Foreign Relations of the United States Diplomatic Papers, 1934, General, the British Commonwealth, Volume I

341.1154L58/216

The Ambassador in Great Britain (Bingham) to the Secretary of State

No. 137

London, August 4, 1933.
[Received August 12.]

Sir: I have the honor to refer to my telegram No. 233 of August 3rd, 7 p.m., in relation to the Armes Automatiques Lewis, and to forward a copy of the Foreign Office note, with enclosure, referred to therein.

Respectfully yours,

For the Ambassador:

Ray Atherton

Counselor of Embassy

[Enclosure]

The Counselor of the British Foreign Office (Craigie) to the American Ambassador (Bingham)

No. A4758/1710/45

London, 2 August, 1933.

Your Excellency: I have had under consideration, in consultation with the proper departments of His Majesty’s Government, the note which Mr. Atherton addressed to me on the 6th April last respecting the claim preferred against His Majesty’s Government in the United Kingdom by the American stockholders of the Armes Automatiques Lewis Company.

2. In this note Mr. Atherton has re-stated the claim of the United States Government to a right to intervene on behalf of the United States shareholders in the Company. In reply I desire to invite Your Excellency’s attention to a note addressed to the United States Chargé d’affaires on the 1st January, 1927,¹⁰ in which the then Secretary of State expressed himself as unable to agree that the United States Government had any standing on this question—an opinion with which I must express my full agreement. You will be aware that the Armes Automatiques Lewis is a company incorporated, and still carrying on business, in Belgium. Any claim, therefore, which is made in respect of alleged injuries to the Company must be regarded as a claim on behalf of the Company, which is a Belgian national. Furthermore, the ownership of the shares, even if it extended to the totality thereof, by United States citizens or corporations does not, in the opinion of His Majesty’s Government, justify diplomatic protection of this Belgian company by the United States Government.

3. In Mr. Atherton’s note an attempt is once more made to find an analogy in the Delagoa Bay Railway Company case, from which, however, the present case is clearly distinguishable on all of the three following grounds:

(i) The Portuguese Delagoa Bay Railway Company was at the time of the decision in process of dissolution so as to bring to an end its corporate character. This is not true of the Belgian Company, the Armes Automatiques Lewis.

(ii) The claim does not lie against the country in which the Company was incorporated. In the Delagoa Bay Railway case the claim was against Portugal, the country in which the injured company was incorporated; while the Armes Automatiques Lewis Company was incorporated in Belgium, the present claim is not against the Government of Belgium in which country the Armes Automatiques Lewis Company is incorporated, but against His Majesty’s Government in the United Kingdom.

(iii) The Belgian Government, being the government whose national the Company is, have made representations to His Majesty’s Government, who have been in official correspondence with them on the subject. His Majesty’s Government cannot be expected to acknowledge the right of two different governments simultaneously to prosecute the case of the same company.

4. In view of the above considerations, His Majesty’s Government remain quite unable to admit the right of the United States Government to intervene in this question. As a matter of courtesy, however, I enclose a copy of a memorandum which was communicated to the Belgian Ambassador on the 16th March last. This memorandum will serve to place you in possession of the full history of the case and will make it clear that His Majesty’s Government are unable to accept as accurate the presentation of the case made in Mr. Atherton’s note. In communicating this memorandum to Baron Cartier de Marchienne I informed His Excellency that His Majesty’s Government had definitely and finally decided that they were unable to admit any claim of the Armes Automatiques Lewis Company and were not prepared to reopen the case in any way.

