. A large quantity of oil, some 13,000 wagons—reported already disposed of by leakage or had been pumped back into gisements and Commission was continuing this work though there were limits to this as there were places where oil would not sink into the ground in which case evaporation would leave a dangerously inflammable vapour. I observed even burning of a whole district would be well worth while if it prevented such a prolongation of the war as would be caused by our enemies obtaining the existing stocks of oil. He replied that so drastic a measure as burning the stocks could not be taken until the last moment.

Apart from other considerations it would create an extraordinary panic.

As regards question of rendering wells useless he said nine-tenths of the production capacity of the wells were worked by electricity and that Commission had decided to render useless electric power stations and had done so already with all but one which was to be kept going until the last moment for the needs of the country in the matter of residues for fuel. The rest of the wells, those not worked by electricity, were widely distributed, it had been decided to render these useless by destroying the pipes by which oil was passed to the refinery reservoirs.

Transport by other means was impossible.

I asked Minister of Commerce why he could not make arrangements to render useless each of the wells when the moment came for I understood that this was an easy operation. His Excellency said that there were seven hundred well centres and that he had not enough reliable men to ensure its being done when the moment came.

I have informed my French colleague and my Russian colleague and I have no doubt that General Berthelot and General Belaiev will work with our Military Attaché with a view to securing proper Military co-operation in case moment arrives.

[Subenclosure 4—Telegram]

Document No. 4: The British Minister in Rumania ( Barclay ) to the British Foreign Office

Bucharest , November 8, 1916 .

No. 972–A. Following for Anglo-Saxon Petroleum Company from Mr. Jacobson.⁴⁵

Roumanian Authorities in view of invasion have begun to destroy our benzine stocks in Campina by pumping it in old wells: up to now 450 cars of heavy Benzine have been destroyed in that way. Authorities are preparing destruction of all the stock. Our stocks amount to about 60,000 tons crude oil, 5,000 tons unrectified Benzine, 34,000 tons un-refined light, 9,000 tons refined light Benzine, 33,000 tons unrefined, 10,000 tons refined heavy Benzine, 38,000 tons gas oil, 27,000 tons liquid fuel, 5,000 tons lubricating oil. These stocks do not include our former Custendje stocks. Roumanian Authorities refuse to give their instructions in writing.⁴⁶

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

(Here follow details of interest to the Company only).

Roumanian Authorities also gave instructions to dismiss and remove to unknown places our central electrical plant and other machines and greater part of our materials in stock also without any written orders and without any receipts.

[Subenclosure 5—Translation—Extract]

Document No. 5: Order No. 1787 of November 6/November 19, 1916, from the Rumanian General Commanding Lines of Communication ( Iliescu ) to the Headquarters Staffs of the 1st, IInd, and North Armies and Danube Defence Group

In case of the development of events compelling us to evacuate a part of our territory in order to obstruct as much as possible the advance of the enemy, you are requested to be good enough to take the necessary measures to make ready in time the works indicated below:—

a) Preparations will be made for the destruction of the railways to a depth of approximately 30–35 kilometres from the frontier, taking up rails, chairs, sleepers, etc: and transporting them to the stations in the Bârlad Valley.

If this material cannot be taken away it will be destroyed.

b) Preparations will be made for the destruction of all constructional work (tunnels, bridges, etc:)

c) All foot-bridges will be removed, while if they cannot be taken away they will be destroyed together with all other constructional work in the respective zones.

d) The destruction and removal of rails will commence in the closest possible proximity to the enemy.

These operations will be carried out by civilian workers, while the evacuation of materials will be supervised by the bases concerned.

e) Cereals in railway warehouses, barns, etc. which cannot be evacuated, will be damped with water or spoiled, pouring petrol on them to which fire may be set at a given time, if orders are not shortly received for their distribution among the inhabitants.

f) The Oil Wells will be destroyed by introducing at a certain depth in the interiors, dynamite cartridges which shall afterwards be fired: working machinery on the installations shall also be destroyed with dynamite, if the technical delegates of the Ministry of Industry shall have instructions to that effect; otherwise all principal parts of machines shall be removed.

