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 favorably 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 River 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 commissions were appointed to measure the river's flow, and reported a flow sufficient to warrant the concessionaires' use of surplus waters.

A 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).

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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 only 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 1891 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 53%, 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 memorandum presented by the British Minister, namely, that the Company expressly accepted the Regulations of 1895, as shown by documents to which reference is hereby 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 citizens when the concession 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 the purchase from Don Juan Flores, before mentioned.

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, 1895, 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 Hacienda 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

and of 1895, or of either of them, as may be decided by the Arbitral Tribunal; and the Government of Mexico shall thereafter continue to respect such rights and to protect said Company and its successors in the full and free enjoyment thereof.

Article 9. 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 diminished or impaired the security of the British and American mortgage creditors of the Tlahualilo Company by depriving said Company, as owner of the Hacienda of San Fernando, through Executive decree, without prior judicial sanction and without compensation either to the Tlahualilo Company or to its British and American mortgage creditors, of any portion of the water of the Nazas River which, as such owner, it had been receiving under the Regulations of 1891 and 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 given, reinstate the Tlahualilo Company in its rights as owners of the Hacienda of San Fernando in accordance with the provisions of the Regulations of 1891 and 1895, or of either of them, as may be decided by the Arbitral Tribunal; and the Government of Mexico shall thereafter continue to respect such rights and to protect said Company and said mortgage creditors and its and their successors in the full and free enjoyment thereof.

In his despatch No. 272 of November 30, 1910, the Ambassador reported that in compliance with the foregoing instructions a memorandum and protocol in substantial accordance with those forwarded by the Department were presented to Mr. Creel. Minister for Foreign Affairs, on November 29, jointly by the British Minister (Mr. Tower) and himself, the principal part on that occasion being taken by the British Minister, in accordance with the Department's instructions. The last two paragraphs of the memorandum read as follows:

In view of the fact, therefore, that the Mexican Government have not denied and do not deny the existence of the fundamental elements involved in the substantial and large rights and equities of the Tlahualilo Company with reference to its San Fernando water rights (the existence of which rights and equities must, therefore, be regarded as admitted by the Mexican Government), and considering that under the facts and law of this case there be deemed to exist in favour of the Tlahualilo Company an unimpeachable right to the water which it acquired under its San Fernando purchases, as such rights have been determined, defined and confirmed by the Mexican Government, and have been enjoyed by the Company without let or hindrance or question for almost two decades-His Majesty's Government are forced to conclude that the interference with those rights by the Mexican Government cannot be sanctioned either by the law of Mexico or the law of nations, and that therefore the Mexican Government are under the obligation immediately to restore to the Tlahualilo Company its rights under the San Fernando purchase as those rights were determined, defined and confirmed by the Regulation of 1891, and reaffirmed by that of 1895, and also to compensate such Company and its security-holders for the losses which this interference has occasioned. However, should the Mexican Government be unwilling to undertake to carry out the adjustment thus proposed, His Majesty's Government request that the whole matter be immediately referred for adjudication to an international arbitral tribunal to meet at The Hague. At the same time His Majesty's Government cannot but feel that the added expense and delay which this latter course will entail upon the Company and the security-holders are unwarranted and unjustified.

Should, nevertheless, the Mexican Government elect to arbitrate rather than to settle this claim, in accordance with the proposal hereinbefore made, the undersigned, on behalf of His Majesty's Government, has the honour to propose the subjoined protocol of submission, to conclude which he is duly and fully authorized.

The despatch of November 30 continues:

Mr. Creel said that it seemed to his Government rather unusual and at variance with established diplomatic usage for the representatives of foreign

File No. 412.11T54/127.

Governments to press for a decision in a matter pending before the national tribunals. To this, answer was made that the question of the San Fernando water rights was not considered as submitted for decision to the Mexican courts, but the general proposition he advanced was not discussed.

Another point made by Mr. Creel was that the Tlahualilo Company was a Mexican corporation and that he was doubtful whether the Mexican Government was prepared to recognize the right of foreign governments to intervene in behalf of the stockholders of a registered Mexican corporation.

To this Mr. Tower replied that the announcement of such a doctrine by the Mexican Government would do the greatest possible harm to Mexican credit with British investors and capital and that, speaking as a friend of Mexico, he would greatly deplore the assumption of such a position by the Mexican Government.

In my turn I stated that while I was not prepared to speak positively in regard to the general rule, I felt quite sure that my Government would be averse to refusing its protection to American investors abroad upon the pretext that their rights to protection as American citizens had been waived or forfeited as a result of foreign incorporation or registration.

Mr. Creel said that there must be some limit put to the intervention of foreign governments in such cases and that the Mexican Government was inclined to regard them with apprehension.

I replied that something ought to be granted to the sense of justice and to the dignity and correctness of procedure of the interested Governments, and that it might be confidently relied upon that no self-respecting nation having friendly relations with Mexico would ever intervene in behalf of a cause not considered to be founded in justice or sanctioned by international precedent. Mr. Creel stated in reply that this point was having more weight with him in making up his decision than anything else and that, knowing the correctness of the attitude of Great Britain and the United States, he was disposed to find a solution of the difficulty in some direct arrangement mutually satisfactory rather than to resort to the expensive and protracted consideration of the case that would be necessitated by its submission to an arbitral tribunal at The Hague.

The Department in replying to the foregoing despatch, and particularly the last paragraph above quoted, instructed the Ambassador on January 5, 1911, as follows:

Observing from your report that the Minister of Foreign Affairs expressed his disposition to find a solution of the controversy otherwise than by arbitration, you will continue to support such representations looking to that end as may be made by your British colleague.

On March 7, 1911, the Department of State telegraphed the Chargé d'Affaires at Mexico City the text of the following instruction to the American Ambassador to Great Britain, sent on the same day:

Informally represent to the Foreign Office the apparent desirability of requesting from Mexico an immediate answer to the British Minister's memorandum of November 29, 1910, and say that this Government will support and adopt the British representations to Mexico if they embody the following essential points:

After referring to the fact that on August 4, 1910, as a result of previous discussion, the Government of the United States joined with that of Great Britain in presenting to the Mexican Government a note setting forth the position of the United States upon the Tlahualilo controversy; that on October 7, 1910, the Mexican Government submitted a memorandum in reply to that note; and that under date of November 29, 1910, the Government of the United States joined in a note answering the contentions put forth in the memorandum of the Mexican Government, which note set forth the final position of this Government in this matter-the note or memorandum should say: "It will be recalled that in this latter note, after distinguishing between the concessionary rights and the San Fernando rights and after calling at1 File No. 412.11T54/127.

File No. 412.11T54/133b.

File No. 412.11T54/133a.