5. I am further compelled to make it clear to Your Excellency that I am wholly unable to accept, as having any relation to the true facts, the description of the circumstances relating to the determination of the Company’s Petition of Bight given under the 9th sub-head of Mr. Atherton’s note, and would refer to the account of what actually happened at the hearing of this Petition which is set out in paragraphs 8 and 9 of the enclosed memorandum. In view of the detailed exposition of the case in this memorandum I do not deem it necessary to do more than observe that, if the Company were dissatisfied with the judgment of the court, an appeal to the Court of Appeal and thence to the House of Lords was open to them. Moreover, I am unwilling to believe that the suggestion implicit in the statement that both the High Court of Justice and the Court of the Special Commissioners “form a part” of the Government in whose favour they decided was intended by the United States Government in the sense which it seems to bear; the Court of the Special Commissioners, like the Courts of Justice themselves, is an entirely independent tribunal, whose function it is to deal in a judicial manner with all disputes which may come before it.

6. In conclusion I desire to dissipate the misunderstanding revealed in the 10th sub-head of Mr. Atherton’s note and would invite reference to a letter addressed by Mr. Kelly of this department to Mr. Atherton on the 10th March, 1932. You will recognise, I am confident, that there is nothing in the communication to the Company’s solicitors from the Solicitor of Inland Revenue quoted in Mr. Kelly’s letter which would justify the allegation that the Special Commissioners declined to make their decision final unless the Company entered in advance into certain stipulations by which their rights would be circumscribed.

I have [etc.]

(In the absence of the Secretary of State)

R. L. Craigie

[Subenclosure]

The British Foreign Office to the Belgian Embassy

(A 1710/1710/45)

Memorandum

1. In order that the grounds on which His Majesty’s Government in the United Kingdom feel bound finally to reject the Belgian Government’s claims on behalf of the Cie Armes Automatiques Lewis arising out of the purchase by H. M. G. of Lewis Guns during the War may more readily be understood, it seems desirable to indicate briefly the circumstances in which the claims first arose, and the subsequent course of events.

2. In 1913 the Armes Automatiques Lewis (hereinafter referred to as the Company) being a Belgian company domiciled at Antwerp and the owners of British and other patent rights covering the manufacture of a machine gun generally known as the “Lewis Gun”, granted to the Birmingham Small Arms Co. Ltd., an English company carrying on business in England, an exclusive licence for the manufacture of those guns in this country. On the outbreak of war in 1914 H. M. G., under powers conferred upon them by municipal law, commandeered the whole output of the Birmingham Small Arms Co. and entered into negotiations with the Belgian Company respecting the price to be paid for Lewis guns manufactured by the Birmingham Small Arms Co. and supplied to the Government. For the first three or so years of the war, payment of the price so agreed from time to time was made direct to the Company, who in turn paid a proportion of it to the Birmingham Small Arms Co., that proportion being the actual cost of manufacture plus a manufacturing profit; the balance of the price paid by His Majesty’s Government represented the profit made by the Company itself. The price was originally fixed at £165 per gun, but, as the result of further negotiations following improvements in manufacture and to some extent variations in specification, the price was from time to time reduced until it reached the figure of £80 per gun. In view of the variations in the specification, both of the gun itself and of the spare parts which were furnished with it, it is not however possible to say exactly how far the figures in fact paid at different times are strictly comparable. In 1918 a new arrangement was made with the Company under which payment was made direct to the Birmingham Small Arms Co. in respect of the cost of manufacture and their profit and a fixed royalty of £2.16.3 per gun (tax free) was paid to the Company; the total cost per gun to His Majesty’s Government of guns supplied under this agreement was approximately £45.

3. His Majesty’s Government were from time to time asked by the Allied Powers to supply them with Lewis guns and ultimately agreed to do so. The Company had endeavoured to obtain permission from His Majesty’s Government to enable them (the Company) to get guns manufactured in this country directly for the Allied Governments, but that permission was not granted. So far as can now be ascertained, the number of guns supplied by His Majesty’s Government to the Allies was between 13,000 and 14,000. These guns were supplied over a period of years and the prices charged to the Governments concerned varied from time to time; but the price in fact charged for each consignment was calculated on the price for the time being paid to the Company, with the addition of a small percentage by way of overhead charges incurred by the Department concerned in the supply.

