'File 82/34 II (F 94) APOC Concession' [‎79r] (150/362)

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Appendix III.
Messrs. Lumley and Lumley to Farid-es-Saltaneh.
37, Conduit Street. Bond Street,
Your Excellency, London, July 27, 1921.
WE have the honour to inform you that we have now perused and considered
the various documents you have laid before us, and beg to submit the following
observations for your consideration.
Apart from the agreement of the 22nd December, 1920, between the Imperial
Persian Government and the Anglo-Persian Oil Company (Limited), requiring
ratification to make it binding on the Government, we are rather inclined to the
view (although it is not easy to advise with confidence) that, in entering into the
agreement, Mr. Armitage-Smith may have exceeded the powers conferred upon
him by the letter of the 29th August, 1920. These powers were limited to the
final adjustment of all questions in dispute between the Anglo-Persian Oil
Company and the Imperial Government of Persia, and if such powers are to be
constructed strictly, they certainly do not appear to authorise his entering into
and signing an agreement, on behalf of the Imperial Government of Persia,
effecting extensive variations in the terms of the original concession to the detri
ment of the Imperial Government.
It is to be observed that a perusal of the statement drawn up
^by Mr. Armitage-Smith for the opinion of counsel shows that nowhere does he
ask counsel to direct their mind to the question whether he had authority to enter
into the alleged agreement under the powers conferred upon him, and no copy of
the letter of authority or of the private instructions of the 29th August, 1920,
appears to have laid before them.
The joint opinions of two separate sets of counsel have already been taken
in relation to the matter including the construction of the concession—namely,,
that of Mr. D. M. Kerley, K.C., and Mr. Rayner Goddard, dated the 22nd March r
1920, and that of Mr. Mark L. Romer, K.C., and Mr. W. Gordon Brown, dated
the 1st December, 1920.
The first-mentioned opinion certainly seems more favourable to the Imperial
Government than the second, and it may be mentioned in passing, with regard
to paragraph 2 of the latter opinion, which was obtained by Mr. Armitage-
Smith, that the view expressed as to the possibility in practice of the Anglo-
Persian Oil Company carrying out its threat to divest itself of all interest in the
subsidiary companies is based on the assumption that the shares of the company
are not held by the public, whereas, as a matter of fact, a very large number of
its shares were, and are, held by the public, there being indeed many hundreds,
of shareholders.
Article 10 of the concession provides for the Imperial Government being
paid annually a sum equal to 16 per cent, of the annual net profits of any company
or companies that may be formed in accordance with the terms of the concession,
and no mention is made of any deduction from such net profits of any kind.
Article 1 of the alleged agreement of the 22nd December, 1920, however, makes
the 16 per cent, royalty on profits subject to certain conditions, limitations and
exceptions, which are set out in detail in the subsequent articles of the agreement.
Moreover, according to the alleged agreement, the royalty is confined to profits-
arising from Persian oil only. If, therefore, the view taken by Messrs. Kerly and
Goddard in their opinion be correct—namely, that such part of the profits of a
subsidiary company as reach the parent company and are reflected in its own
profits will form part of the profits of the Anglo-Persian Oil Company for royalty
purposes—then this cutting down of the 16 per cent, royalty is certainly
disadvantageous to the Imperial Government. It is true that Messrs. Kerly and
Goddard express this view in regard to only one type of subsidiary company, but
the type contemplated by them is an extreme one, and the view would accordingly
apply a fortiori to the other subsidiary companies of the Anglo-Persian Oil
Company.
It seems reasonable to suppose that, in agreeing to the deductions mentioned
in the alleged agreement from the 16 per cent, royalty, Mr. Armitage-Smith was
actuated by the fear that the Anglo-Persian Oil Company would, and could, carry
out its threat to divest itself of all interest in the subsidiary companies, but, as
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