CASE OF SALVADOR COMMERCIAL CO. [§ 279

consequence of the rescission of the concession of the railway and the taking possession of its property. There was an award of damages. In one sense the agreement to arbitrate was more important than the decision of the tribunal. The former was a yielding to the assertion by the United States and Great Britain of a right to interpose in behalf of their nationals interested in a Portuguese corporation. The latter was a determination of the extent of the harm done to those nationals through the wrongful conduct of the territorial sovereign. The decision itself is, therefore, without value as a judicial precedent respecting the propriety of interposition.

In the claim of the Salvador Commercial Company against Salvador, it appeared that that corporation, incorporated in California, together with certain American citizens were the principal owners of a Salvadorean corporation styled "El Triunfo Company." The practical destruction or cancellation of the franchise of the latter by arbitrary and illegal action on the part of the Salvadorean Government resulted in interposition by the United States. According to the terms of a protocol of an agreement to arbitrate, of December 19, 1901, the issue presented was whether any liability rested upon the respondent State with respect to the Salvador Commercial Company or to any American citizens.2 Two arbitrators, constituting a majority of the court, concluded that the action of Salvador illegally directed against a domestic corporation served to paralyze the efforts of American shareholders to save it, and also to despoil them of their interests in the enterprise. These arbitrators purposely refrained from discussing in their opinion the right of the United States to make reclamation for the American shareholders for the reason, they declared, "that the question of such right is fully settled by the conclusions reached in the frequently cited and wellunderstood Delagoa Bay Railway Arbitration." As that question was not presented to the tribunal in the case relied upon, it is believed that the foregoing language weakens the value of

3

1 Concerning the case of the Delagoa Bay Railway, see Moore, Arbitrations, 1865-1899; Moore, Dig., VI, 647-649; For. Rel. 1900, 845-849, 903904. Decision and final award of March 29, 1900. Cf., also, Ralston, Arbitral Law, 97-98.

2 For. Rel. 1902, 857. Concerning the Salvadorean case generally, see For Rel. 1902, 838-873, embracing opinion of W. L. Penfield, Solicitor of the Dept. of State, Award of the Arbitrators of May 8, 1902, and separate opinion of same date of Sir Henry Strong and Hon. Don M. Dickinson, constituting a majority of the tribunal; also Moore, Dig., VI, 649-651.

3 For. Rel. 1902, 859, 873, Moore, Dig., VI, 651.

the opinion of the arbitrators in the Salvadorean case, as to the right of interposition.1

§ 280. The Same.

It is believed that the Department of State would not be reluctant to interpose in behalf of American shareholders or bondholders, should the foreign State of incorporation irreparably injure their interests through illegal conduct, and should there be offered no reasonable means of obtaining redress through domestic channels. The decision as to interposition might, however, in the particular case, depend upon the extent of the American interest involved. Thus it might be regarded as essential that, as measured by the number of individuals concerned, or the amount of capital invested, that interest should represent a substantial proportion of the stock of the corporation or of its bonded indebtedness.2

In the event of arbitration before an international claims commission, the problem arises not whether a claimant State may with reason espouse the cause of its nationals who are owners of stock or bonds of a foreign corporation (possibly incorporated under the laws of the respondent State), but whether the convention providing for the arbitration fairly embraces the claims of such individuals.3 Possibly such claims may be fairly said to fall within the scope of an agreement providing for the arbitration of "all claims owned by citizens" of one of the contracting

1 Compare opinion of Plumley, Umpire, in the Baasch & Römer Case, Netherlands-Venezuelan Commission, 1903, Ralston's Report, 906, 909910, where it was declared that the Commission had no jurisdiction over the claim of the liquidators of a firm, three quarters of whose members were Dutch, which held stock to the amount of 26,800 bolivars in a Venezuelan corporation of which the paid-up capital was 240,000 bolivars. The claim was based upon the destruction of the plant of the latter by troops in command of General Freites. The learned Umpire cited P. Arminjon, “Nationalité des personnes morales", in Rev. Droit. Int., 2 ser., IV, 381-440. See, also, Opinion of Paúl, Commissioner, Kunhardt & Co. Case, AmericanVenezuelan Commission, 1903, Ralston's Report, 63, 70; Andor Jacobi, "La condition juridique des sociétés anonymes étrangères", Int. Law Association, 27th Conference, Proceedings, 368, 379.