4. At some period during the war (apparently in 1917 or 1918), certain assessments were made on the Company by the Inland Revenues Department of His Majesty’s Government in respect of taxation (excess profits duty and income tax) on profits made out of the dealing in these guns. These assessments gave rise to disputes between His Majesty’s Government and the Company on the question whether the Company were liable to pay the taxation demanded. After these assessments had been made, the Department through whom payments for the guns in question were made withheld certain sums prima facie due to the Company and paid them to the Inland Revenue authorities to satisfy the demands for taxation. This action on the part of the Department concerned was challenged by the Company. The Company disputed their liability to the taxation demanded, (and consequently the right of the Crown to withhold payments otherwise due to them) on various grounds relating (a) to the amount of the assessment and the manner in which it was calculated, and (b) to an alleged representation by the Crown, to the effect that, as a Belgian company, they would not be liable to this taxation at all, upon the faith of which, the Company contended, they had been willing to accept the price in fact paid to them for the guns delivered to the Crown.

5. At about the same time the Company alleged that His Majesty’s Government had made a profit by reselling to Allied Governments Lewis guns purchased from the Company, and claimed that the resale of these guns by His Majesty’s Government was not justified in law and also involved a breach of an agreement between His Majesty’s Government and the Company. His Majesty’s Government maintained that the resale was perfectly legal and denied the existence of any agreement such as was alleged. His Majesty’s Government also contended that they had made no profit out of these resales.

It appears from the shorthand notes of a meeting which took place at the Ministry of Munitions on the 19th August, 1919, and was presided over by Mr. J. F. Hope, M. P. (now Lord Rankeillour), the then Financial Secretary to the Ministry, the Company being represented by Mr. Rudd, that the Company were offered an enquiry into the question whether His Majesty’s Government had made a trading profit on the Lewis guns sold to the Allies. This offer was not accepted.

6. The disputes between His Majesty’s Government and the Company remaining unsettled, the Company brought in 1920 a Petition of Right in the English courts, claiming (1) a declaration that the Company was entitled to receive and be paid the prices in fact agreed by them or alternatively the payment to the Company of further sums which would secure that the Company should retain for their own benefit, after discharging all taxes, a sum per gun equal to the amounts agreed, and also (2) raising a general claim for damages for breach of agreement.

Damages were claimed under two heads. The first alleged that, in agreeing to accept a certain price for the guns to be manufactured by them, the Company relied upon a representation that, as a Belgian company, they would not be liable to British taxation, and that, therefore, this representation had been incorporated in and made a condition of the agreement. The second was set out in paragraphs 23 to 26 of the Petition, and may be summarised as follows:—The Company alleged that an agreement was made with the Ministry of Munitions to the effect that they (the Company) should be free to manufacture and to supply a certain number of guns to Russia and to the other Allies, unless such guns were required for the British Forces, and that the British Government would require delivery of such guns only as were needed for the use of the British Forces; that the guns subsequently supplied were made and supplied subject to this agreement and on the condition that they were needed for the use of the British Forces; and that relying upon this agreement and condition the Company abandoned the arrangements they were making for the manufacture of guns in the United States of America. The Petition then proceeded to allege that the British Government did not require the whole output of the guns for the use of the British forces; but that in breach of the alleged agreement themselves sold large numbers of guns, which they had purchased from the Company for the reduced payments described in the Petition, to the Allied Powers at largely increased prices, and, to quote the words of the Petition, “have thereby appropriated on behalf of Your Majesty in breach of the said agreement and condition the profits which rightly belong to your said Suppliants”. The Company therefore prayed that the Crown would be pleased to cause them to be compensated for the damage caused to and sustained by them as aforesaid. It will be observed that this is almost exactly the claim put forward in the Note of the 22nd August 1932, from H. E. the Belgian Ambassador.

