for warlike purposes, and to prevent either belligerent from making use of neutral ports as a base of naval operations.1

While a neutral Power incurs no responsibility from the fact that individuals leave its territory to enlist in the service of a belligerent, it is responsible if it permits enlistment on its territory by either of the belligerents. It is also bound to use due diligence to prevent hostile expeditions from being organized in its territory to operate against either belligerent. A neutral Power, however, is not bound to prevent the export or transit of arms or anything which may be of use to an army or fleet. Such trade is merely subject to the belligerent rights of capture as contraband, the neutral state incurring no responsibility in the matter.

§ 108. State Indemnity.

It remains merely to note that it is becoming a growing practice for nations to alleviate the individual losses sustained during war, for which no legal liability is incurred, by making voluntary awards of indemnity as a matter of grace and favor, in order to distribute the loss equally over the whole nation. This beneficent practice was begun by France in 1792 and other states have from time to time followed this worthy example. The statute making the appropriation may limit the classes

1 These obligations had their origin in the Three Rules of Washington, applied in the Geneva Arbitration, Moore's Arb. 4057-4178. See Convention XIII, 2nd Hague Conference, Arts. 6 et seq.; Hershey, ch. XXXI.

* Arts. 4 and 6 of Convention V. The United States and British neutrality laws which prohibit citizens and subjects from enlisting within the jurisdiction (or by British law, even without his Majesty's Dominions) exceed the requirements of international law.

'But its negligence must be clearly proved. See cases in Moore's Arb. 4027-4056. Art. 7 of Convention V.

'France, law of Aug. 11, 1792, Feb. 27, 1793, Nys, III, 456, 458; Law of Sept. 6, 1871, July 28, 1874 and Aug. 16, 1876, 65 St. Pap. 71 and 621; For. Rel., 1884, 357. Bentwich, pp. 42-43, cites various cases of voluntary indemnities in France, Germany, Italy and Great Britain. Germany in 1871 extended the indemnity to Germans and, in the case of movables, to subjects of such neutral states only as promised reciprocal treatment in a similar case. Moore's Dig. VI, 905, and especially Kirchenheim, s. V Kriegsschäden, in Stengel-Fleischmann's Wörterbuch, Tübingen, 1913. Bentwich cites England's generous conduct after the South-African War (p. 44). Great Britain also made compensation to deported neutrals. 26 Law Mag. and Rev., 486; For. Rel., 1903, 479–480; 28 Clunet (1901), 189. See also U. S. Act of April 9,

of the beneficiaries as the state deems best, so that occasionally foreigners have not been included among those indemnified. By treaty, diplomatic arrangement or arbitral convention the Latin-American states and certain others among the weaker countries have at times been compelled by the nations of Europe to assume a heavy liability, beyond that required by the strict rules of law, for injuries sustained by aliens during war.1

The war indemnities which are often exacted from the conquered nation by the victor at the end of a war frequently have been used in part to compensate subjects who have sustained injury during the war.2

The growing tendency to impose upon belligerents and neutrals a strict compliance with the rules of war in the interests of private property, under penalty of pecuniary liability, and to regard war as a national disaster, the burdens of which shall be distributed equally over the whole nation, should not be permitted to be interrupted or impaired. 1816, supra, and Abandoned or Captured Property Act; Briggs v. U. S., 143 U. S. 346. Latin-American states often establish claims commissions after a civil war for deciding claims arising out of war injuries. See also treaty between United States and Switzerland, Nov. 25, 1850, Art. 2, Malloy, II, 1765, providing for equality with natives with respect to war indemnities.

1 Many European countries pressed claims against Chile arising out of her war of 1879-1883 with Bolivia and Peru. Large indemnities were paid. Moore's Arb. 4916 (Germany). Some were submitted to arbitration. Seijas, V, 544–551; 73 St. Pap. 1211; 79 ibid. 670 (Italy); Martens, Nouv. rec. gén., 2o ser., 11, 638 (Belgium); 74 St. Pap. 128, 131, and 79 ibid. 671 (France); 77 St. Pap. 826 (Switzerland); 82 St. Pap. 1292 (Portugal); 76 St. Pap. 98; Martens, Nouv. rec. gén., 2o ser., 12, pp. 507-509 (Austria-Hungary). See also For. Rel., 1883, 97 and For. Rel., 1896, 42. See also claims conventions between Italy and Uruguay, Apr. 5, 1873, 63 St. Pap. 1322; Sardinia and Argentine, August 31, 1858, 49 St. Pap. 477, 480; Great Britain-France and Uruguay, June 28, 1862, 63 St. Pap. 1063; France and New Granada, Ecuador and Venezuela, 49 St. Pap. 1301; Great Britain and Nicaragua (seizures of neutral property and personal injuries) For. Rel., 1894, App. I, 234–363; Moore's Arb. 4966; Great Britain and China, 1899 (Kowshing case), Parl. Pap. (Cd. 93) China, No. 1, 1900.

2 E. g., France v. China, treaty of Oct. 25, 1860, Art. V, Hertslet's China Treaties, 3rd ed., London, 1908, I, 289; France and Madagascar, French domestic commission, March 18, 1886, 77 St. Pap. 801, 78 St. Pap. 708; Great Britain and South African Republic, Aug. 3, 1881, 72 St. Pap. 900; Brazil and Paraguay, Jan. 9, 1872, La Fontaine, 167-170; Chile and Peru, Oct. 20, 1883, Art. 12, La Fontaine, 592, 593.