2 There is no intimation in the General Instructions for Claimants of 1919, Revision of Jan. 30, 1920, that the Department of State would take a different stand. The obvious design of the Questionnaire appended thereto is to enable the Department to ascertain with precision the extent of the essentially American interest in foreign corporate property concerned.

3 The problem of interpretation has been a troublesome one for arbitrators generally. See, for example, William E. Fuller, Special Report on work of Spanish Treaty Claims Commission, Dept. of Justice, 1907, 28-30, respecting Art. VII of the treaty of peace between the United States and Spain of Dec. 10, 1898. Also discussion in E. M. Borchard, Diplomatic Protection, §§ 281282.

DENIAL OF JUSTICE

[§ 281 parties. It is believed, however, that the terms of the agreement should specify with greater precision than has heretofore been manifest, the nature and extent of the corporate interests to be adjudicated. In a word, what corporations, what shareholders, and what bondholders are to be deemed to be entitled to the benefits of the adjudication should be definitely established by the provisions of the convention.

e

Grounds of Interposition

(1)

§ 281. Denial of Justice. Exhaustion of Local Remedies. Before a State prefers a claim in behalf of an aggrieved citizen it should appear that the foreign territorial sovereign upon which the demand for redress is made has itself been guilty of a denial of justice. A denial of justice, in a broad sense, occurs whenever a State, through any department or agency, fails to observe, with respect to an alien, any duty imposed by international law or by treaty with his country. Such delinquency may, for example, be manifest in arbitrary or capricious action on the part of the courts, or in legislative enactments destroying the exercise of a privilege conferred by treaty, or in the action of the executive department in ordering the seizure of property without due process of law. The conduct of the State may either be the direct source of complaint, or it may supplement and aggravate the conse

In the case of Kunhardt & Co., American-Venezuelan Commission, 1903, Bainbridge, Commissioner, declared in the course of his opinion that "While the property of a corporation in esse belongs not to the stockholders individuually or collectively, but to the corporation itself, it is a principle of law universally recognized 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. The rights of the creditors and shareholders to the real and personal property of the corporation, as well as to its rights of contract and choses in action, are not destroyed by dissolution or liquidation. Messrs. Kunhardt & Co., as citizens of the United States and the equitable owners of their proportionate share in the property of the dissolved corporation, have a standing before this Commission to make claim for indemnity for such losses as they may prove they have sustained by reason of the wrongful annulment of the concession. The value of the corporate shares and the extent of a shareholder's interest in the corporate property are absolutely dependent upon the relation which the assets of the corporation bear to its liabilities." Ralston's Report, 63, 67, and 68.

2 See excellent statement by Eugene Wambaugh, Proceedings, Am. Soc. Int. L. (1910), IV, 126, 128-129; Mr. Bayard, Secy. of State, to Mr. McLane, Minister to France, No. 134, June 23, 1886, MŠ. Inst. France, XXI, 330, Moore, Dig., VI, 266.

quences of the unlawful acts of individuals, as, for example, on the occasion of mob violence which the territorial sovereign, heedless of warning, makes no serious effort to suppress.1

The term denial of justice is also not unfrequently employed in a narrower sense to refer to the failure of a State to afford a means of redress by judicial process to the individual with respect to whom it has already failed in its duty; and the assertion is made that no denial of justice occurs until the aggrieved alien has exhausted his judicial remedies, and the territorial sovereign charged with fault has again been found wanting through the inadequacy of its judicial system. It is believed that this contention betrays confusion of thought. Whether the act of a State constitutes a denial of justice depends solely upon the quality of lawfulness or unlawfulness which international law attaches to the act, and not upon the means of redress afforded the individual against whom it was directed. While the adequacy of those means vitally affects the propriety of interposition, it is unrelated to the character of the conduct giving rise to complaint.

