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File No. 711.1216M/421.
The American Ambassador to the Secretary of State.
[Telegram---Paraphrase.]

AMERICAN EMBASSY,

Mexico, May 3, 1913. 220. The Department's telegram of May 2 re Colorado River. Minister of Fomento states he is in practical agreement with the Department's counter-draft of the amended convention.

WILSON.

NOTE.—On May 8, 1913, the Ambassador included in a telegram covering various subjects brought up in an interview with General Huerta the information that Huerta had refused to consider the Colorado River question until formal recognition of his administration by the United States. No further action appears to have been taken during 1913.

SETTLEMENT OF THE CONTROVERSY OF THE TLAHUALILO COM

PANY WITH THE GOVERNMENT OF MEXICO.

NOTE.—The Tlahualilo Company, whose legal title is “ Compañía Agrícola, Industrial, Colonizadora, Limitada, del Tlahualilo, Sociedad Anónima," was organized under the laws of Mexico August 25, 1885. In 1896 it mortgaged its properties and franchises for the purpose of securing an issue of £350,000 of bonds. The bond issue was made in London and New York. The properties of the company are situated on and near the river Nazas, Mexico. In April, 1887, the company entered into contract with the Mexican Government, approved by the Mexican Congress in 1888, by which the company was authorized to colonize its lands, to build a canal from the Nazas River and to take water from that river for irrigation purposes. In 1908 the Mexican Government issued regulations for the distribution of the waters of the river Nazas, which greatly reduced the amount of water the company had been receiv. ing. The company protested and, having received no redress, instituted suit in the courts of Mexico against the Government. In the meanwhile the company requested the good offices of the British and American Governments. The American Ambassador at Mexico (ity was instructed to support the representations of the British Minister at Mexico City in behalf of the company. On August 5, 1910, the American Ambassador reported ? that on August 4 he accompanied the British Minister to the Foreign Office to present a British memorandum dated August 4, which, after reviewing the entire history of the company, concluded as follows:

In the conclusion thus stated His Majesty's Government desire to say that they have not overlooked the reported plan and policy of the Mexican Goyernment to conserve the waters of the Nazas River, and wish to assure the

File No. 17063/109.

1 This telegram is printed under Political Affairs.

140322°-F R 1913— 63

Mexican Government that they view with entire sympathy all efforts made by that Government to store and preserve for effective use in their arid regions the waters of their various streams and rivers. Moreover, they thoroughly understand and appreciate that in carrying out any extensive plan of conservation there may well be as incident thereto inconvenience and perhaps some loss to individual enterprises and undertakings. But His Majesty's Government cannot admit, and they feel sure that the Mexican Government would not contend, that any plan of conservation should be undertaken and carried out which shall appropriate or wilfully confiscate without full and complete compensation, the lawful and established rights of private individuals; and if in the course of the consummation of any such conservation plan it should become necessary to take tne lawful and vested property or interest of any private individual or company, that then and in that event the injured party must receive due, proper, and full compensation for any and all such property which it has been found necessary to appropriate.

His Majesty's Government do not, however, understand that the present difficulties of the Tlahualilo Company arise as the result of any such conservation measures, but that on the contrary as the facts are presented they flow from and are the result of a disposition and purpose on the part of the Mexican Government, for some reason not apparent, to encourage and foster upon the lower Nazas River large agricultural enterprises at the expense of similar enterprises upon the upper river, and specifically and particularly (if the regulations of 1895 and 1909 are to continue in force) to bring about such a result in a way that will be all but wholly at the expense of the Tlahualilo Company. Therefore, His Majesty's Government, without presuming to pass upon the national propriety or impropriety of the action so taken by the Mexican Government, must insist that if the fruition of this policy carries with it the destruction of British interests then and in that event the Mexican Government are under obligation fully and amply to compensate the British interests which are thus sacrificed. His Majesty's Government therefore, desire to say in all friendliness but with all earnestness that if the present plans of the Mexican Government are carried out and such plans result in the loss and destruction predicted by the Tlahualilo Company, His Majesty's Government will, at the proper moment, find it necessary to present to the Mexican Government a claim for damages for the injuries which have been suffered by those British subjects who have so hea vily invested in this enterprise.

His Majesty's Government are, however, sincere in their desire that such an eventuality may be avoided and to this end they renew the suggestion which they have already made and now make in connection with the representations made by the Government of the United States that every effort be made to reach with the Tlahualilo Company an amicable adjustment of this difliculty by allowing it to retain and by confirming it in such of its rights as will enable it successfully to carry out its enterprise which, as an individual undertaking, ministers in no small degree to the national prosperity of Mexico; and that pending such adjustment of this disliculty, or at least for one year, the Tlahaulilo Company be permitted to enjoy the abridged rights granted to it under the Regulations of 1895 in order that meanwhile its enterprise may not be completely destroyed.

His Majesty's Government, sincere in their desire that nothing whatever shall happen which may threaten in the slightest degree to disturb the traditional friendly relation of the two Governments and firm in its belief that a proper and equitable adjustment of this controversy is possible if it be approached in an amicable and conciliatory manner by the parties thereto, cannot urge with too much emphasis, in order to avoid expensive litigations and controversies which, if the Company loses, are almost sure to result in diplomatic representations and claims for large amounts in damages, that such adjustment as that recommended above shall be entered into by the Mexican Government and the company at the earliest possible moment.

