Private (Or Pirate) Investment Gone with the Wind?

Case Study

Private (or Pirate) Investment – Gone with the Wind?

This case study is based on the events following the seizure of the brig Betsy Ames by the privateer Sallie on 17 October 1861. The facts in this case are well documented in the Official Records of the Union and Confederate Navies in the War of the Rebellion.

In putting together this scenario, we have taken some liberties, inter alia as regards the corporate structure of John Fraser & Co. and Fraser, Trenholm & Co. as well as the date of naturalisation of Mr Prioleau. However, we have taken far fewer liberties than popular fiction (and movies) depicting the life of Mr Trenholm. In case of any discrepancy between the case-study and the original documents, the case-study takes precedence.

The Tripartite Treaty of Amity, Navigation and Trade between France, the UK and the United States is fictional.

Although the facts of the case and the proceedings take place in the 19thcentury, treaties, customary public international law and case law are those of the 21st century.

Background of the case

The Treaties

The Declaration of Paris, 1856 and the United States Practice relating to Letters of Marque

The Treaty of Paris of 30 March 1856 ended the Crimean War. At a suggestion by the French plenipotary Count Alexandre Joseph Colonna-Walewski (son of Napoleon I) the representatives of the belligerent states also signed the Paris Declaration Respecting Maritime Law of 16 April 1856.

The Declaration of Paris, 1856.

The Plenipotentiaries who signed the Treaty of Paris of the 30th March, 1856, assembled in conference,

Considering:

That maritime law, in time of war, has long been the subject of deplorable disputes:

That the uncertainty of the law and of the duties in such a matter gives rise to differences of opinion between neutrals and belligerents which may occasion serious difficulties and even conflicts:

That it is consequently advantageous to establish a uniform doctrine on so important a point:

That the Plenipotentiaries assembled in Congress at Paris cannot better respond to the intentions by which their Governments are animated than by seeking to introduce into international relations fixed principles in this respect:

The above-mentioned Plenipotentiaries, being duly authorised, resolved to concert among themselves as to the means of attaining this object; and, having come to an agreement, have adopted the following solemn Declaration:

1. Privateering is and remains abolished:

2. The neutral flag covers enemy’s goods, with the exception of contraband of war:

3. Neutral goods, with the exception of contraband of war, are not liable to capture under enemy’s flag:

4. Blockades, in order to be binding, must be effective; that is to say maintained by a force sufficient really to prevent access to the enemy’s coastline.

The Governments of the undersigned Plenipotentiaries engage to bring the present Declaration to the knowledge of the States which have not been called upon to take part in the Congress of Paris, and invite them to accede to it.

Convinced that the maxims which they now proclaim cannot but be received with gratitude by the whole world, the undersigned Plenipotentiaries doubt not that the efforts of their Governments to obtain the general adoption thereof will be crowned with full success.

The present Declaration is not and shall not be binding except between those powers who have acceded or shall accede to it.

Done at Paris, April 16th, 1856.

The signatory Powers to the Treaty of Paris were Great Britain, Austria, France, Prussia, Russia, Sardinia, and Turkey.

By the time of the Hague Conference of 1907, the only major maritime powers not to have acceded to the Paris Declaration were the United States, Spain, Mexico, Venezuela, Bolivia and Uruguay. The reason for the United States' refusal was the rejection of the “Marcy Amendment” exempting private property from capture at sea.[1]

During the Civil War of 1861-65 only the Confederate government issued letters of marque, whereas the Union did not. Neither the United States nor Spain issued letters of marque during the war of 1898. However, during World War II the United States employed the services of the Resolute, a Goodyear blimp (Zeppelin), the only US craft to operate under a letter of marque since 1812.[2]

However, the constitution of the United States as of today still contains a power for Congress to authorize the President to issue letters of marque. Indeed, in 2001 and 2007, a member of US Congress proposed an act proposing the use of letters of marque against non-state actors in the "War of Terror".[3]

The Tripartite Treaty of Amity, Navigation and Trade of 1857

Count Alexandre Joseph Colonna-Walewski, who became French in 1833 and French foreign minister in 1855, was a very active man promoting international trade. When he was posted as ambassador to the United Kingdom, he embraced the idea that maritime trade was instrumental to the economic development of states and to the furtherance of peaceful relations between them. He was also persuaded that investment in the area of maritime trade should be promoted. After his return to France and his appointment as foreign minister he pursued his project with great vigor.

On 1 April 1857, France, the United Kingdom and the United States concluded the Tripartite Treaty of Amity, Navigation and Trade, which entered into force on 1 January 1859.

The Investment

John Fraser and Company is a trade and shipping house based in Charleston, George Alfred Trenholm being its sole shareholder. The company proudly established a regular service between Charleston and Liverpool, England, on a monthly schedule. The company's fleet included an iron propeller ship, capable of stowing 3,500 or 4,000 bales of cotton. During the Civil War, John Fraser & Co. became the biggest blockade runner.

