B-32493, SEPTEMBER 28, 1943, 23 COMP. GEN. 239

B-32493, SEPTEMBER 28, 1943, 23 COMP. GEN. 239

COMPENSATION FOR VESSELS REQUISITIONED FOR USE UNDER SECTION 902, MERCHANT MARINE ACT OF 1936, AS AMENDED WHERE IT IS SHOWN THAT THE RATE TO BE PAID AS CHARTER HIRE FOR UNIQUE VESSELS REQUISITIONED FOR USE UNDER SECTION 902 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, IS LESS THAN THE MAXIMUM NET EARNINGS OF SUCH VESSELS ADJUSTED TO A 1939 BASE, AND WHERE IT HAS BEEN ADMINISTRATIVELY DETERMINED THAT THE DIFFERENCE BETWEEN THE MAXIMUM NET EARNINGS AND THE AMOUNT FIXED AS CHARTER HIRE IS SUFFICIENT TO EXCLUDE ANY POSSIBLE PROFIT DERIVED FROM OPERATION OF THE VESSELS--- SUCH PROFIT NOT BEING A PROPER ELEMENT OF CHARTER HIRE--- THIS OFFICE WILL NOT QUESTION PAYMENTS OF CHARTER HIRE ON SUCH BASIS. 22 COMP. GEN. 877, AMPLIFIED. WHERE THE GOVERNMENT REQUISITIONS THE USE OF A PRIVATE VESSEL PURSUANT TO SECTION 902 OF THE MERCHANT MARINE ACT OF 1936, AS AMENDED, UNDER A CHARTER RESERVING TO THE GOVERNMENT THE RIGHT TO TAKE TITLE TO THE VESSEL AT A FUTURE DATE SHOULD SUCH ACTION BECOME NECESSARY OR DESIRABLE, THERE NEED NOT BE CONTAINED IN THE CHARTER A PROVISION THAT, IN THE EVENT SUCH RIGHT IS EXERCISED, THE COMPENSATION OTHERWISE PAYABLE FOR THE VESSEL WILL BE REDUCED IN THE AMOUNT OF THE CHARTER HIRE PREVIOUSLY PAID FOR ITS USE, IF IT HAS BEEN DETERMINED, AS A MATTER OF ADMINISTRATIVE POLICY, THAT THE INCLUSION OF SUCH CLAUSE IS UNJUSTIFIED. 22 COMP. GEN. 877, MODIFIED.

ACTING COMPTROLLER GENERAL YATES TO THE ADMINISTRATOR, WAR SHIPPING ADMINISTRATION, SEPTEMBER 28, 1943:

I HAVE YOUR LETTER OF AUGUST 4, 1943, AS FOLLOWS:

REFERRING TO THE EXCHANGE OF LETTERS, DATED FEBRUARY 12, 1943, AND MARCH 10, 1943, BETWEEN THIS ADMINISTRATION AND YOUR OFFICE REGARDING THE RETURN OF TITLE TO SEATRAIN LINES, INC., OF THE FIVE SEATRAIN VESSELS, IN ACCORDANCE WITH THE PROVISIONS OF PUBLIC LAW 17 WHICH LAW BECAME EFFECTIVE ON MARCH 24, 1943, TITLE TO THESE VESSELS HAS BEEN RETURNED TO SEATRAIN LINES, INC., THE FORMER OWNER.

A REVIEW OF YOUR COMMENTS WITH RESPECT TO THE PROPOSED RATES OF HIRE TO BE PAID IF TITLE TO THESE VESSELS WAS RETURNED, INDICATES THAT CERTAIN INFORMATION FURNISHED YOU ON FEBRUARY 12, 1943, WAS NOT ENTIRELY CLEAR OR COMPLETE. WITH CERTAIN CLARIFICATIONS AND ADDITIONAL INFORMATION, IT WOULD APPEAR THAT THE METHOD OF DETERMINING THE AMOUNT OF CHARTER HIRE WOULD COME WITHIN YOUR VIEWS SET FORTH IN THE LAST PARAGRAPH OF YOUR LETTER OF MARCH 10, 1943. UNDER THESE CIRCUMSTANCES, IT SEEMS DESIRABLE TO SUBMIT ADDITIONAL INFORMATION REQUESTING A REVIEW OF THIS MATTER TO DETERMINE WHETHER, IN LIGHT OF THE ADDITIONAL INFORMATION THE RATES OF HIRE, AS DETERMINED, COME WITHIN YOUR EXPRESSED VIEWS.

