Why Royal Dutch Petroleum is Wrong About the Liability of Pirates, Inc.

During the Kiobel oral arguments, following a discussion between Breyer and counsel for the Respondents Royal Dutch Petroleum/Shell regarding whether corporations could ever be liable under international law, the example of “Pirates, Inc.” was predictably trotted out for a hypothetical test drive. Justice Breyer asked Shell whether Blackbeard could have avoided liability for any claims on his booty from pirate victims bringing civil actions against him, simply by turning his pirate enterprise into an incorporated entity. Respondents answered with an emphatic “yes,” claiming that damages for a tort alleging piracy in violation of the law of nations were limited to the value of the ship that carried out the piracy:

JUSTICE BREYER: […] Do you think in the 18th century if they’d brought Pirates, Incorporated, and we get all their gold, and Blackbeard gets up and he says, oh, it isn’t me; it’s the corporation — do you think that they would have then said: Oh, I see, it’s a corporation. Good-bye. Go home.

MS. SULLIVAN: Justice Breyer, yes, the corporation would not be liable.

[…]

JUSTICE BREYER: What source have you for that proposition?

MS. SULLIVAN: [L]ook to Justice Story in U.S. v. Smith, cited in the Respondents’ brief at footnote 12. It looks to piracy. And piracy is allowed — in rem actions. You could seize the ship with which the piracy was committed, as you could later slave trading ships. But you could not seize another ship, and you could not seize the assets of the corporation.

But Royal Dutch Petroleum was mistaken in its account of civil liability for piracy; both international law and U.S. law have repeatedly held that just the opposite is true.

As an initial matter, Respondents’ citation to U.S. v. Smith is inapposite. In rem jurisdiction plays no part in that case; rather, it concerned jurisdiction to define the crime of piracy.

But Respondents were also wrong in asserting that civil liability for piracy was limited to the value of the ship that made the illegal capture. Yes, in rem jurisdiction did play a part in admiralty and prize law, but not in the context Respondents are asserting. Eighteenth century U.S. case law is clear: the owners of ships that violate international law are liable to the full extent of the damage caused. You could indeed seize another ship beyond the one that engaged in the piratical act, and any other assets of the principal besides, to recover for damages caused by the torts of an agent.

In any event, Pirates, Inc. is a poor hypothetical for considering questions of corporate liability, because the way 18th century law dealt with pirates was a rather strict affair, leaving little room for derivative liability to play a significant role: when you captures pirates, you don’t sue them, you simply kill them and claim their booty for your own. A better example would be Privateers, Inc. — because such entities did in fact exist in the 18th century, and owners of privateers were frequently sued for the acts of the privateer’s captain. As discussed in a previous post, New York state law authorized the incorporation of privateer enterprises, and before that, the Dutch West India Company, unlike its cousin the Dutch East India Company, was a notorious 17th century example of a corporation whose primary source of profits was privateering, not trade. Privateering, although legal, was regulated by the law of nations, and unauthorized captures were a violation of that law, and a frequent source of disputes. Moreover, in many cases, ships that portrayed themselves as “privateers” while in port often had little compunction about turning pirate on the high seas, if a tempting enough opportunity were to arise. And whether it involved incorporated privateers or unincorporated groups who owned or held shares in privateers, owners’ of privateers were frequently held to have derivative liability for their privateers’ breaches of the laws of nations.

The law in this regard was not uniform, and there was some deviation in domestic practice, but the overwhelming weight of authority provided for agency liability for violations of international law. Bynkershoek, for example, in Questions of Public Law (1737), Book I, Chapter 19, discusses a decision that reached an opposite conclusion. He then goes on, however, on to state that such a holding was plainly incorrect, as owners of privateer ships that have made a wrongful capture “are to be held liable until complete reparation has been made.” Although bondsmen — whose only role is to post a security bond for the privateer at the start of the voyage — cannot be liable beyond the amount of their bond, the owner of a ship in violation of the laws of nations is liable in full:

[I]f the owner sent the captain out to take prizes, and he carries out his commission wrongfully, the owners are liable to the full amount of the damage caused. The captain who takes prizes under a commission is appointed for that purpose, and he who appoints him is by the act of appointment liable for all, whether good or bad, that his appointee does under the commission. Thus we permit an actio institoria against the owner of a shop who has placed an agent in charge of it, and if the agent has made a contract we do not distinguish in what manner he has made it. In the same way we give an exercitorian action against the owner of a vessel for the act of a captain, provided the captain was acting in a matter for which he was engaged; for if he was not, he does not bind the owner, as Ulpian has fully explained. The appointment is the sole cause why owners of shops and of ships are bound: that is to say, they are liable if the act was committed in the performance of a task for which the agent was appointed, but not otherwise. He who has placed a captain on a privateering vessel, knows that the captain’s duty was to make captures, and if the captain performs this task improperly, the fault lies with the owner who employed an unskilful and dishonest man for the task. If a captain, having borrowed money for the repairing of his ship, applies it to his own use, Ofilius properly says: ‘the owner is liable, and must impute it to himself that he employed such a person.’ With this agrees the opinion of the States-General expressed in their decree of October 22, 1627: ‘that the shipowners must take care to employ good captains.’