His Majesty's Government feel confident that the Mexican Government will give earnest consideration to the suggestions made for an immediate amicable settlement of this controversy, but in case it should unfortunately transpire that such a settlement is for any reason impossible, His Majesty's Government suggests the propriety of immediately submitting the whole matter for determination to the Permanent Court of Arbitration at The Hague.

The American Minister on this occasion handed to the Minister for Foreign Affairs the following note:

MR. MINISTER: Referring to the memorandum re the Tlahualilo case now under the consideration of the Mexican, British and American Chancelleries, which His Britannic Majesty's Minister in Mexico has handed to your excellency on this date. I have the honor to inform your excellency that I am instructed by my Government to say that it fully endorses, approves and makes its own the contentions and conclusions thereof, and at the same time to express the earnest hope that an early and just solution of this question may be arrived at.

The British memorandum and the American note of August 4 were submitted by the Foreign Oflice to the Department of Fomento on August 17. On October 10, 1910, the American Ambassador received from the Foreign Office a copy of a note to the latter from the Department of Fomento, which the Ambassador transmitted to the Department of State with his despatch of October 13, 1910.1 This note reads as follows:

In accordance with the President's express directions I have to inform you that he finds no provision in the laws of the country permitting him to intervene in suits being prosecuted in local courts; and, as I have advised you previously, neither the law nor the dignity of the Government itself, will permit the withdrawal or suspension of the case brought by the Tlahualilo Company against the Government of Mexico; that upon examination of the British memorandum reasonings are discovered which are based either on unproved or distorted facts, and in addition there are omissions concerning the acts and conduct of the Tlahualilo Company relative to its contract with the Mexican Government; that this deficiency in the relation of the facts demands verification of the bases upon which the conclusions presented by the Minister of Great Britain rest and render it indispensable that the suit which has been brought be continued, so as once for all to fix precisely the facts from which the rights of the Mexican Government as well as those of the Tlahualilo Company emanate; that, as I have informed you on a former occasion, there is nothing to do but to await the decision of the courts. If this is adverse to the Government, it will be strictly complied with in favor of the Company; it will then be proper to listen to the Company's propositions for arriving at an arrangement, which, without jeopardizing rights previously acquired, may favor. ably settle the difficulties in which the Tlahualilo Company finds itself.

Therefore, in accordance with the President's directions, I enclose to you a counter-memorandum in which the Department under your worthy charge will find well-founded reasons for not accepting the conclusions referred to in the communications from the Minister of Great Britain and the Ambassador of the United States of America.

The counter-memorandum above referred to is to the effect that:

The contract under which the Company bought of Don Juan Flores certain lands in the Tlahualilo marsh cannot confer upon the Company the right to take water from the Nazas Kiver notwithstanding that the contract so declares, since Flores had not possessed that right, It was, indeed, for this reason that the Company solicited a concession of such a right from the Federal Government.

The concession was granted, but was expressly made subject to approval by Congress.

This concession provoked serious opposition by riparian owners, and comniissions were appointed to measure the river's flow, and reported a flow sufficient to warrant the concessionaires' use of surplus waters.

solution of the surplus-waters problem-the bifurcation of the Nazas River by a canal and dams-was stipulated by the Government of Coahuila and accepted by the Company and made an integral part of the concession.

Congress thereupon approved the concession (June 6, 1888).

* File No. 412.11T54/113.

In 1891 and again in 1895 certain regulations were made to secure a fair apportionment of the waters of the river, and the Tlahualilo Company received the surplus granted by the concession,

But neither of these regulations entitle the Company to the water because (1) the Company's rights derive from a contract approved by Congress, and onl; Congress can modify that contract; and (2) the Company has no title of ownership of the waters, nor does it claim to have such a title. Therefore, insofar as the Company was concerned, the Government was at liberty to modify the regulations of 1891 by those of 1895.

The Company claims that the 1895 regulations deprived it of eight tenths of its allowance. It also states that it was under the regulations of 1991 that it made its large loan of £350,000. But this loan was carried into effect much later than 1895, when the second regulations, now complained of, were promulgated, “ so that when English capital was invested in the business of the Tlahualilo Company it was well known that the amounts of water used by said Company on its properties were governed by the Regulations of 1895. The date of the instrument covering the loan is November 14, 1896."

The Mexican Government is not responsible for incautious investments in the Company's bonds regardless of the foregoing facts. And as to the assertion by the Company of a loss of eight-tenths of its water supply as a result of the Regulations of 1895, the loss is in reality only 5,3%, as shown by the measurements. And even with this loss the Company is still unable to make use of all the waters allotted by the Regulations of 1895, as shown by the measurements of the Nazas Commission.

But there is a point of decisive importance that was omitted from the meinorandum presented by the British Minister, namely, that the Company espressly accepted the Regulations of 1895, as shown by documents to which reference is herehy made.