TO MAKE CLEAR THE SEVERAL POINTS TO BE BROUGHT TO YOUR ATTENTION, A RE- STATEMENT OF THE METHOD USED TO DETERMINE THE CHARTER HIRE APPEARS DESIRABLE. AS THESE WERE THE ONLY VESSELS OF THIS TYPE IN EXISTENCE, THERE WAS NO MARKET FOR SUCH VESSELS. THE UNIQUE CHARACTER AND FEATURES OF THESE VESSELS ENABLED THE OWNER TO REDUCE OPERATING EXPENSES BY SUBSTANTIAL AMOUNTS RESULTING IN HIGHER EARNINGS THAN FOR THE ORDINARY TYPE OF VESSEL. IT WAS, THEREFORE, AGREED WITH THE OWNER THAT THE EARNINGS OF THE SEATRAIN VESSELS SHOULD BE USED AS ONE OF THE PRIMARY FACTORS TO DETERMINE CHARTER HIRE. IT WAS ALSO AGREED WITH THE OWNER THAT THE EARNINGS TO BE USED SHOULD BE THE EARNINGS UNDER NORMAL PEACETIME CONDITIONS, BUT AS TWO OF THESE VESSELS WERE NOT BUILT AND PLACED IN OPERATION UNTIL THE LATTER PART OF THE YEAR 1940, IT WAS AGREED THAT THE OPERATING RESULTS OF THESE TWO VESSELS FOR THE YEAR 1941 WOULD BE ADJUSTED TO CONDITIONS EXISTING PRIOR TO SEPTEMBER 8, 1939. IT WAS ALSO AGREED WITH THE OWNER, IF NORMAL PEACETIME EARNINGS OF THE FIVE SHIPS, AS SO CALCULATED, SHOULD EXCEED AN AVERAGE OF $415,327.83 PER VESSEL, THE MAXIMUM BASE FOR CHARTER HIRE TO BE PAID AND ACCEPTED WOULD NOT EXCEED THAT AMOUNT. IN ADJUSTING THE ACCOUNTS TO A NORMAL PEACETIME BASIS FOR A FIVE SHIP OPERATION, IT WAS RECOGNIZED THAT DIFFERENCES OF OPINION MIGHT ARISE AND IN THAT EVENT, IT WAS AGREED THAT THE PROVISIONS OF THE INTERNAL REVENUE ACT DEFINING ABNORMAL PEACETIME CONDITIONS WOULD BE USED TO SETTLE ANY DIFFERENCE WHICH MIGHT ARISE.

WITH THIS UNDERSTANDING, SEATRAIN LINES, INC., SUBMITTED STATEMENTS AND SUPPORTING DATA TO ME SETTING FORTH EARNINGS ON A FIVE SHIP BASIS FOR THE YEAR 1939 AFTER SHOWING THAT EARNINGS HAD NOT INCREASED FROM SEPTEMBER 8, 1939 TO DECEMBER 31, 1939. THIS OBVIATED THE NECESSITY OF BREAKING DOWN THE ACCOUNTS AS OF SEPTEMBER 8, 1939 IN ORDER TO ELIMINATE ANY ENHANCED EARNINGS DUE TO WAR CONDITIONS. IN THE FIGURES SUBMITTED, THERE WAS ONE ITEM IN THE AMOUNT OF $250,374.19 WHICH THE OWNER CLAIMED AS A PEACETIME ABNORMALITY WHICH APPEARED QUESTIONABLE. THE OWNER CLAIMED A LOSS DUE TO ILLEGAL COMPETITION EXISTING IN THAT YEAR WHICH LOSS THE OWNER CLAIMED CAME STRICTLY WITHIN DEFINITIONS OF ABNORMALITIES AS SET FORTH IN THE INTERNAL REVENUE ACT. AFTER CAREFUL CONSIDERATION, IT WAS DECIDED TO ALLOW THIS ITEM PROVIDED THE OWNER WOULD AGREE THAT IF ANY CLAIM FOR TAX EXEMPTION SHOULD BE MADE IN THE FUTURE, AND A LESSER AMOUNT WAS ALLOWED AS A LOSS BY THE INTERNAL REVENUE BUREAU, THE OWNER WOULD AGREE TO REDUCE THE CHARTER HIRE IN THE AMOUNT OF THE DIFFERENCE. ANOTHER ITEM SUBMITTED BY THE OWNER AS AN ADJUSTMENT IN EARNINGS WAS TENTATIVELY DISALLOWED BY ME. THE OWNER SUBSEQUENTLY REQUESTED A REVIEW AND SUBMITTED ADDITIONAL DATA. AS A RESULT OF FURTHER CONSIDERATION, THE ITEM HAS BEEN RESTORED. THIS RIGHT OF REVIEW WAS MENTIONED IN MY LETTER OF FEBRUARY 12, 1943 AND WAS A PART OF THE AGREEMENT WITH OWNER.