If owners of shops and of vessels are responsible for the acts of their agents, it is evident that they are responsible to the full extent of the damages, and that they are not discharged by the surrender of the shop or the vessel in question. I do not remember that I have ever read an opinion contrary to this; nor would such an opinion be reasonable, since those who are responsible for the acts of their agents are responsible to the full extent; hence owners of vessels are liable to the full for unjust captures made by their captains.

See also Blackstone, Book I, Ch. VII (“Therefore, to encourage merchants and others to fit out privateers or armed ships in time of war, by various acts of parliament, the lord high admiral, or the commissioners of the admiralty, are empowered to grant commissions to the owners of such ships; and the prizes captured shall be divided according to a contract entered into between the owners and the captain and crew of the privateer. But the owners, before the commission is granted, shall give security to the admiralty to make compensation for any violation of treaties between those powers with whom the nation is at peace.”).

And Justice Story, in The Amiable Nancy, 3 Wheaton 546 (1818), contrary to Respondents’ assertions regarding Smith, outright rejected the idea that the wrongful acts of a privateer are limited to in rem damages. Story did agree, however, that punitive damages, being intended as a punishment, may only be issued against the moral actors responsible for the conduct:

Under such circumstances, the honor of the country and the duty of the court equally require that a just compensation should be made to the unoffending neutrals, for all the injuries and losses actually sustained by them. And if this were a suit against the original wrong-doers, it might be proper to go yet further, and visit upon them, in the shape of exemplary damages, the proper punishment which belongs to such lawless misconduct. But it is to be considered, that this is a suit against the owners of the privateer, upon whom the law has, from motives of policy, devolved a responsibility for the conduct of the officers and crew employed by them, and yet from the nature of the service, they can scarcely ever be able to secure to themselves an adequate indemnity in cases of loss. They are innocent of the demerit of this transaction, having neither directed it, nor countenanced it, nor participated in it, in the slightest degree. Under such circumstances, we are of opinion that they are bound to repair all the real injuries and personal wrongs sustained by the libellants, but they are not bound to the extent of vindictive damages.

This rule had previously been laid out by the Supreme Court in Del Col v. Arnold, 3 U.S. 3 Dall. 333 (1796):

[T]he right of seizing and bringing in a vessel for further examination, does not authorize or excuse any spoliation or damage done to the property, but that the captors proceed at their peril, and are liable for all the consequent injury and loss. On the third point, that the owners of the privateer are responsible for the conduct of their agents the officers and crew to all the world, and that the measure of such responsibility is the full value of the property injured, or destroyed.

James Kent, in his Commentaries on American Law (1826), likewise agreed that the American rule required Privateers, Inc. to be liable to the full extent of damages caused, although in his view this was a rule that could be modified by domestic law:

It has been a question, whether the owners and officers of private armed vessels were liable in damages for illegal conduct beyond the amount of the security given. Bynkershoek has discussed this point quite at large, and he concludes that the owner, master, and sureties are jointly and severally liable, in solido, for the damages incurred; and that the master and owners are liable to the whole extent of the injury, though it may exceed the value of the privateer and her equipment, though the sureties are bound only to the amount of the sums for which they become bound. This rule is liable to the modifications of municipal regulations; and though the French law of prize was formerly the same as the rule laid down by Bynkershoek, yet the new commercial code of France exempts the owners of private armed vessels in time of war from responsibility for trespasses at sea, beyond the amount of the security they may have given, unless they were accomplices in the tort. The English statute of 7 Geo. II. c. 15, is to the same effect, in respect to embezzlements in the merchants’ service. It limits the responsibility to the amount of the vessel and freight, but it does not apply to privateers in time of war; and where there is no positive local law on the subject (and there is none with us), the general principle is, that the liability is commensurate with the injury. This was the rule as declared by the Supreme Court of the United States, in Del Col v. Arnold; and though that case has since been shaken as to other points, it has not been disturbed as to the point before us. We may, therefore, consider it to be a settled rule of law and equity, that the measure of damages is the value of the property unlawfully injured or destroyed, and that each individual owner is responsible for the entire damages, and not ratably pro tanto.

In short, Pirates, Inc. and Privateers, Inc. would both have been civilly liable for their agents’ torts in violation of international law. Although they would not have been morally culpable if they had not personally authorized the violation, and were therefor immune from punitive measures, they nevertheless remained civilly liable in cases where domestic principles of agency law would attribute liability to them.

-Susan

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