7. Shortly before the Petition was heard, Messrs. Soames, Edward & Jones, the Company’s solicitors, wrote to the Treasury Solicitor on the 28th June, 1921, a letter of which the following is an extract:—

“With reference to the documents which you have disclosed to us in this matter, we beg to point out to you that you have not disclosed any documents relating to the sale of Lewis guns by the British authorities to the Allied Powers and we beg to call your attention to paragraph 25 of the Petition of Right wherein it is stated that the British authorities have sold large numbers of these guns to France, Belgium, Russia, Roumania and Italy, and that these sales were in breach of the Agreement made with our clients. Under these circumstances all documents relating to the sale of these guns are clearly material to the question in this matter and as we understand it is the practice of the Crown to disclose all documents material where they tend to support the case of the Crown or that of the Petitioners in the same way as an ordinary litigant would do, unless there be good reasons of State for non-disclosure, we humbly submit that the documents relating to the sale of guns by the British authorities to the Allied Powers should be disclosed”.

On the 15th July the Treasury Solicitor wrote:—

“In reply to your letter of the 1st instant, I am prepared to give you inspection of the Priced Vocabulary of Munitions Stores charged against the Allies for Lewis guns together with the invoices in support of the Statements. I am informed by the Department that this material is voluminous, but that they will give you what assistance they can in the inspection of it.”

The documents were duly inspected by the Company’s solicitors a few days later.

8. The Petition came on for hearing before Mr. Justice Darling on the 25th July, 1921, the Company being represented by Sir John Simon, K. C., Mr. Eustace Hills, K. C. and Mr. Bremner, and the Crown by the Attorney General, the Solicitor General and Mr. Bowstead. In the absence of Sir John Simon the case was opened by Mr. Eustace Hills, and the following is an extract from the shorthand notes of the proceedings on the first day of the trial:—

“The Attorney General:—I do not know whether, in answer to your Lordship’s question, it would be convenient that I should say, in a sentence, what our case is?

“Mr. Justice Darling:—Yes.

“The Attorney General:—There are really two points in the case. It is said on behalf of this Company that at certain interviews a representative of the Company was informed that the Lewis Company, being Belgian, was not liable to British taxation, and that it was on the faith of those representations that the Company agreed to take, and did take, a certain price. That is what is said. In answer to that, we say that no such representation was made, that the correspondence is quite inconsistent with it, and that the agreement which was made is inconsistent with the Pleadings. The clear issue is: were those representations made, and did you act upon the faith of them? I am not conceding this for a moment, but if they were made by the particular Departmental officials who were concerned they had no power to grant anybody dispensation from British taxation, and, on the other hand, it being a representation, if made it was not a representation of fact. It would have been a highly incompetent expression of opinion on a matter of law. The second point is that they say at a certain other interview it was agreed that the Company should be free to manufacture in this country 30,000 guns for Russia, and guns for the Allies, and that the British Government would require delivery of such guns only as were needed for the use of British Forces and that in breach of that Agreement—

“Mr. Eustace Hill:—If I may interpose I can relieve the Attorney General of that second head of claim. Documents have been disclosed to us within the last few days, and, under those circumstances, we do not intend to proceed with the second head of claim.”

9. The second head of the claim to which Counsel referred was that described in the latter part of paragraph 7 above and it will be observed that it was deliberately abandoned by the Company in open court.

The hearing proceeded upon the other claim of the Company, namely that H. M. G. were not entitled to deduct from the sums due to the Company amounts at which the Company had been assessed for taxation, a claim which was based on a representation alleged to have been made by officials of the Crown that the Company would not be liable to taxation in this country, or that alternatively there was an implied condition which was the basis of the contract that the prices mentioned in the contract to be paid for the guns were nett prices, not subject to deductions for taxation, and that if the Company were liable to taxation, the prices must be proportionately increased. With regard to this claim Darling J., before whom the Petition was heard, held on the evidence that the representation alleged by the company had not been made by any person on behalf of the Crown and that the reduced price agreed to by the Company was due to the fact that H. M. G. had assumed the burden of finding £350,000 capital for the construction of plant by which the guns were to be manufactured. He accordingly gave judgment for the Crown with costs.