THE AVERAGE BASE EARNINGS OF THESE VESSELS AS FINALLY SUBMITTED BY

THE OWNER WAS $410,231.42, ALL ITEMS OF WHICH HAVE BEEN NOW IMPROVED. THE DIFFERENCE BETWEEN THIS AMOUNT AND THAT CONTAINED IN MY LETTER OF FEBRUARY 12, 1943 IS DUE TO THE RESTORATION OF THE ONE ITEM MENTIONED. THE DETAILED FIGURES PRESENTED BY THE OWNER TOTALING $410,231.42 WERE APPROXIMATELY $5,000.00 PER VESSEL LESS THAN THE MAXIMUM TO BE ALLOWED, NAMELY, $415,327.83. THE STATEMENTS AND DATA SUBMITTED WERE NOT THE FULL EARNINGS OF THE FIVE VESSELS UNDER NORMAL PEACETIME CONDITIONS AS NO ATTEMPT WAS MADE BY THE OWNER TO ADJUST FOR CERTAIN ITEMS WHICH WERE SUBMITTED DUE TO THE COST AND TIME TO CALCULATE THE ITEMS. THE OWNER AGREED TO ACCEPT THE LESSER AMOUNT RATHER THAN UNDERTAKE THE EXTENSIVE COST STUDY AND ACCOUNTING NECESSARY TO MAKE CERTAIN ADJUSTMENTS WHICH WOULD HAVE INCREASED THE AVERAGE EARNINGS PER VESSEL SUBSTANTIALLY BEYOND THE MAXIMUM FIGURE AGREED UPON. FOR EXAMPLE, THE 1941 REVENUES OF THE TWO VESSELS PLACED IN OPERATION IN THE LATTER PART OF 1940 WERE REDUCED BY APPLYING 1939 RATES BUT NO ADJUSTMENT WAS MADE TO REDUCE THE OPERATING EXPENSES OF THOSE VESSELS INCLUDING TERMINAL EXPENSES TO THE BASIS OF THE 1939 PRICE AND WAGE LEVELS. IF THE OWNER HAD MADE SUCH A COST STUDY IT WOULD HAVE RESULTED IN A SUBSTANTIAL INCREASE IN THE AMOUNT SHOWN AS EARNINGS. NO ATTEMPT WAS MADE TO ADJUST AND APPORTION CERTAIN OVERHEAD EXPENSES WHICH WOULD HAVE LIKEWISE RESULTED IN INCREASING THE EARNINGS SHOWN. THESE FACTS ARE PERTINENT TO SHOW THAT THE AVERAGE BASE EARNINGS SUBMITTED TO YOU WERE NOT THE MAXIMUM EARNINGS PER VESSEL FOR 1939. THE MARGIN WAS SUFFICIENT TO WARRANT CONCLUDING THAT THE BASE AMOUNT COULD HAVE BEEN EARNED BY THESE FIVE VESSELS UNDER ANY COMPETENT MANAGEMENT UNDER NORMAL PEACETIME CONDITIONS DUE TO THE INHERENT CHARACTER AND DESIGN OF THESE VESSELS WHICH REDUCES THE COST OF LOADING AND DISCHARGING CARGO TO A NOMINAL AMOUNT PER TON, AND WHICH BY THE USE OF MECHANICAL DEVISES, REDUCES THE TIME FOR DISCHARGING AND RELOADING TO A FEW HOURS AS COMPARED WITH A FEW DAYS UNDER ORDINARY METHODS. FOR THESE REASONS, I CONCLUDED THAT THE MARGIN ABOVE REFERRED TO WAS SUFFICIENT TO EXCLUDE FROM THE FIGURES ANY POSSIBLE EARNINGS DUE TO SKILL OR GOOD MANAGEMENT ON THE PART OF SEATRAIN LINES, INC.