For the execution of this work delegates have been appointed to all the more important areas, charged with the supervision of the work of preparation and of execution.⁴⁷

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

(Followed by instructions of a general character)

By High Order,
for the Chief of General Staff,
General (Signed)

D. Iliescu.

(stamp)
Secretariat General Ministry of War
for conformity
Chief of Office No. 4
Major (Signed)

V. Florescu.

[Subenclosure 6—Translation—Telegram]

Document No. 6: Order No. 3216 of November 16/November 29, 1916, from the Rumanican General Headquarters to the Headquarters of the IInd Army

Urgent.

To No. 1562.

The destruction of the wells and the emptying of the reservoirs can begin immediately.

For Chief of the General Staff
General (Signed)

Iliescu

[Subenclosure 7—Translation—Telegram]

Document No. 7: Order No. 07067 of November 17/November 30, 1916, from the Rumanian General Commanding Lines of Communication ( Popovici ) to Engineers Tanasescu and Gana, Prefecture of District of Nambovita Targoviste

In conformity with the decision of the Ministry of War.

Re telegram No. 1531 from Targoviste, we beg you to take orders of detail from the First Army Headquarters—Titu—and the Second—Naicci [?]—to whom Order No. 1787 of the 6.11.1916 (old style. November 19th, 1916 new style) relative to the oil regions decided upon and to the destruction about to be effected in conformity with the arrangements made by the Ministry of Industry, has been transmitted.

Communicate this to your foreign colleagues.

General Commanding Lines of Communication
General (ss)

Popovici

[Subenclosure 8—Translation⁴⁸]

Document No. 8: Order No. 3503 of November 21/December 4, 1916, from the Rumanian General Headquarters to the IInd Army

The destruction of petroleum installations and of petroleum, oil and benzine warehouses will be effected immediately not only in the entire Campina region but also throughout the region eastward of tie Prahova.

Excepted are those in the basin of the Buzeu.

By order of H. M. the King:
Per the Chief of the General Staff,
General

Iliescu

No. 3503

In the execution of this order:

(1) The IInd Army on November 21, old style (December 4, new style) shall issue the following order:

To General Manolescu Mladian, Câmpina.

To General Anastasiade, 3d Division.

In execution of Order No. 3503 of General Headquarters, you are requested to order that the destruction of installations and warehouses of petroleum, oil and benzine be immediately effected not only in the region of Câmpina but also in the region eastward of the Prahova.

Excepted are those in the valley of the Buzeu.

The tasks shall be carried out for the present in such manner that the passing of troops and of baggage be not impeded and shall be accomplished after the retreat.

The Commander of the IInd Army,
General of Division,
(Signed) Averescu

No. 6956.21/9 [sic], old style.

(2) On the same date of 21/9[sic], old style, the IInd Army shall issue the following order to C. S. A. [sic]:

No. 6958 of November 21, 1916, old style.

To the 3d Army Corps, Câmpina.

In execution of the order from General Headquarters, No. 3503, the order has been issued to Generals Mladian and Anastasiade, military commanders of the Prahova and Teléajen regions, immediately to effect the destruction of installations and warehouses of petroleum, oil and benzine, etc. … in the Campina region and throughout the region eastward of the Prahova.

The tasks shall be carried out in such fashion that the retreat of the troops be not impeded.

The Commander of the 2d Army,
General of Division, Averescu

26. Not printed.
27. For text, see instruction No. 766, Dec. 6, 1926, to the Ambassador in Great Britain, Foreign Relations, 1926, vol. ii, p. 326.
28. Foreign Relations, 1926, vol. ii, p. 322.
29. ibid., 1908, p. 382.
30. Subenclosures 1–8, infra.
31. Omission indicated in the original note.
32. Citation should be to volume ii, p. 409.
32. Foreign Relations, 1908, p. 382; ibid., 1923, vol. ii, p. 315.
33. Foreign Relations, 1920, vol. ii, p. 598.
34. See ibid., pp. 542 ff.
35. See ibid., 1926, vol. ii, pp. 166 ff.
36. Foreign Relations, 1900, p. 903 and ibid., 1902, pp. 838 ff.
37. Foreign Relations, 1902, pp. 862, 873.
38. Omission indicated in the original note.
39. Brackets appear on the original note.
40. See Foreign Relations, 1911, p. 38.
41. Brackets appear on the original note.
42. For complete text of the instructions, see Foreign Relations, 1910, p. 1000.
43. The following omission indicated in the original.
44. Omission indicated in the original.
45. Manager of the Astra Romana Company in Rumania.
46. The following omission indicated in the original.
47. The following omission indicated in the original.
48. Supplied by the editor from the French translation of the original Rumanian.