CHAPTER VII

INTERNATIONAL RESPONSIBILITY OF THE STATE-Continued. CONTRACTUAL CLAIMS

§ 109. Exceptional Position of Claims Arising out of Contracts. Diplomatic protection is often invoked by citizens of one country in cases arising out of contracts entered into with citizens of another, or with a foreign government. Coincident with the constant growth of international intercourse and the exploitation of backward countries by foreign capital, this class of cases has assumed large proportions and has given rise to many perplexing and delicate diplomatic situations. The United States and one or two other important governments have differentiated these claims from tortious claims arising out of direct injuries committed by an authority of the state against the person or property of their citizens, either by declining to interpose in behalf of their contracting citizens or else by exercising more than ordinary scrutiny over a cause of action having its origin in contract. Fundamentally, it is the denial of justice which is the necessary condition for the interposition of a government on behalf of its citizen prejudiced by breach of contract. As a general rule, before a claim originating in a contract can come within the category of a denial of justice it must have been submitted to the courts for such judicial determination as is provided by the local law or in the contract. Until such submission, the government's right of interposition has not yet accrued. The qualifications of this principle will be considered hereafter.

110. Three Classes of Contractual Claims. Distinctions. There are three important classes of contract claims: first, those arising out of contracts concluded between individuals who are citizens of different countries; second, those arising out of contracts between the citizen and a foreign government; and third, claims arising out of the unpaid bonds of a government held by the citizen of another. The

failure of some publicists to distinguish these classes clearly in their discussion of the subject especially the failure to distinguish the second from the third class, has brought about some confusion. When they state, as many of them do, that on principle there can be no intervention in claims arising out of contract, they really mean to confine their assertion to the case of claims arising out of unpaid bonds and not contracts in general. This distinction, as will be observed hereafter, is important, inasmuch as there is far less reason for governmental intervention to secure the payment of defaulted bonds of a foreign government than there is in the case of breaches of concession and similar contracts.

Hall fails properly to note the distinction between contract and other claims. He recognizes that there is a difference in the practice of governments in supporting claims arising out of a default of a foreign state in paying the interest or principal of loans made to it, and the complaints of persons sustaining injury in other ways. He admits that in the former case governments generally decline interposition, whereas in the latter it is a matter of expediency whether in the particular case their right of interposition shall be exercised. After giving the reasons why public loans should not become a cause of international intervention, he states that, fundamentally,

"there is no difference in principle between wrongs inflicted by breach of a monetary agreement and other wrongs for which the state, as itself the wrongdoer, is immediately responsible." 1

While the statement is technically correct, it is apt to be misleading, inasmuch as it treats ordinary contract claims and those arising out of tort as forming one class, whereas there is an essential difference between them. This consists in the fact that in the case of contractual claims the active notice taken by the state of the wrong done its citizen is deferred until he has exhausted his local judicial remedies and a denial of justice is established, whereas in claims arising out of tort, if chargeable to a government authority, interposition is generally im

1 Hall, 6th ed., 275-276. See also Findlay, commissioner, U. S.-Venezuelan commission of Dec. 5, 1885, who considered the difference one in degree only. He believed that a contractual claim for building a public work and one founded on nonpayment of a public debt are the same, both being voluntary engagements. Opinions of the commission (Washington, 1890), 335, Moore's Arb. 3650.

mediate; and in the further fact that wider discretion is usually exercised by the protecting state in the enforcement of contractual claims than of those purely tortious in origin.

Westlake is one of the few writers who properly distinguish the case of ordinary contract claims-for example, those arising out of supplies furnished the government or out of concession contracts concluded between a citizen and a foreign government-and the case of unpaid bonds which constitute part of a public loan.

In the case of ordinary contract claims, he says,

"there is a petition of right, a court of claims, or an appropriate administrative tribunal before which to go. The case is not essentially different from any other arising between man and man. The foreigner who has contracted with the government has not elected to place himself at its mercy, and the rule of equal treatment with nationals requires that he shall have the full benefit of the established procedure, while if in a rare instance there is no such established procedure, or it proves to be a mockery, the other rule of protecting subjects against a flagrant denial of justice also comes in. But public loans are contracted by acts of a legislative nature, and when their terms are afterwards modified to the disadvantage of the bondholders this is done by other acts of a legislative nature, which are not questionable by any proceeding in the country. If therefore the rule of equal treatment with nationals be looked to, the foreign bondholder has no case unless he is discriminated against. And if the rule of protecting subjects against a flagrant denial of justice be looked to, the reduction of interest or capital is always put on the ground of the inability of the country to pay more a foreign government is scarcely able to determine whether or how far that plea is true-supposing it to be true, the provisions which all legislations contain for the relief of insolvent debtors prove that honest inability to pay is regarded as a title to consideration-and the holder of a bond enforceable only through the intervention of his government is trying, when he seeks that intervention, to exercise a different right from that of a person whose complaint is the gross defect of a remedial process which by general understanding ought to exist and be effective."

CONTRACTS BETWEEN INDIVIDUALS

$111. Absence of Governmental Interest.

The first class of cases, contracts between individuals, can give rise only to an action in the courts for breach of contract. The government of the foreigner is in no wise concerned unless the local courts deny or

1 Westlake, I, 2nd ed., 332-333.