The Company did not appeal from this judgment, as they had the right to do.

10. The dispute between the Crown and the Company continued. There were differences as to (a) the amount due from the Company in respect of taxation; and (b) the debt due from the Crown to the Company in respect of guns supplied (i. e. apart from the deduction of the sums due by way of taxation). It was not disputed by the Crown that the sums which had been retained by it were in excess of the amount due by way of taxation, and that some sum was due to the Company; the dispute was as to the amount of this balance. The Company, in spite of the withdrawal of their claim based on the resale of the guns by H. M. G. before the court in 1921, continued to make claims on this ground, alleging that the sale was a breach of the patent rights of the Company. The latter claim the Crown declined to consider. The Company, if they considered that they had a claim against the Crown based upon their English patents, had a remedy under Section 29 of the Patents and Designs Act, 1907, to require the Treasury, acting in a quasi-judicial capacity, to settle the amount of the royalty due to them in respect of the user of their patents by the Crown. The Company did not avail themselves of this right and no doubt with good reason, seeing that the amount of their royalty had been previously settled by agreement between them and the Crown.

11. Ultimately in 1924 an agreement was entered into between the Inland Revenue Department on behalf of the Crown and the Company, under which the sum of £225,000 was paid to the Company, on the terms set out in a memorandum signed by Sir Richard Hopkins, the then chairman of the Board of Inland Revenue, and initialled by two directors of the Company.

The terms of this memorandum are as follows:—

If the Company “Armes Automatiques Lewis” (hereinafter called the Company) withdraws all claims whether direct or indirect, against the Government, and every officer of the Government and every other person acting on behalf of the Government, whether such claim have been actually formulated or not; and also withdraws all appeals and applications in regard to taxation matters and all other matters arising out of the relations between the Company and the Government and any Government Department, and also agrees not to prefer or put forward any new claim, appeal or application, the Board of Inland Revenue will repay to the Company the sum of £225,000, of which sum £140,000 is to be regarded as interest payable under the agreement of 14th November 1918 between the Minister of Munitions and the Company.

(Signed) R. N. V. H.
19th March, 1924.

(Signed) John P. Waterkeyn
Secretary Director.

Armes Automatiques Lewis
(Signed) Paul Waterkeyn
Chairman Director.
Under the Company’s Seal.

12. H. M. G. regarded the Agreement contained in the memorandum of March, 1924, as settling all matters at issue between H. M. G. and the Company. Nevertheless, representations have from time to time been made by and on behalf of the Company, claiming that, in view of the circumstances in which the Agreement embodied in this memorandum was made, it was not binding on the Company, and that the Company were entitled to reopen the whole matter. This contention has been put forward upon various grounds, inter alia upon the ground that the Belgian Company were never liable to taxation in this country at all. The Company continued to make claims in respect of the resale of some of the Lewis guns by H. M. G., and in respect of alleged infringements by H. M. G. of the Company’s patent rights. H. M. G. declined to entertain these claims, and in the various replies which they made based themselves in the main on the ground that the Agreement of 1924 was a final settlement of all claims.

In a note addressed to the Secretary of State for Foreign Affairs by His Excellency the Belgian Ambassador on the 13th June no further objection to the entire validity of the Agreement as a settlement of the disputes relating to taxation was pressed, but the claim in regard to the resale of the Lewis guns and the alleged infringement of the Company’s patents was put forward. In the enclosures to that note it was contended that the Agreement of March 1924 related only to disputes concerning the liability of the Company to taxation, and did not affect the Company’s other claims in respect of the resale of the Lewis guns. (It is therefore no longer disputed that this agreement did put an end to the claim with regard to taxation). In a reply to this note on the 21st July, 1932, Sir John Simon contended that His Excellency’s note of the 13th June produced no new material, and that all claims of the Company must be regarded as having been settled by this Agreement. This was the position when His Excellency’s note of the 22nd August, 1932, was received, and in the light of the history of the case as set out above, it will now be possible to deal with the arguments set forth in this note.