IN THE SUMMARY, THE INTERNAL REVENUE ACT WAS USED MERELY AS A GUIDE TO SETTLE A DIFFERENCE OF OPINION ON ONE ITEM ONLY. THE AVERAGE BASE PROPOSED DID NOT REPRESENT OR REFLECT THE MAXIMUM EARNINGS OF THE VESSELS UNDER NORMAL PEACETIME CONDITIONS. THE USE OF AVERAGE PEACETIME EARNINGS EXCLUDES ANY ENHANCEMENT OF EARNINGS OR VALUES DUE TO CONDITIONS EXISTING AFTER SEPTEMBER 8, 1939. THE DIFFERENCES BETWEEN THE MAXIMUM PEACETIME EARNINGS WHICH COULD BE SHOWN BY MORE DETAILED STUDY AND THE AVERAGE BASE PROPOSED, APPEARS TO BE SUFFICIENT TO EXCLUDE ANY POSSIBLE PROFIT DUE TO SKILL OF MANAGEMENT. THE ADJUSTMENT TO AVERAGE NORMAL PEACETIME CONDITIONS ELIMINATES ANY PROFIT DUE TO SKILL OF MANAGEMENT. THE ADJUSTMENT TO AVERAGE NORMAL PEACETIME CONDITIONS ELIMINATES ANY PROFIT DUE TO GOOD FORTUNE.

THERE IS ONE FURTHER POINT THAT NEEDS CLARIFICATION. IN YOUR LETTER OF MARCH 10, 1943, YOU STATE THAT YOU PRESUME THAT THE CHARTERS WILL PROVIDE THAT IN THE EVENT THE VESSELS ARE SUBSEQUENTLY REQUISITIONED FOR TITLE, THE COMPENSATION OTHERWISE PAYABLE WILL BE REDUCED BY THE AMOUNT OF ACCRUED CHARTER HIRE. THIS POLICY HAS NOT BEEN ADOPTED BY THIS ADMINISTRATION WITH RESPECT TO ANY OCEAN-GOING VESSELS UNLESS IT WAS PROBABLE THAT TITLE TO A PARTICULAR VESSEL COULD BE REQUISITIONED WITHIN A SHORT PERIOD.

THE INSERTION OF SUCH A CLAUSE SUGGESTED WOULD NOT APPEAR ENTIRELY EQUITABLE TO THIS CASE SINCE PERIOD OF USE COMMENCED IN JULY 1941 AS TO TWO OF THE VESSELS, FEBRUARY 1942, AS TO ONE VESSEL, AND MAY 1942 AS TO THE REMAINING TWO VESSELS. SO LONG AS THE UNITED STATES RETAINS COMPLETE FREEDOM OF ACTION AS TO WHETHER OR NOT IT IS GOING TO KEEP THE VESSELS PERMANENTLY OR RETURN THEM TO THE OWNER, MERELY PAYING FOR THEIR USE, IT DOES NOT SEEM JUST THAT THE UNITED STATES SHOULD, IN EFFECT, GET THE USE OF THE VESSELS FREE FOR TITLE. YOU WILL REALIZE, OF COURSE, THAT THE INSERTION OF SUCH A PROVISION IN THIS CASE MIGHT MEAN THAT IT SHOULD BE MADE A STANDARD PROVISION OF ALL OUR REQUISITION CHARTERS. I HAVE COME TO THE CONCLUSION THAT I AM NOT JUSTIFIED IN INSISTING ON SUCH A CLAUSE IN CONNECTION WITH MY ADJUSTMENT OF THIS MATTER.

WITH THESE FACTS MADE CLEAR, IT IS BELIEVED THAT YOU WILL FIND THAT THE PROPOSED RATES OF HIRE FOR THE FIVE SEATRAIN VESSELS, AS DETERMINED, COME WITHIN THE SCOPE OF YOUR VIEWS AS SUMMARIZED IN THE LAST PARAGRAPH OF YOUR LETTER OF MARCH 10, 1943.

