Mr. Gana to Mr. Gresham .


Sir: I have had the honor to receive the esteemed note which your excellency was pleased to address to me under date of the 22d of December last,2 in reply to my notes of November 15, 1894, in relation to the pending claims.

Although the incident to which the first part of your excellency’s note has reference is not of special importance, it may not, perhaps, be out of place to recall certain facts which render it perfectly clear.

As your excellency will recollect, three days after the conclusion of the labors of the commission, that is to say, on the 12th of April, I had the honor to call at the Department of State for the purpose of learning your excellency’s opinion with regard to the manner in which the services which Mr. Claparede had just rendered were to be remunerated. At the close of our conversation on this subject your excellency was pleased to ask me how the claims which the commission had left undecided would be settled, and I told your excellency in reply that I would write to my Government for instructions by the next steamer, which was to sail from New York on the 20th of that month. We did not speak on that occasion of a new convention, or of any other arbitrator in regard to the manner of settling those claims, confining ourselves to the exchange of the phrases to which I have referred.

Consequently, when I addressed the note in question to my Government (it went by the mail of April 20), after stating the amount of the claims decided, and that of those left undecided by the commission, I said:

As to these latter the Secretary of State has recently expressed a desire that some settlement may be reached. I told him in reply that I proposed to report to you the result of the work of the commission, and that I should obtain your instructions touching the claims which have been left pending.

This communication, which was received by my Government in the latter part of May, is the same which the minister of foreign relations of Chile, Mr. Sanchez Fontecilla (not Mr. Bascuñan, as erroneously stated in your excellency’s note), had in view when he answered Mr. McGarr on the 31st of the aforesaid month of May, to the effect that the negotiations were being conducted at Washington, and that he would send me his instructions, which were sent to me under date of June 12, and which reached me about the middle of the following month of July.

[Page 78]

While this was going on in Chile your excellency was pleased to invite me to a conference, which took place on the 27th of June. Your excellency therein favored the settlement of the claims by means of another commission. I explained to your excellency that, having asked instructions from my Government by the mail of April 20, the time that had elapsed was not sufficient for me to have received those instructions. Having made this remark, whereby I reserved the liberty of my Government in respect to its ulterior action, and being actuated by a desire to express views which, in case of their acceptance by your excellency, would have been submitted to my Government for consideration, thereby facilitating an agreement, I asked your excellency whether you would agree to the organization of a new commission that should sit at Santiago and should be authorized to take cognizance of the claim of the Government of Chile on account of the capture and detention of the steamer Itata.

Your excellency did not see fit to say what you thought concerning those views, and thought best to wait until I had received the expected instructions.

A few days afterwards your excellency, by your note of July 9, did me the honor (referringto our conference of the 27th of the previous month) to state that you trusted that we should be able in due time to reach an arrangement that would be mutually satisfactory.

Your excellency’s note, to which I am now replying, renders it more difficult to reach that arrangement, and has been a disappointment to the legitimate hopes entertained by my Government relative to the settlement of the claims which were left undecided by the late commission.

Your excellency will permit me to remark that the commission organized under the convention of August 7, 1892, would have been able to finish the work that was had in view when it was negotiated, within the six months fixed by the contracting parties as the time for its existence, if, in the practical execution of that instrument, the agent of the United States had not deviated in a manner that was to be regretted from the official antecedents which preceded the conclusion of that convention. It is doubtless on record in the archives of the Department of State that when the diplomatic representative of the United States at Santiago expressed to the Government of Chile in 1890 the wish of your excellency’s Government to settle the American claims against Chile in an equitable and friendly manner the suggestion was well received, and Mr. Egan was requested to furnish a written list of all those claims, stating the grounds on which they were based and the amount claimed. By his notes of September 30 and December 13 of the same year the United States minister complied with that request of my Government and presented a list of all the pending claims with names and particulars.

The Government of Chile then knew accurately, and in duly authorized form, the number of the claims that were supported by the official action of your excellency’s Government, and the amount of money which it was expected to pay. With these antecedents before it, the Government of Chile took into consideration the two methods of settlement that were offered to it, viz, that of a direct examination of each claim and that of an international commission, and chose the latter. The number and nature of the cases that the commission was to settle being known, it was thought that a period of six months would be sufficient for that purpose. Subsequently, however, when the convention began to be executed, my Government learned with well-founded alarm that the agent of the United States was not only lending his support before the commission to the claims which had served as a basis to the [Page 79] negotiation of the convention, but that he was also supporting many others which had never come to its knowledge, and relative to which it had no antecedent whatever. Thus it was that the way was opened for claims that were based upon acts committed more than half a century ago, and which, during that lapse of time, had not been able to secure the support of any administration in this country.

Thus it was, moreover, that the alleged indebtedness of the Government of Chile which, according to the official word of the American minister at Santiago, took a sudden leap to more than $28,000,000.

This grave situation, which could not be foreseen from the antecedents of the agreement, and still less from the statements your excellency was pleased to make to me touching the spirit of friendly accord which animated your Government toward mine, and the assurance that no claim would be supported which was not clearly justified, unexpectedly forced upon the Chilean Government a most embarrassing situation, constraining us to precipitately transfer to Washington our original archives covering half a century; thus depriving us until their return, upon the expiration of the commission, of necessary data for the transaction of its business in Chile.

My Government, nevertheless, abstained from making formal remonstrance in this regard, and its agents in Washington did not for this cause cease to cooperate with the utmost activity and in good faith in the labors of the commission during the time appointed for its existence.