13. The first contention made in His Excellency’s note of the 22nd August is that the Agreement of the 19th March, 1924, should be considered only as a settlement between H. M. G. and the Company relating to the liability of the Company to taxation, and that it did not apply to or cover the other claims of the Company, relating (a) to the infringement of its patent rights, and (b) to the resale of the Lewis guns to Allied Governments. It is contended that the discussions between the Inland Revenue and the Company which resulted in the drawing up of this Agreement related only to the liability of the Company to taxation, and that the officials of the Inland Revenue expressly refused to consider the Company’s other claims, and declared that they were outside their competence, and consequently that the Agreement cannot be interpreted as covering these other claims.

H. M. G. maintain their contention that this Agreement covered all claims of all kinds by the Company against H. M. G. This contention appears to be completely established by the wording of the memorandum itself, which states that the Board of Inland Revenue will repay to the Company the sum of £225,000, if the Company “withdraws all claims whether direct or indirect against the Government … whether such claims have been actually formulated or not; and also withdraws all appeals and applications in regard to taxation matters and all other matters arising out of the relations between the Company and the Government, and any Government Department, and also agrees not to prefer or put forward any new claim, appeal or application”. In view of the history of the matter and of the wording of the memorandum, which not only mentions all appeals and applications in taxation matters, but goes on to include all other matters arising out of the relations between the Company and the Government, and any Government Department (i. e. not exclusively the Inland Revenue) it hardly seems possible to contend that this Agreement is confined to claims with regard to taxation matters. H. M. G. consider that any such contention is incompatible with the language of the Agreement itself. Moreover, though it may well be that officials of the Inland Revenue declined to discuss with the Company the merits of claims by the company relating to matters other than those connected with taxation it is clear that these officials as representatives of the Crown in the negotiations with the Company were fully competent to obtain from the Company a withdrawal of claims of all kinds, before making a settlement with the Company which from a purely taxation point of view might have been considered by them as unduly favourable to the Company.

Further, if it is contended that the interpretation of the memorandum of Agreement on this point is a legal question on which H. M. G. and the Company are at issue, and that this question should therefore be submitted to some form of judicial decision, the answer is that it was open to the Company, if they took the appropriate action to obtain such a decision. The Company might have pursued their other claims against H. M. G. in the courts of this country, and, if H. M. G. pleaded that these claims were barred by the Agreement of 1924, the Company could then have disputed this, and the dispute as to the interpretation of the Agreement would then have been decided by the courts. Since the Company failed to exhaust their municipal remedies in this respect, H. M. G. cannot admit that the question is now one in respect of which the Belgian Government are entitled to make a diplomatic claim against them.

14. But apart altogether from the Agreement of 1924 His Majesty’s Government are of opinion that the claims now put forward on behalf of the Company are altogether devoid of foundation. The reasons for this view are set out in the following paragraphs, which will deal with these various claims in turn.

15. The first claim mentioned in the note of the 22nd August, 1932, from His Excellency the Belgian Ambassador is stated as “la question de savoir quelle protection était due aux brevets d’invention dont la compagnie est titulaire en Angleterre, en vertu de la législation anglaise sur la propriété industrielle et des traités internationaux”. The grounds of the claim are not, indeed, very clear, but it appears to relate to some infringement by His Majesty’s Government of the English patent rights of the Company. If the Company were of opinion that any such infringement had taken place they had a right under section 29 of the Patents and Designs Act, 1907, to make an application to the Treasury sitting in a quasi-judicial capacity to settle the amount of any royalty due to the Company in respect of the user of their patents by the Crown, if the royalty payable had not been settled by agreement between the Crown and the Company. Under the agreements between the Crown and the Company for the purchase by the Crown of the Lewis guns (please see paragraph 2 above), the price payable by the Crown was at first inclusive of royalty, and subsequently a definite sum by way of royalty was agreed and paid or allowed in account to the Company. There was, therefore, no basis for any claim by the Company in respect of an infringement by the Crown of their English patents, unless the Crown used the sums in a manner outside or contrary to the conditions of the agreement so made. The Company allege that the Crown did so by reason of the resale of the guns to the Allied Governments. The contention that this resale was a breach of this agreement is the second claim of the Company, mentioned in His Excellency’s note, and is dealt with in paragraphs 16–19 below. Here it is sufficient to state that the claim in respect of the English patents must fail if this second claim is not established, as His Majesty’s Government contend it clearly is not. Further it is in any case a claim in respect of which municipal remedies were available to the Company of which they have not availed themselves, (i. e. section 29 of the Act of 1907) and the claim is, therefore, not a matter in respect of which a diplomatic claim can be made.