SECTION 3 (B) OF PUBLIC LAW 17, APPROVED MARCH 24, 1943, 57 STAT. 48, EXPRESSLY AUTHORIZES THE ADMINISTRATOR OF THE WAR SHIPPING ADMINISTRATION TO RETURN TO THE OWNER THE TITLE TO ANY VESSEL REQUISITIONED UNDER EITHER SECTION 902 OF THE MERCHANT MARINE ACT, 1936, 49 STAT. 2015, AS AMENDED, OR THE ACT OF JUNE 6, 1941, 55 STAT. 242, WHERE IT HAS BEEN DETERMINED THAT THE USE OF SUCH VESSEL WILL SATISFY THE NEEDS OF THE UNITED STATES, PROVIDED SUCH ACTION IS TAKEN WITHIN TWO MONTHS AFTER DELIVERY OF THE VESSEL OR WITH THE CONSENT OF THE OWNER. WHILE THE FACTS STATED IN YOUR LETTER OF FEBRUARY 12, 1943, WITH RESPECT TO THIS MATTER, ARE TO THE EFFECT THAT THE VESSELS HERE INVOLVED WERE REQUISITIONED DURING THE YEAR 1941 AND EARLY IN 1942, THAT IS, OVER TWO MONTHS PRIOR TO THE RETURN OF TITLE THERETO, IT IS ALSO INDICATED THAT THE OWNER OF THE VESSELS, SEATRAIN LINES INC., CONTINUOUSLY HAS URGED THAT OWNERSHIP BE RESTORED.

THE OBJECTION TO THE PROPOSED RATES WHICH WAS DISCUSSED IN THE DECISION OF MARCH 10, 1943, 22 COMP. GEN. 877, IS OUTLINED IN THE LAST PARAGRAPH THEREOF AS FOLLOWS:

ACCORDINGLY, IF, AS WOULD APPEAR FROM THE PRESENT RECORD, THE PROPOSED CHARTER HIRE FOR THESE SEATRAIN VESSELS AS COMPUTED IN ACCORDANCE WITH THE FORMULA PRESCRIBED BY SECTION 722 OF THE INTERNAL REVENUE CODE, AS AMENDED, INCLUDES AN ELEMENT OF PROFIT EARNED BY THE OWNERS OF THE VESSELS, THROUGH THEIR OPERATION DURING THE YEAR 1939, SUCH AMOUNT WOULD APPEAR TO BE IN EXCESS OF THE FAIR MARKET VALUE OF THE USE OF SUCH VESSELS AS LIMITED BY THE ENHANCEMENT CLAUSE OF SAID SECTION 902 OF THE MERCHANT MARINE ACT OF 1936, AND TO SUCH EXTENT UNAUTHORIZED. SEE, PARTICULARLY, GULF REFINING CO. V. UNITED STATES, SUPRA. HOWEVER, IF SUCH PROFIT AS MAY BE CONTAINED IN SUCH AMOUNT BE ELIMINATED--- WITH A FAIR DEGREE OF ACCURACY--- THIS OFFICE WOULD NOT BE REQUIRED TO OBJECT TO OTHERWISE PROPER PAYMENTS FOR THE USE OF SUCH VESSELS UPON THE BASIS SET FORTH.

APPENDED TO YOUR LETTER OF FEBRUARY 12, 1943, WERE FOUR PAGES CONTAINING THE ACTUAL STATISTICS AND COMPUTATIONS EMPLOYED IN ARRIVING AT THE AMOUNTS OF THE PROPOSED CHARTER HIRE. PAGE 1 WAS ENTITLED " NET INCOME FOR 1939 (3 VESSELS) PER TAX RETURN, AS ADJUSTED BY BUREAU OF INTERNAL REVENUE.' STATEMENT AT THE BOTTOM OF SAID PAGE INDICATED THAT ALL ITEMS THEREON HAD BEEN ADJUSTED TO CORRESPOND WITH ADJUSTMENTS MADE BY THE BUREAU OF INTERNAL REVENUE. FURTHER ADJUSTMENTS IN THE 1939 NET INCOME ARE REFLECTED ON PAGE II. PAGES III AND IV ARE DEVOTED TO COMPUTATIONS DESIGNED TO PLACE THE ADJUSTED NET INCOME FIGURES ON A FIVE VESSEL BASIS, THAT IS, TO INCLUDE THE TWO VESSELS CONSTRUCTED SUBSEQUENT TO 1939. SUCH WAS THE "PRESENT RECORD" REFERRED TO IN THE ABOVE-QUOTED CONCLUDING PARAGRAPH OF SAID DECISION OF MARCH 10.

