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146 C. Cls.

Opinion of the Court

the proper cutoff date. A controversy then arose over the conversion rates to be used in calculating these amounts. The 1941 revision of the terms of service provided for payment of superannuation withdrawals “either in the alternative currency applicable or in local currency" at the Council's discretion. The Foreign Advisers contended that the 1941 provision should be read in the light of its 1937 antecedent. Complete deadlock ensued within six months after the deliberations of the Liquidation Commission were begun. The crux of the controversy was the question as to who should bear the burden of inflation. It was agreed to refer these questions, namely, that of the cutoff date and the foreign currency payments, to Nanking for diplomatic consideration, the Chinese reporting to their Government and the Foreign Advisers reporting to their respective Ministers. Such reports were made, but nothing came of the diplomatic exchanges. The subject was still under consideration when the Chinese Communists occupied Nanking and Shanghai in the Spring of 1949.

Meanwhile a separate determination of the obligations of the former Council to its employees was made in a study by the British Government as a result of which the accounts of the Council's former employees were tabulated in a document called the Morcher Document. In July 1947 the Foreign Advisers predicated their recommendations to the Liquidation Commission upon its contents, with some modifications. In 1943 the British Government had advanced amounts due from the Council to pensioners and in 1949 it made ex gratia payments to British nationals formerly employed by the Council. The plaintiffs compute their claims upon the figures shown in the Morcher Document, the solutions proposed by the Foreign Advisers, and the British terms of settlement, claiming that a total of about $224,648.39 is due them under their employment contracts, payment of which they urge this court to recommend to the Congress. The United States, on the other hand, asks that we report that there is no legal or equitable basis for the allowance of these claims.

The plaintiffs contend that equities arose in their favor as a result of the effect upon them of what they characterize


Opinion of the Court as the precipitate action of the United States in signing the treaty of relinquishment without providing adequate safeguards for the protection of their interests. This action, they say, deprived them to their detriment of legal remedies which might otherwise have been available to them.

We think that the charge is wholly unfounded that the action of the United States in signing the treaty of relinquishment was “precipitate”. The Government of the United States, as early as the Treaty of October 8, 1903, had announced its intention of relinquishing its extraterritorial rights in China when that country's legal and judicial systems had been sufficiently modernized and reformed. During the ensuing 40 years it was clear that events were proceeding in the direction of the relinquishment of such rights. Thus, the Washington Conference of 1921–1922 by resolution and the Nine-Power Treaty of February 6, 1922,- which followed the Conference, expressed sympathy with China's desire to eliminate extraterritoriality. At the same time a Commission was established to determine whether the relinquishment of extraterritorial rights was then feasible. The Commission reported in 1926, pointing out the deficiencies which still must be cured in order to bring China's law and procedure into conformity with the standards of the Western nations. In 1926, the Secretary of State of the United States again expressed the willingness of this country to continue negotiations on the subject. Then in 1929 the National Government of China announced the end of extraterritoriality, effective January 1, 1930. The date was subsequently postponed to January 1, 1932, and the proposal was not then carried out because of the Japanese invasion of Manchuria.

The treaty of relinquishment which was signed on January 11, 1943 was a war measure. The Japanese had overrun eastern China and the Chinese Nationalist Armies had retreated to Chungking in the far western fastness of Szechwan Province. There was grave danger that they would give up the struggle and come to terms with the Japanese who, under

*33 Stat. 2208, 2215.

* Treaties, Conventions, International Acts, Protocols, and Agreements between the United States of America and other Powers, 1910–1923, vol. III, p. 8131.

144 Stat. 2113. See 2 Hyde, International Law, 2d Rev. Ed., pp. 868-871. * See Article XVII, Treaty of November 22, 1894, between the United States and Japan, 29 Stat. 848, 853. See also, 1 Hyde, International Law, 20 Rev. Ed., § 126.

146 C. Cls.

Opinion of the Court

the slogan of "Asia for the Asiatics" were appealing to the Chinese to turn on the "Western imperialists” and join the "co-prosperity sphere”. In this critical juncture the United States and Great Britain deemed it essential to give up their extraterritorial rights in China in order to give the Chinese National Government the greatest possible encouragement and prevent its threatened collapse. It would appear that nothing else could have served better to accomplish the dual purpose of counteracting anti-Western Japanese propaganda and reviving the Chinese Nationalists' flagging spirits. For the foreign extraterritorial rights had always been regarded by the Chinese as a badge of inferiority. Their relinquishment thus reestablished China as a sovereign nation equal in dignity to those of the West.

