8. Memorandum by the Assistant Legal Adviser for United Nations Affairs (Meeker)1
EGYPTIAN NATIONALIZATION OF THE SUEZ CANAL COMPANY
According to information compiled in the Department several years ago, the Universal Suez Maritime Canal Company is a company established and registered under Egyptian law. The concession agreement relating to the Suez Canal appears to be an agreement between the Government of Egypt and the Company. There is evidently no international agreement of governments regarding the concession. The most recent revision of the concession agreement was concluded in 1949. The nationalization decree provides for compensation to bondholders and stockholders. The amount of the compensation is stated to be the market value of these securities just prior to the date of the nationalization decree. The decree does not fix any definite date for the payment of compensation, nor does it specify the form in which compensation shall be made. The decree provides: “Payment of this compensation shall take place after completion of the hand-over to the State of all the funds and property of the nationalized Company.” This implies that compensation may not be paid unless and until Egypt has acquired control of all Company assets, including assets located outside of Egypt.
[Page 17]Article III of the Egyptian decree purports to “freeze” all “funds and rights” of the Company in the Republic of Egypt and abroad. “Banks, bodies, and individuals are forbidden to dispose of these funds in any way or to spend any sums or to settle any claims or liabilities except by a decision of the body provided for in Article II.” Egypt is competent to give effect to the provisions of Article III within its own territory. Other countries are not bound to concede effectiveness to the Egyptian nationalization decree so far as Company assets abroad are concerned. In the United States, it is a matter for judicial decision, according to the public policy of the forum, whether recognition will be accorded to a purported foreign seizure of assets in this country. The Department of State has on some occasions intervened in judicial proceedings to support or attack the application to assets in the United States of foreign decrees purporting to transfer title thereto to the foreign government, depending on the circumstances. The United States has not adopted a policy of opposing the recognition of such foreign decrees in every case. In the present situation, the Department might be guided in its future attitude by the question of how promptly, adequately, and effectively the promised compensation is paid by the Egyptian Government. The answer to this question may not become apparent in the immediate future. Meanwhile, if asked by banks or others in this country what attitude they should adopt toward the Egyptian nationalization decree, the Department of State might wish to advise them to wait and see until the picture became clearer regarding the payment of compensation. Ultimately, the issue of the effect to be given in this country to the nationalization of the Suez Canal Company will have to be determined by courts in the United States.
While most of the securities of the Company are in British or French ownership, there are small American interests, privately held. No precise information is presently available in the Department as to the amount or character of the Suez Canal Company assets in this country, but it appears that the Company has substantial assets here, totalling perhaps five million dollars or more in value. These would probably be more than adequate to satisfy American claims if the assets should ultimately be needed for this purpose in the absence of proper compensation from Egypt.
Article IV of the Egyptian decree requires present officials, employees and workmen of the Company to continue carrying out their duties. Imprisonment is provided by Article V as a punishment for anyone violating the provisions of Article IV. There is at least one American citizen employed by the Company in Egypt, as a Canal pilot. There may be other Americans employed in the administrative services of the Canal in Egypt. Their number is probably not large. Articles IV and V of the nationalization decree provide for [Page 18] a form of involuntary servitude, and on their face furnish a basis of protest. In the event that any American national in Egypt should leave his position with the Company and be subjected to criminal penalties by the Egyptian Government, the United States would have a clear basis for diplomatic action.
A reading of the Egyptian decree nationalizing the Suez Canal Company does not indicate any design to impinge on obligations and rights under the Suez Canal Convention of 1888. The decree does not purport to affect traffic through the Canal.
Similarly, the decree does not appear to contravene the British-Egyptian Agreement of October 19, 1954 concerning the Suez Canal base.2 Nor does the decree appear to give rise to any fresh rights on the part of the United Kingdom as against Egypt under that Agreement.
- Source: Department of State, NEA Files: Lot 59 D 518, Background Material London Conference on Suez Canal, Book I. Official Use Only. Transmitted under cover of a July 27 memorandum from Acting Deputy Legal Adviser Raymond to Murphy, under the subject heading “Legal Implications of Suez Canal Company Situation.”↩
- For text of this agreement, taken from Cmd. 9586, see The Suez Canal Problem, July 26–September 22, 1956, pp. 20–23.↩