UNDER SUCH CIRCUMSTANCES, AND IN VIEW OF THE STATED PRINCIPLE OF LAW GENERALLY REGARDED AS APPLICABLE TO THE USE OF EARNINGS AS A FACTOR IN THE DETERMINATION OF MARKET VALUE, THIS OFFICE WOULD NOT HAVE BEEN JUSTIFIED IN APPROVING CHARTER RATES WHICH APPEARED TO HAVE BEEN COMPUTED WITHOUT DUE CONSIDERATION FOR THAT PRINCIPLE. OBVIOUSLY, IF THE PROPOSAL WAS TO FIX AND PAY AS CHARTER HIRE FOR THESE VESSELS AN AMOUNT EQUAL TO THE NET INCOME REALIZED THROUGH THEIR OPERATION BY THE OWNER FOR YEAR 1939, SUCH AMOUNT WAS IN EXCESS OF THE FAIR MARKET VALUE OF THEIR USE. FOR, IN SUCH EVENT, THE OWNER WOULD BE GUARANTEED AS CHARTER HIRE ALL THAT THE VESSEL EARNED AS A "GOING CONCERN" (LESS OPERATING EXPENSES, OF COURSE) AND, AT THE SAME TIME, WOULD BE RELIEVED OF ALL THE RISKS AND UNCERTAINTIES OF BUSINESS. IN A SENSE, THEREFORE, THE PRINCIPLE IS BUT A RECOGNITION OF THE FACT THAT THERE IS A VAST DIFFERENCE BETWEEN THE USE OF EARNINGS AS "ONE OF THE PRIMARY FACTORS IN DETERMINING CHARTER HIRE" AND THE ACCEPTANCE OF THE EARNINGS OF A VESSEL AS EQUIVALENT TO THE FAIR MARKET VALUE OF ITS USE.

HOWEVER, IT NOW APPEARS THAT "THE INTERNAL REVENUE ACT WAS USED MERELY AS A GUIDE TO SETTLE A DIFFERENCE OF OPINION ON ONE ITEM ONLY," THAT THE FIGURE USED AS "BASIC EARNINGS PER VESSEL" (THAT IS, GROSS EARNINGS LESS OPERATING AND OTHER PROPERLY DEDUCTIBLE EXPENSES ADJUSTED TO A 1939 BASE) DID NOT REPRESENT MAXIMUM NET EARNINGS, AND THAT IT PREVIOUSLY HAD BEEN CONCLUDED BY YOU THAT THE MARGIN OF DIFFERENCE BETWEEN THE FIGURE PROPOSED TO BE USED AS CHARTER HIRE AND THE AMOUNT OF ,MAXIMUM EARNINGS" (UNDERSTOOD AS MEANING MAXIMUM NET INCOME FROM EARNINGS) WAS SUFFICIENT TO EXCLUDE FROM THE FIGURE ANY POSSIBLE PROFIT DUE TO SKILL OR GOOD MANAGEMENT ON THE PART OF THE SEATRAIN LINES, INC. IN OTHER WORDS, IT NOW IS STATED THAT DUE REGARD HAD BEEN GIVEN THE PRINCIPLE THAT PROFIT DERIVED FROM OPERATIONS IS NOT A PROPER ELEMENT OF CHARTER HIRE. UNQUESTIONABLY, IT IS DIFFICULT IN ANY CASE OF VESSEL "EARNINGS" OR "NET INCOME" TO ESTIMATE HOW MUCH OF SUCH AMOUNT IS FOR CONSIDERATION AS BEING IN THE NATURE OF "PROFIT" DERIVED FROM OPERATION AS DISTINGUISHED FROM VALUE OF USE OR "RENT"--- USING THOSE TERMS IN THEIR STRICT ECONOMIC SENSE. SUCH FACTORS AS THE ABILITY, JUDGMENT AND INGENUITY OF THE PARTICULAR OWNER OR OWNERS, THE TYPE OF BUSINESS CARRIED ON, THE COMPETITIVE CONDITIONS INVOLVED, AND THE SPECIAL FEATURES OF THE VESSELS THEMSELVES ALL MAY HAVE A BEARING ON THE MATTER. THUS, IT IS APPARENT THAT SUCH DETERMINATIONS ARE CONTROLLED IN LARGE MEASURE BY FACTS AND CIRCUMSTANCES WITHIN THE PECULIAR KNOWLEDGE OF YOUR ADMINISTRATION, THE AGENCY CHARGED WITH THE PRIMARY RESPONSIBILITY OF FIXING CHARTER RATES, ASCERTAINING MARKET VALUATIONS, ETC., FOR REQUISITIONED VESSELS. ACCORDINGLY, THIS OFFICE WILL NOT FURTHER QUESTION THE PAYMENT OF CHARTER HIRE FOR THESE SEATRAIN VESSELS ON THE BASIS SET FORTH.