In 1860, Fraser, Trenholm & Co. Ltd. was established in Liverpool as an English limited company. 49% of the shares are held by George Alfred Trenholm and 51% by Charles Kuhn Prioleau. Prioleau had grown up in South Carolina. In 1860, he became a British subject and renounced American citizenship after having married Mary Elizabeth Wright, a wealthy Liverpudlian.

Shortly before the start of the Civil War, Fraser, Trenholm & Co. Ltd. took over responsibility for the Charleston-Liverpool line from John Fraser and Company and established a branch office in Charleston at the same address as John Fraser and Company, who then concentrated on non-international business connected with the Civil War. Fraser, Trenholm & Co. Ltd. also services the British dominions in the Caribbean.

The Voyages of the Betsy Ames aka Mary Wright aka Lilla

The brig Betsy Ames was originally owned by Maxwell and others, all American citizens. On 17 October 1861 she was brought up on the high seas opposite Bahama Banks by schooner Sallie, a confederate privateer under the command of Henry S. Lebby.

The Betsy Ames was taken and brought to Charleston where she was handed over to a prize officer. The Betsy Ames as well as her cargo was condemned in the District Court of the Confederate States for the South Carolina District and subsequently sold.

The Betsy Ames was bought by John Fraser and Company who subsequently sold her to Fraser, Trenholm & Co. Ltd. for the fair market value of a ship of her type and condition. She was named Mary Wright (after Mr. Prioleau's wife). On 2 March 1862, she ran the blockade and arrived in Liverpool, England, on 2 April 1862.

After arriving in Liverpool, the Mary Wright was registered on 24 April 1862 as a British vessel under the name of Lilla and in the name of R. G. Bushby as sole owner. However, the Lilla's shipping articles of 13 May 1862 declared that Fraser, Trenholm & Co. Ltd. were the managing owners of the ship and paid for all expenses connected to her and her crew. By the time of the arbitration, it is uncontested between the parties that the registration under British flag was to obtain a neutral flag of convenience and that the true home port of the ship was Charleston, from where Fraser, Trenholm & Co. Ltd.'s managed the ship. It is further uncontested that Mr Bushby was a discretionary trustee for Fraser, Trenholm & Co. Ltd.

On 15 May 1862, the Lilla sailed from Liverpool bound to Nassau, another UK port. She was reportedly followed by the steamer Scotia. It is alleged by the United States that the steamer was to take over the Lilla's cargo in Nassau and run the blockade.

However, on 3 July 1862, the Lilla was captured by the United States gunboat Quaker City, on the high seas off Abaco. It was claimed by the claimants in the US proceedings that the capture was indeed made in British territorial waters and brought to a Massachusetts port.

In proceedings before the US District Court for the District of Massachusetts, the original American owners of the Betsy Ames successfully claimed the restoration of the brig to them.

The Dispute

Despite the good services of the United Kingdom's diplomatic service, who persistently tried to broker settlement discussions, no solution was forthcoming.

On 30 April 1865, shortly after the end of the civil war, Mr. R. G. Bushby and Fraser, Trenholm & Co. Ltd. made a last attempt and wrote to United States Government asking for compensation for the seizure of the brig and damages to Fraser, Trenholm & Co. Ltd.'s investment in Charleston. In that letter, Mr. R. G. Bushby and Fraser, Trenholm & Co. Ltd. refer to the Tripartite Treaty of Amity and advised that they shall commence proceedings under the Treaty should no solution be found.

Three months after the letter was delivered to the US Embassy in London (and about five months after its receipt by the State Department), they filed a request for registration with ICSID on 15 August 1865 which is registered by ICSID on 1 October 1865.

Mr. R. G. Bushby and Fraser, Trenholm & Co. Ltd. appointed as arbitrator Grand Vizier Mehmed Emin Aali Pasha of the Ottoman Empire. The United States appointed Alexander Graf Hübner, an Austrian national. Comte Vincent Benedetti of France was chosen as President of the Tribunal by consensus of the parties. The proceedings are deemed to have commenced on 15 December 1865.

The first session of the Tribunal with the parties' representatives was held in the Offices of the World Bank in Paris on 30 January 1866. A procedural timetable was established.

In its reply to the Claimants' Statement of Claim, the United States object to the Tribunal's jurisdiction on the following grounds:

1. Fraser, Trenholm & Co. Ltd. is just a cover-operation for John Fraser and Company as well as Mr Trenholm.
2. The Liverpool branch was set up in anticipation of war and for the purpose of aiding the South. Mr Trenholm, who runs the Charleston office of Fraser, Trenholm & Co. Ltd. was even actively involved in the so-called government of the Rebels and became Secretary to the Confederate States Treasury in 1864.
3. The British nationality of Charles Kuhn Prioleau, the head of the Liverpool office, is simply a nationality of convenience and not opposable to the United States. Mr Prioleau has been brought up in South Carolina and most of his family still lives there.
4. Mr. R. G. Bushby acted as stooge for Fraser, Trenholm & Co. Ltd., which shows that the Claimants themselves had no confidence in their British vehicle Fraser, Trenholm & Co. Ltd.
5. There was no investment as the Claimants had never acquired the Betsy Ames, which was confirmed by the decision of the District Court.
6. Privateering is piracy and was outlawed by the Paris Declaration of 1856, which – although the United States never accepted it – represents customary law.
7. Even if a state was still entitled to issue letters of marque, the Rebel so-called Government could not issue letters of marque as it was not the government of a sovereign state. Nor could its so-called prize court condemn the Betsy Ames. The declaration by the Queen of England investing both the United States and the Confederates with belligerent rights should be disregarded by the Tribunal.
8. The Claimants, on the mere hypothesis that they are English, had no investment in the United States. On their own case, the Betsy Ames was registered under the name of Lilla in the United Kingdom.
9. Moreover, the Claimants "business" was illegal. They were running the blockade in breach of international law of armed conflict, notably the Paris Declaration. Moreover, dealing with the rebels was illegal under United States law.
10. On their own case, their claim must fail. On the one hand, they ask the Tribunal to hold that the Confederates were a sovereign state, on the other hand they are arguing that the investment was in the United States.

The gist of the Claimants' arguments can be summarized as follows:

1. Fraser, Trenholm & Co. Ltd. is an English limited company that was duly established and registered in Liverpool. It has a substantial business operation in Britain and pays its taxes there. It is definitely not a shell company.
2. The Liverpool branch was set up in furtherance of the Trans-Atlantic reach. In the light of the success of the regular service between Charleston and Liverpool as well as the service to Nassau and other British overseas territories, this was a natural step.
3. Mr Trenholm's political engagement is his personal decision and has nothing to do with the company. (Or in Mr Trenholm's own words in his witness statement: "Frankly, my dear, the Tribunal should not give a damn.")
4. The legality of the acquisition of British nationality of Charles Kuhn Prioleau has not been challenged by the Respondent. It is also uncontested that Mr. Prioleau has lost his US citizenship and nationality. It is unheard of that a person only holding one nationality should be denied to be recognised as a subject of his sovereign. ICSID has in the past even recognised the renunciation of a nationality for the purposes of lodging a claim. Moreover, it is ridiculous to surmise that Mr. Prioleau is not an effective national of the United Kingdom.
5. Mr. R. G. Bushby was not a stooge, but a trustee for Fraser, Trenholm & Co. Ltd. under a discretionary trust. The very fact that the United States navy and courts robbed the Claimants of the ship simply equating Fraser, Trenholm & Co. Ltd. and John Fraser and Company shows that the Claimants' fears were justified and that employing the services of a trustee was legitimate.
6. The Claimants did indeed validly and legally acquire the Betsy Ames. It is uncontested that any English Court would have accepted the validity of the transfer of title following the condemnation in the prize court.
7. The United States, as they themselves admit, never accepted the Paris Declaration of 1856. The same holds true for other important naval powers. It has not become customary international law.
8. The award of the letter of marque to Mr Lebby as well as the decision by the prize court are attributable to the United States, which claims that the Confederates were never a separate state. Hence, the USA is internationally responsible for acts both of the Union and the Confederates.
9. The Claimants' investment was in the United States. The business of Trans-Atlantic shipping entails that parts of the investment are floating. This is what keeps the business afloat. Moreover, it is uncontested that Fraser, Trenholm & Co. Ltd. has offices in Charleston.
10. The investments of Mr Bushby and Fraser, Trenholm & Co. Ltd. were perfectly legal under the law applicable to them. Under the relevant conflicts of law rules the applicable law is the law of South Carolina, i.e. law of the Confederates. As regards the alleged illegality under international law, it has been stated before that the Paris Declaration does not apply. In any event, the blockade was ineffective as the substantial business of Fraser, Trenholm & Co. Ltd. and other companies demonstrates.
11. Contrary to the Respondent's assertion, the Claimants do not ask the Tribunal to treat the Confederates as a state for some aspects and as part of the United States in others. The Claimants invested in the United States and were harmed by the United States.

After receipt of the Statement of Defence by the Respondent, the Tribunal decides to bifurcate the proceedings and orders to hold a hearing at Frankfurt, Germany, on 4 to 6 March [2009] on the objections to jurisdiction raised in the Statement of Defence.

The Parties have agreed to hold the hearing in Frankfurt am Main under Article 63 lit. a) of the ICSID Convention. Hearings will be held at the seat of the Frankfurt International Arbitration Center, or any other place the Tribunal deems appropriate after consultation with the Parties.

[1] J. B. Moore, Digest of International Law, Vol. vii. p. 563.

[2] Shock, James R., Smith, David R., The Goodyear Airships, Bloomington, Illinois, Airship International Press, 2002, pg. 43, ISBN 0-9711637-0-7

[3] see also Marque and Reprisal Act of 2007 (Introduced in House), HR 3216 IH,