And finally it must be remembered that the Tlahualilo Company is and was from its beginning a Mexican corporation, whose shareholders, as far as the Mexican Government knows, were neither British subjects nor American citi. zens when the concessioni was granted nor when the regulations of 1891 and 1895 were issued ; and that it was only after these dates that a group of British subjects and American citizens acquired shares in the Company by virtue of the £350,000 loan.

The Department of State on November 14, 1910, replied to the Ambassador's despatch of October 13, and inclosed a proposed draft note to the Mexican Foreign Office in reply to the above-summarized counter-memorandum of the Department of Fomento. The Ambassador was instructed to support any note or memorandum delivered by the British Minister to the Foreign Office which substantially accorded with and did not essentially differ from the proposed draft note, a copy of which he was instructed to leave with the British Minister if desired. The Department's instruction continues:

It will be observed that the proposed draft summarizes the essential equities of the Tlahualilo Company, points out that these have not been denied by the Government of Mexico, accedes to the request of that Government that discussion of the concessionary water rights of the Tlahualilo Company be postponed until the decision of the Mexican courts, and formally requests that inasmuch as the reply of the Mexican Government does not deny the essential contentions of the Government of the United States regarding the San Fernando water rights of the Tlahualilo Company,' the Mexican Government shall at once put that Company into the immediate possession of such rights. The note moreover declares that if the Government of Mexico is unwilling to grant this request, then the matter of the San Fernando water rights should be submitted to arbitration before the Permanent Tribunal at The Hague; and in the event the Mexican Government should choose the latter course, there is transmitted for its consideration a draft protocol of submission.

1 File No. 412.11T54/113.

: These are the rights embodied in mentioned.

the purchase from Don Juan Flores, before

The draft protocol mentioned in the last sentence above submits for arbitration the following seven questions:

1. Was the Tlahualilo Company, on December 17, 1890, as the owner of the Hacienda of San Fernando, vested with the right to receive water from the Nazas River; and, if so, what was the nature and extent of the right?

2. If such right existed, what effect if any did the Regulation of June 24, 1891, have upon it?

3. If such right existed, what effect if any did the Regulation of June 15, 1995, have upon it?

4. Was it just, fair, equitable or lawful for the Executive of Mexico, in 1908 and in 1909, by Executive decree, without prior judicial sanction and without compensation either to the Tlahualilo Company or to its British and American shareholders, to take from said Company, as owner of the Hacienda of San Fernando, any portion of the water of the Nazas River which, as such owner, said Company had been receiving under the Regulations of 1891 and of 1895 aforesaid, or under either of them; and, if not, is the Government of Mexico under obligation to reinstate said Company in its water rights as enjoyed under either or both of said Regulations, or as defined by said Regulations or either of them?

5. Was it just, fair, equitable or lawful for the Executive of Mexico, in 1908 and in 1909, by Executive decree, without prior judicial sanction and without compensation to the British and American mortgage creditors of the Tlahualilo Company, to take from said Company, as the owner of the Hacienda of San Fernando, any portion of the water of the Nazas River which, as such owner, said Company had been receiving under the Regulations of 1891 and of 1895 aforesaid, or under either of them, thereby lessening and impairing the security of said British and American mortgage creditors; and, if not, is the Government of Mexico under obligation to reinstate said Company in its water rights, or to restore the security of said foreign creditors, as enjoyed by them respectively under either or both of said Regulations or as defined by said Regulations or either of them?

6. If the award under the 4th question above should be against Mexico, what sum, if any, is under all the circumstances equitably and justly due from the Government of Mexico to the Tlahualilo Company or to the British and American shareholders of said Company, for the water of which they have been deprived by the Government of Mexico as a result of the making, issuing and enforcing by that Government of the Executive Orders or Regulations of July 1st and August 13th, 1908, and of August 27, 1909, and for the damages which they have sustained and the expenses which they have incurred as a result of the action of the Government of Mexico in that regard?

7. If the award under the 5th question above should be against Mexico, what sum, if any, is, under all the circumstances, equitably and justly due from the Government of Mexico to the Tlahualilo Company or to the British and American mortgage creditors of said Company for the water or security of which they or any of. them have been deprived by the Government of Mexico as a result of the making, issuing and enforcing by that Government of the Executive Orders of Regulations of July 1st and August 13, 1908 and of August 27, 1909, and for the damages which they or any of them have incurred as a result of the action of the Government of Mexico in that regard ?

The protocol then provides as follows:

Article 8. If the Tribunal shall find that the Government of Mexico, in 1908 and in 1909, as a matter of fairness, justice, equity and law, should not have taken from the Tlahualilo Company, as owner of the Ha ienda of San Fernando, through Executive decree, without prior judicial sanction, and without compensation either to the Tlahualilo Company or to its British and American shareholders, any portion of the water of the Nazas River which, as such owner, it had been receiving under the Regulations of 1891 and of 1895 aforesaid or under either of them, then and in that case the Government of Mexico shall, within thirty days after such award shall have been made, reinstate the Tlahualilo Company in its rights as owner of the Hacienda of San Fernando, in accordance with the provisions of the Regulations of 1891

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