THE OTHER POINT DISCUSSED IN YOUR LETTER CONCERNS THE FOLLOWING STATEMENT IN THE DECISION OF MARCH 10:

IT IS NOTED THAT THE PROPOSED CHARTER WILL RESERVE TO THE GOVERNMENT THE RIGHT TO TAKE TITLE TO THESE VESSELS AT A FUTURE DATE SHOULD SUCH ACTION BECOME NECESSARY OR DESIRABLE. ALTHOUGH NOT SO STATED IN YOUR LETTER, IT IS PRESUMED THAT THE CHARTER WILL FURTHER PROVIDE THAT IN THE EVENT SUCH RIGHT IS EXERCISED, THE COMPENSATION OTHERWISE PAYABLE FOR THE VESSELS WILL BE REDUCED IN THE AMOUNT OF THE CHARTER HIRE PREVIOUSLY PAID FOR THEIR USE BY THE UNITED STATES. * * *

SAID STATEMENT WAS MADE WITH A FULL REALIZATION OF THE FACT THAT SUCH A PROVISION PROBABLY WAS NOT ESSENTIAL TO THE VALIDITY OF THE CHARTERS IN QUESTION. BUT, AT THE SAME TIME, IT WAS INFERRED FROM THE FACTS STATED IN YOUR LETTER OF FEBRUARY 12 THAT THE DETERMINATION NOT TO INSIST UPON A REQUISITION FOR TITLE WITH RESPECT TO THESE SEATRAIN VESSELS WAS DUE IN SOME MEASURE, AT LEAST, TO THE PROTEST OF SUCH ACTION BY THE OWNER AND TO THE REQUEST THAT YOU "EXAMINE INTO THE QUESTION AS TO WHETHER THERE WAS ANY COMPELLING NECESSITY FOR THE GOVERNMENT TAKING TITLE TO THESE VESSELS RATHER THAN CONTINUING TO EMPLOY THEM ON A CHARTER BASIS.' UNDER SUCH CIRCUMSTANCES, IT DID NOT SEEM ENTIRELY INEQUITABLE THAT THE OWNER AGREE TO A PROVISION WHEREBY COMPENSATION FOR THE PROPERTY TAKEN WOULD BE FIXED ON THE BASIS OF THE GOVERNMENT'S ULTIMATE REQUIREMENTS WITH RESPECT TO COMPLETE OWNERSHIP OF THE VESSELS, ESPECIALLY IF IT WERE PROVIDED THAT IN THE EVENT TITLE WERE SUBSEQUENTLY REQUISITIONED COMPENSATION WOULD BE FOR DETERMINATION AS OF THE DATE OF THE ORIGINAL TAKING. HOWEVER, SINCE YOU HAVE DETERMINED AS A MATTER OF POLICY THAT YOU ARE "NOT JUSTIFIED IN INSISTING ON SUCH A CLAUSE" IN CONNECTION WITH YOUR ADJUSTMENT OF THE MATTER, THE FAILURE OF THE CHARTER TO CONTAIN SUCH A PROVISION WILL NOT BE MADE THE SUBJECT OF OBJECTION BY THIS OFFICE^^ ..END :