16. The second claim of the Company in its present form is succinctly set out in a passage in paragraph 3 of His Excellency’s note, which runs as follows:—

“Le War Office ou toute autre administration anglaise pouvait-il exercer son droit de réquisition au delà des besoins de l’armée britannique, et se réserver la vente des mitrailleuses Lewis aux Gouvernements étrangers, á un prix d’ailleurs de beaucoup supérieur au prix de réquisition, privant ainsi la société beige d’un profit auquel ses brevets en Angleterre et dans les autres pays lui donnaient le droit de prétendre? Telle est la question.”

17. This claim His Majesty’s Government must reject for the following amongst other reasons. His Majesty’s Government, in requisitioning the entire output of Lewis guns manufactured in the United Kingdom, acted strictly in accordance with their legal rights, and it is admitted that the Company received either an agreed price (which included royalty) or else an agreed royalty, in respect of every gun so requisitioned. The Company had no right to dictate to His Majesty’s Government what use the latter might make of the guns which had been purchased from the Company. If, however, the Company contended that His Majesty’s Government had no legal right to requisition the Company’s guns for the purpose of selling them to the Allies, or alternatively to sell guns to the Allies which they had already requisitioned from the Company, and to make a profit by doing so, it would have been possible for the Company to have taken proceedings within the periods of limitation, either against the Attorney General or against the officer of the Crown directly responsible for a declaration in this sense (on the analogy of the proceedings in fact taken successfully; by other parties in the case of China Mutual Steam Navigation Co. v. Maclay 1918 1 K. B. 33). The Company failed to take any such proceedings, and thereby failed to exhaust their municipal remedies, and therefore, even if the Company’s claim on this head had been well-founded (which His Majesty’s Government contend it clearly was not), the claim is not one in respect of which a diplomatic claim can be made. There is, however, for the reason given in the immediately following paragraphs, a still further conclusive answer to this claim.

18. As already stated in paragraphs 5, 6, 7, 8 and 9 above, the Company in 1919 claimed (a) that the resale of some of the guns by His Majesty’s Government was a breach of agreement between His Majesty’s Government and the Company, and (b) that His Majesty’s Government had made a profit on the resale of the guns. In 1920 this claim was made in the proceedings brought by Petition of Right by the Company against the Crown. In those proceedings judgment was given for the Crown after this claim (which is the same as the second claim made in His Excellency’s note) had been deliberately abandoned by the Company in open court, after the Company had had inspection of the documents and accounts relating to this resale (documents which showed that His Majesty’s Government had made no profit). This claim is therefore clearly res judicata. It is impossible for the Company to continue to maintain a claim which it has abandoned in proceedings brought by it, or for such a claim properly to be made the subject of diplomatic representations. This was a claim in respect of which the Company had a municipal remedy which it deliberately abandoned.

