ENEMY CHARACTER

739
Continertal Tyre and Rubber Co. Ltd.,2 wherein important principles were propounded. In
this case the most important principle that was propounded was that if the persons or
agents of the corporation who are in de facto control of the company reside in the enemy
State or territory, then the company shall be deemed to be having enemy character. In
this case the House of Lords observed, ".. a company may, however, assume an
enemy Character.... its agents or the persons in de facto control of its aftairs
whether authorised or not, or resident in an enermy territory." In this case, the facts were
as followS

Continental Tyre & Rubber Co. Ltd., was a registered company and its registered
office was situated in London. All the Directors of the Company were German nationals
and resided in Germany. Most of the shareholders also resided in Germany. Daimler Co.
Ltd., also a Company registered in England, owed £ 560510 to Continental Tyre & Rubber
Co. Ltd., which filed a suit for recovery of the said money. Daimler Co. Ltd., opposed the
said claim on the ground that the Continental Tyre & Rubber Co. Ltd., and its officers
belonged to the enemy country and therefore it was not liable to pay the said money.
In the First World War, Britain and Germany were enemies. Since the persons who
were in de facto control of the company were residing in enemy State, the company was
also considered to be an enemy company. Similarly, a company which is registered in
England but is carying on trade with an enemy State, will be deemed to be an enemy
company.
The decision in Daimler Co. Ltd. v. Continental Tyre and Rubber Co. Ltd., has been
criticized by several jurists. They have pointed out that the test of enemy character laid
down in this case is very strict. For example, Starke has observed, "A company,
incorporated in Britain, which acquires enemy character under the Daimler principle, is
nonetheless not deemed to have its location in enemy teritory; it is for all other purposes
a British company subject to British legislation including regulations as to trading with the
enemy." Nevertheless, the principle laid down in Daimler case, was approved by the
House of Lords in Sovfracht case, and The Glenroy.5
(3) Enemy character of Ships.-The enemy character of ships is determined by
their flags. This rule was adopted in Declaration of Geneva, 1909. By the flag of the ship is
meant flag which the ship is lenally authorised to use. For example, if a ship of France
uses the American Flag, then it will be unauthorised. If the ship of an enemy State
unauthorisedly uses the flag of a neutral State and is seized by the belligerent State then
such a ship shall be deemed to be having enemy character. Consequently enemy
character of ships, which use the flags of neutral States but are actually under the
ownership of the enemy State, will be determined according to the following tests
(i) If the ship is in the service of enemy State or carries arms or takes part in the
conflict.
(i) If the ship resists the valid right of the belligerent State to visit and search,
then such a ship may be seized and it may be deemed to be having enemy
character. If such a ship is seized the onus of proving rests on the owners of
the ship that the ship belongs to a neutral State. If it is not proved then the

ship and itscargoes are deemed to be those of enemies.

ii) If the vessel had no right to sail under the flag of neutral State, its real
character will have to be determined in order to find out whether it has enemy
character.
in a
(iv) The neutral merchantmen acquire enemy character if they are engaged
is prevalent in Britain, America
trade with enemy in time of war. This practice
and Japan.

Appendix ll.
2. (1916) 2 A.C. 307: For details of the case see
515.
3. Starke, note 1, at p. 543 See also Kuenigal
v. Donner Smarak, (1955) 1a. B.
4 (1943) A.C. 203.
5 (1945) A.C. 124.
P.C.S. (1977) Q. No. 7 (a).