Nor do we think that the plaintiffs are correct in their contention that the provisions of the treaty of relinquishment for the assumption and payment by the Government of China of the claims of the plaintiffs and others against the Shanghai Municipal Council were so inadequate and unsafeguarded as to give rise to an equity in their favor against the United States. On the contrary, it seems clear that they were the normal, usual provisions included for such purposes in a treaty with a friendly government. Certainly it was not a departure from customary practice in such circumstances to accept as adequate assurance of performance the formal agreement of the Chinese Government that it would "make provision for the assumption and discharge of the official obligations and liabilities of those Settlements [at Shanghai and Amoy] and for the recognition and protection of all legitimate rights therein.” Indeed, we have been referred to no instance in the diplomatic history of the United States in which security for the payment of claims, such as the retention of physical assets, has been obtained under such circumstances. Certainly such special security for the payment of claims was not obtained by the United States in connection with its relinquishment of extraterritorial rights and foreign settlements in Japan in 1894,” by Belgium-Luxembourg,


Opinion of the Court Norway, Canada, Sweden, and The Netherlands when they relinquished their extraterritorial rights in China in 1943, 1944 and 1945, or by the United States when it agreed to the abolition of the international regime in Tangier, Morocco, in 1956.6

This brings us to the plaintiffs' contention that the treaty of relinquishment deprived them of remedies for the enforcement of their claims, to their financial detriment. To support this contention the plaintiffs rely on the proposition that the history of the Council warrants the conclusion that it would have liquidated its liabilities to its employees before it handed over its assets and responsibilities to its successor, if it had been permitted to do so. Therefore, say the plaintiffs, the United States interfered, without legal justification or excuse, in the status which existed between the plaintiffs and the Council by aiding in the transfer to China of the administration and control of the assets and liabilities of the International Settlement. This contention brings us to the crux of this case, namely, whether there are equitable considerations, within the meaning of section 2509 of title 28, United States Code, which furnish any support for the plaintiffs' claims. For the plaintiffs concede that the circumstances do not support legal claims on their part against the United States.

The position of the United States is that the loss of plaintiffs' employment with the Shanghai Municipal Council and the emoluments thereof did not arise by reason of any wrong. ful or inequitable act upon the part of this Government which would bring the case within the broad principles of equity described by this court in Burlchardt v. United States, 1949, 113 Ct. Cl. 658. In the Burkhardt case the plaintiffs were deprived of the use of their property by the United States in the exercise of its paramount right to improve commerce and navigation, for which there was no recourse in a court of law. Relying upon United States v. Realty Company, 1896, 163 U.S. 427, 440, this court held that the term "equitable claim”, which appears in section 2509, is used in the broad moral sense of a claim based upon general 146 C. Cls. Opinion of the Court equitable considerations, a claim binding in honor and good conscience even though not entitled to recognition in a court of law. While the plaintiffs concede that there was no "taking” of their property for public use by the United States, such as was found by this court to have occurred in Gray v. United States, 1886, 21 Ct. Cl. 340, they contend that there is, nonetheless, a moral obligation upon the United States in their favor. But the plaintiffs do not tell us how the United States failed in the fulfillment of any such obligation to them.

* United States Treaties and other International Agreements, vol. 7, part 8 (1956), p. 3043.

That the treaty was a proper subject of negotiation is undisputed. Its purpose is self-evident, namely, the giving up of extraterritorial rights in China. But, urge the plaintiffs, the United States instead of exacting a promise from the Chinese National Government to satisfy the obligations of the Shanghai Municipal Council should have retained the right to physical control of its assets by the Council because the Council would have honored its obligations to its employees before turning its assets over to China. This argument is based upon a speculative premise, however. For there is no evidence as to the financial condition of the International Settlement after the Japanese occupation. Nor is there any certainty as to how the Council would have settled these claims in view of the inflationary situation which then existed. For by the time the International Settlement was liberated from the Japanese in September 1945, and thereafter, the Chinese currency had so far been subject to inflation that the official rate of conversion of Chinese dollars into either pounds or United States dollars was no more than a euphemism.

All that the record shows is that on September 30, 1945, the Government of China took control of the Shanghai International Settlement, over which it had always had sovereignty subject only to the treaties granting extraterritorial rights therein, and with it the assets of the Shanghai Municipal Council and that negotiations were started for the recognition and payment by that Government of the claims against the Council, including the plaintiff's claims. There is no suggestion that these negotiations were not conducted in good faith. The difficulty, of course, was that the ques

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