As the preferring of a claim implies wrongfulness of action on the part of public authority, the State demanding redress must always be prepared to show that the territorial sovereign is responsible for the acts of those whose conduct is the source of grievance. The inquiry as to national responsibility is distinct from that respecting the propriety of interposition. The distinction has not, however, always been apparent. It has been asserted in substance, that the responsibility of the territorial sovereign for the acts of a particular official is dependent upon the steps taken by the aggrieved individual to exhaust his judicial remedies. This contention is reasonable when the act complained

1 Mr. Sherman, Secy. of State, to Mr. Angell, Minister to Turkey, Aug. 23, 1897, For. Rel. 1897, 592, Moore, Dig., VI, 857. According to Section 8 of the Claims Circular of 1919: "Unless the responsibility for the loss or injury for which reparation is claimed is attributable to a foreign Government, efforts of the Government of the United States on behalf of the claimant will be futile. It is essential, therefore, for claimants to show that the responsibility for their losses or injuries is attributable to an official, branch, or agency of a foreign Government.'

2

See, for example, position taken by Mexico in the case of the Rebecca, shown especially in communication of Mr. Mariscal, Minister of Foreign Affairs, to Mr. Jackson, American Minister, April 2, 1886, H. Ex. Doc. No. 328, 51 Cong. 41, Moore, Dig., VI, 668.

3 See, for example, Thornton, Umpire, in Chas. B. Smith Case, MexicanAmerican Commission, Convention of July 4, 1868, Moore, Arbitrations III, 3146. The difficulty is increased by the various significations perhaps unavoidably attached to the same terms. Thus in the foregoing case when the learned Umpire declared that Mexico was not "responsible" for the "illegal" acts of inferior judicial authorities in the absence of an appeal to a higher court, he doubtless sought to express the opinion that no absolute duty rested

DENIAL OF JUSTICE

[§ 281 of is not in itself internationally illegal.1 When, however, an agent of a State acting within the scope of his authority commits an internationally illegal act with respect to an alien, there is a denial of justice on the part of the State, and its responsibility is established.2 The establishment of responsibility imposes upon the territorial sovereign the duty either to afford the victim a means of obtaining redress by some reasonable process, or in lieu thereof, to make reparation upon the demand of the State of which the victim is a national. The propriety of interposition would, therefore, seem to depend upon which alternative the delinquent State has chosen. Thus, in the examination of claims, it becomes important to distinguish events which tend to show internationally illegal conduct on the part of a territorial sovereign, from those which tend to show a failure on its part to afford a means of redress in consequence of such conduct. The former serves to establish national responsibility; the latter to justify interposition.

Whenever a State is charged with the denial of justice in respect to an alien, the inquiry presents itself: Is there evidence of a principle of law recognized in the practice of nations, making the exhaustion by the victim of local remedies capable of affording

upon that State to respond in damages until the aggrieved alien himself had exhausted his local remedies. The Umpire did not intend to suggest that the commission of an illegal act by an official of whatsoever rank failed to impose upon Mexico a duty to afford a means of redress. The duty to pay an indemnity to an aggrieved alien is but a single consequence of national responsibility which particular circumstances may impose. The duty of the territorial sovereign to do justice by some process whenever through any agency it wrongs an alien, is proof of a responsibility co-extensive with every form of national delinquency. Also, Acts of Judicial Officers, infra, § 287.

It frequently happens that a claim finds its origin in acts for the commission of which the territorial sovereign is not to be held internationally at fault, as for example, where the actors are private individuals, for whose conduct the State may not be responsible. In such a situation no ground for interposition arises until, through failing in its duties of jurisdiction, as by preventing the claimant from having access to the courts, the territorial sovereign denies justice.

2 In his note communicated to the Mexican Government by the American Chargé d'Affaires, under date of Nov. 30, 1919, in relation to the arrest and prosecution of one W. O. Jenkins, an American Consular Agent, Mr. Lansing, Secy. of State, declared: "The Mexican Government maintains that it cannot grant the request of the United States for Jenkins's release for the reason that under international law no diplomatic intervention is appropriate unless a denial of justice has occurred, and because the Mexican Government is not in a position to demand Jenkins's release in view of the separation of the executive and judicial powers under the Mexican form of government, and the independence of the State courts, by one of which Jenkins is held. The succinct answer to this contention is, as every one knows, that a denial of justice has already taken place, and also because the Mexican Constitution specifically gives the Federal tribunals jurisdiction of all cases concerning diplomatic agents and consular officers.'" New York Times, Dec. 2, 1919.