There were three main conventions restricting commerce warfare in force during WWI. These were the 1856 Declaration of Paris, the 1907 Hague Convention, and the 1909 Declaration of London. The latter had been signed by the belligerents and never ratified, but was generally accepted as a guideline, especially by neutral powers. None of these restricted the right of belligerents to arm their merchant ships in self-defence, or for those ships to use other forms of force to evade capture.

These rights had been long-established in international law, as it was a traditional maritime practice. Writing on international law throughout the 19th Century had upheld the right of self-defence. To this end, during this period, crews of merchant ships were treated as prisoners of war. During the Hague Conference of 1907, the Belgian delegation suggested that these crews be repatriated if they promised, in writing, not to participate in military operations following their repatriation. This humanitarian gesture was agreed to by all participants in the conference. It was generally understood that there was a difference between auxiliary cruisers and merchant ships resisting capture - that one was only using force in self-defence. As such, it was not addressed by the Hague Convention or London Declaration.

In 1913, controversy would arise, triggered by legal disputes between Britain and Germany over the use of auxiliary cruisers. This dispute centred around where merchant ships could be converted to auxiliary warships. Britain held that this could only be done in home waters, while Germany argued that it could be done on the high seas (i.e. outside the territorial waters of neutral powers). Little agreement could be made on this topic, as there was little existing precedent. The German position led to fears in Britain that German ships could travel to neutral ports in the guise of merchantmen, secretly convert to warships while at sea, and attack British trade. To counter this threat, the Admiralty began, in 1913, to provide defensive armament to British merchants. The Admiralty supplied guns and ammunition, and trained the crews of the armed ships in their use, while the owners of the ships paid for the necessary structural modifications. This initiative was focused mainly on the largest ships, and by August 1914, somewhere between 24 and 39 ships had received defensive armament (sources differ).

In August 1913, the Institute of International Law met in Oxford to produce a complete overview of maritime law. This included a discussion of the legality of resistance, possibly as a result of the Admiralty's new policy. Most participants agreed that the old rule, that merchants could resist attempts to capture or sink them, but not use force unprovoked, should stand. The dissenting voices were German. They argued, fundamentally, that only military forces were allowed to use force on land, and that maritime law should be brought into line with it. This required overlooking, or arguing against, years of precedence and the general agreement of most scholars of maritime law. The Germans would hold to their interpretation of the rules when war began. At the outbreak of war, the German Admiralty's statement of prize rules stated that:

Armed resistance by an armed enemy merchantman is to be broken with all means. The responsibility for the damage to ship, cargo, and passengers belongs to the enemy government. The crew is to be treated as prisoners of war.

While this didn't go as far as German legal theorists suggested, it was still a harder line on the use of self-defence by merchant ships than was generally accepted.

The British, of course, argued strongly for the right of merchant ships to use force in self-defence. Neutrals took a variety of positions between these two extremes, though most stayed closer to Britain's interpretation of the law. Only the Netherlands absolutely forbade armed merchants from entering their ports. They rejected the German arguments, but believed armed resistance to be an act of war, albeit one that was legal. This led them to conclude that the requirements of neutrality required them to prevent armed merchants as well as warships entering their ports. The USA accepted Britain's arguments that merchants could be armed in self-defence. Even so, armed British merchants were kept away from American ports for fear of internment.

As the war progressed, the Americans began to become more accepting of the German position. The Secretary of State, Robert Lansing, suggested, in September 1915, that armed merchants might be used for offensive operations against German submarines, and thus that the American position on such ships would need to be reconsidered. Thinking along these lines was brought to a halt by the controversy over the sinkings of the Lusitania and Arabic. In January 1916, Lansing returned to the issue, suggesting that Britain cease arming merchant ships in return for the German cessation of unrestricted submarine warfare. While this saw some support from President Wilson, Lansing soon retracted the offer, realising that he was asking the British to give up what was arguably a legal right while asking the Germans to follow international law.

1916 saw several controversies on the topic of armed merchant ships. The first was the publication of the February 1915 Admiralty instructions to merchant captains, which had been captured from SS Woodfield by the Austrians in November 1915. These called for armed merchant ships to open fire on any sighted submarine, whether or not the submarine had committed a hostile act. Neutrals generally accepted that this 'anticipatory action' was a legal form of self-defence, but the Germans were outraged. They viewed the instructions as calling for merchants to take offensive, rather than defensive action. The British attempted to defuse the tensions by publishing a similar set of instructions, published in October 1915, which reminded British captains that enemy merchantmen had the same right, and that British armed merchants were only to use their armaments in self-defence, but this was fruitless; the Germans were working from a different legal basis, and saw any action by armed merchants as illegitimate.

The next major controversy was the execution of Captain Fryatt. In 1915, the German submarine U-33 had surfaced and attempted to stop the British steamer Brussels, on its way to Amsterdam under Captain Charles Fryatt. Instead of stopping, Brussels sped up and turned towards the submarine. U-33 dived to avoid the steamer, and no damage was done to either vessel. The press embellished the story, claiming Fryatt had rammed the submarine. The Admiralty gave Fryatt a gold watch for saving his ship, but without mentioning ramming. On the 22nd June 1916, the Brussels and Fryatt were captured by the Germans. Fryatt was brought before a court-martial in Bruges, convicted of engaging in hostilities while being a civilian and executed. This brought a vast amount of protest from Britain and from neutrals. The Germans attempted to argue that Fryatt's actions were in breach of German laws which criminalised hostile actions taken by civilians, but these laws only applied to actions on land. Applying them at sea meant denying the right to self-defence, but Germany had done this unilaterally, with most foreign governments upholding the right. In December 1916, the armed merchant Caledonia was sunk by U-65. Caledonia's captain, James Blaikie attempted to ram the U-boat before his ship was sunk, successfully making contact but doing little damage. Blaikie was captured, leading to much fear in Britain that he might suffer Fryatt's fate. The Foreign Office made vigorous protests. The Germans, though, had no intent to execute Blaikie. As Caledonia was an armed merchant, they considered him to be a member of the military, and hence able to carry out hostile actions like ramming without consequence.

Similar disconnects between the German view of international law and existing precedent surrounded the so-called 'Flag Ruse' (the use of neutral flags by belligerent merchants to evade attacks), which was also used to excuse the German policy of unrestricted submarine warfare. The use of neutral flags had long been a part of naval warfare. It was more frequently used by warships than by merchantmen, but it was understood that merchants might use it too. It was explicitly legal in British law, with the Merchant Shipping Act of 1894 counting it as a normal procedure. Britain also allowed vessels of other nations to use its flag to avoid capture or other harm. However, it was starting to become somewhat controversial. The US Navy had ceased to use the ruse in 1900, following the example of warfare ashore, where it was prohibited. In January 1915, the Admiralty advised merchant skippers to use the ruse. This drew protests from neutrals, but none denied the legality of the practice. Instead, they complained that it might lead to attacks on neutral ships. From the British perspective, the use of the flag ruse would, by forcing belligerents to properly stop and search ships rather than attacking without warning, would actually increase the safety of neutral ships. The Germans, meanwhile, saw the use of false colours as inherently illegitimate, as it was on land.

It should also be made clear that the Germans were using these legal arguments as excuses for a policy they were already intending to put into place. The German Navy was strongly in favour of unrestricted submarine warfare. They had been arguing in favour of it before the widespread arming of merchant ships. The British Admiralty's advise to use the flag ruse had been occasioned by a number of attacks on merchant ships, which included several which broke cruiser rules.