19. As already stated His Majesty’s Government in fact made no profit on the sale of the Lewis guns to foreign Governments. The allegation that they did was made many years ago by the Company and was examined at the time by the Ministry of Munitions, who employed an accountant to work out the figures. The figures put forward by the Company in support of the allegation are based upon a fallacious method of calculation. They have arrived at the alleged profit to His Majesty’s Government by taking the total amount received from the foreign Governments concerned and deducting from it a figure based on the average price received by themselves for an equivalent number of guns, without taking into account the dates on which the various sales took place. But, as explained above, the prices paid by His Majesty’s Government varied greatly; the original price was as much as £165 per gun, which gradually went down to as low a figure as £45, as output increased and methods of manufacture improved. If the prices charged to the foreign Governments are compared with the prices which at the time were being paid to the Company for the several consignments, the accountant’s figures show that they are substantially the same; and indeed, when a reasonable percentage is added in respect of the Ministry of Munitions’ overhead charges, the transactions taken as a whole resulted in a loss; quite apart from the fact that in respect of some of the guns so sold His Majesty’s Government in fact received no payment at all.

20. While for the reasons stated above, His Majesty’s Government cannot recognise that the question whether or not these profits were made has any direct bearing on the right of the Belgian Government to prefer the claim now put forward on behalf of the Company, they are desirous of satisfying the Belgian Government that there is in fact no substance in the Company’s claim that profits have been made at their expense and that the Company themselves many years ago abandoned any such claim in the most formal manner possible, and they are therefore willing to afford to an accredited agent of the Belgian Government inspection of the documents relating to the Petition of Right and the report by the accountant already mentioned.

21. The third claim made in the Belgian Ambassador’s note is set out in the fifth paragraph:

“La Société en cause fait très justement observer qu’aux termes du droit en vigueur, elle pourrait actionner en justice les Gouvernements étrangers qui ont acheté les mitrailleuses et notamment le Gouvernement Français. Mais ceux-ci ne seraient-ils pas amenés, pour se défendre, à appeler en garantie le Gouvernement de Son Majesté Britannique? Ce sont là les difficultés que Ton peut éviter et qu’elle désire éviter.”

His Majesty’s Government’s reply to these observations is as follows:

His Majesty’s Government had no power to requisition or interfere with any of the Company’s foreign patents, and did not in fact purport to do so; it is for example understood that the Company caused guns to be manufactured in France. If therefore His Majesty’s Government sold to any foreign Government guns purchased from the Company, the question whether the foreign Government, by using them in its own country, incurred any liability to the holders of the foreign patents is one of foreign law for the foreign Government concerned, and a matter in which His Majesty’s Government is in no way interested.

22. It appears to be recognised by the Company that the above statement of the legal position is correct; but it is maintained that if in these circumstances the Company take proceedings against the foreign Government for an infringement of their patents the foreign Government will have a right of recourse against their vendors (i. e. His Majesty’s Government), and that therefore it would be for the convenience of all concerned if His Majesty’s Government dealt directly with the Company in the matter. Whether after this lapse of time a claim would be maintainable against any foreign Government for infringement of the Company’s patents during the war, is a matter on which His Majesty’s Government can express no opinion; it may well be that in most if not all the foreign countries concerned subsequent legislation has severely limited, if not prohibited, the prosecution of war claims after this lapse of time. But whether this be so or not, His Majesty’s Government are unable to understand how any foreign Government, if they were successfully sued by the Company, could claim any indemnity against His Majesty’s Government in the absence of an explicit undertaking by the latter to that effect. It is obvious that there could have been no implied warranty by His Majesty’s Government that the user in the territory of the foreign Government of the guns so sold was not an infringement of any foreign patent held by the Company. It is also to be remembered that the Company in fact received their royalty on all guns requisitioned from them, including those afterwards sold to the Allies.

23. In so far therefore as the Company’s claim is based upon an infringement of foreign patents by the foreign Governments to whom the guns in question were sold, His Majesty’s Government can only leave the Company to take against the foreign governments concerned such action as they may be advised to take. The suggestion that such proceedings might, if successful, result in a claim by a foreign government against His Majesty’s Government does not appear to His Majesty’s Government to afford any ground for entering into further discussions with the Belgian Government; such a claim if made will be a matter for discussion between His Majesty’s Government and the Government by whom the claim is made.

10. Not printed.