The convention of the 7th of August, 1892, having come to an end, and both parties having thereby regained complete liberty of action, the Government of Chile began to consider the diverse honorable means which might lead to a satisfactory solution of the pending claims, and duly transmitted to me the conclusions which it had reached.

In conformity with those instructions, I permitted myself to propose to your excellency, in a note of the 28th of July last year, the resort of putting an end to the existing claims by means of the payment of a considerable sum, which should be fixed by taking as a basis the same proportion that was reached between the sums claimed and the sums which the commission had awarded in the cases already decided. My Government considered that this resort rested upon a reasonable foundation of equity, that it could save needless expense, and that it would conduce to an immediate solution. It recalled, in this relation, that the new expedient was of practical utility and had been resorted to by the Governments of France, Italy, England, and Spain, for the adjustment of analogous questions with Chile and this even after having negotiated conventions for submitting the settlement of those claims to international commissions, and during the progress of these very commissions. This suggestion did not have the fortune to obtain favorable welcome from your excellency.

This attempt having gone astray, I had the honor to submit to your excellency’s benevolent consideration, in conformity with the instructions which I had received, the resort of submitting to an examination these pending claims, in order to eliminate such as might appear to be lacking in foundation, and to determine with respect to the rest an equitable compensation.

This resort, which is that usually employed in the natural and regular order of international arrangements, and which was suggested to the Government of your excellency during the last Administration, likewise failed to find favor with your excellency on that occasion.

The expedient suggested by my Government having been rejected, your excellency deems that the most adequate resort to decide the existing claims would be a new commission of arbitration, and in this [Page 80] sense your excellency invites my Government to accept this proposal, in order that a new commission, to meet in Washington, shall complete the labors of the former commission.

The Government of Chile has likewise contemplated the possibility of seeking in arbitration the solution of the pending claims. To that end it had examined the nature of the claims and the essential circumstances thereof as bearing upon the arbitration.

I have the honor to note that besides the American claims, for the settlement of which the convention of August 7, 1892, was signed, there were presented, to the surprise of my Government, before the commission which that treaty created, other claims, which, had they been known at the time, would have called forth well-grounded remonstrance.

The Government of Chile would not now have, as it has not before had, any objection to consider as proper subjects for a new convention the claims comprised in the first category; that is to say, those claims which having been indicated by the representative of the United States at Santiago were duly presented, but were not decided by the commission. But, examining the claims which succeeded in getting before the commission without having been included in the list of claims presented by the American minister, my Government has found that even though some of them belonged originally to the first class, there is another—the claim of the North and South American Construction Company—which essentially differs from the others, and belongs to the category of claims which according to international usage are not entitled to the official protection of friendly governments.

It would seem equitable that, taking into account the antecedents of the negotiation for the extinct convention of the 7th of August, 1892, there should only be considered as falling under the protection of your excellency’s Government those claims which were presented in due season, and which were comprised in the list of the cases for the settlement of which the negotiation of the aforesaid convention was proposed to Chile. Nevertheless, my Government, moved by a spirit of conciliation, abstains from formulating the general objection to the other claims, limiting its observations to the said claim of the North and South American Construction Company.

The origin of this claim springs from a contract which that company concluded with the Government of Chile at Santiago in the year 1888 for the construction of certain railways in the Chilean territory.

It was speedily seen that the company lacked the indispensable resources to execute its pledges, and in view of such a situation it transferred its rights and obligations to a Mr. Bernstein, of German origin but naturalized in Chile. My Government approved that transfer, and since then has dealt with the concessionary for the liquidation of the contract.

Without entering upon the details of this claim, it will suffice for me to point out the circumstances in which it originated in order that your excellency may be persuaded that even leaving out of sight the assignment by the company of its rights to a third party, an act which annulled its personal right to appeal to Chile, it had not, in any event, a right to solicit the official protection of the United States.

The policy of your excellency’s Government has been invariable in this regard, and has been fully confirmed in all the cases submitted to its consideration.

Thus the Secretary of State, Mr. Seward, wrote on the 27th of June, 1870, as follows:

It has not been the custom in this Department to intervene officially in favor of citizens of the United States who have entered into contracts with foreign governments [Page 81] which the latter have failed to execute. The Department has ordinarily conlined its intervention to authorizing, respectively, diplomatic agents in the foreign country to employ his personal good offices in the sense of obtaining reparation for the claimant. This policy is founded on the consideration that claims growing out of contracts are regarded as very different from those arising from injuries to person and property committed by the authorities of any foreign government.

The Secretary of State, Mr. Evarts, confirmed the same principle when he sent the American minister, Mr. Thompson, in September, 1878, the following instructions:

The infraction of a contract virtually entered into between a citizen of the United States and a foreign government with which this Government maintains diplomatic relations is not considered as ground for official action in favor of the citizen.

The Secretary of State, Mr. Blaine, likewise took occasion to express his opinion upon this point, and in a note addressed to the American minister, Mr. Logan, on the 22d of March, 1881, he expressed himself thus:

With respect to claims of this character (arising from contracts), it is a universally accepted and practiced rule that the person who has voluntarily entered into a contract with the government of a country should appeal in any complaint he may make, or for injuries which he may have suffered by reason of such contract, to the laws of the country with whose government or citizens he may have contracted.

Later, in 1884, Mr. Secretary Frelinghuysen expressed himself as follows:

It is not among the duties of this Government to enforce fulfillment of such contracts nor to demand damages as the result of their violation. Every contract must in general be regulated by the laws of the country in which it is concluded. Natural justice, mutual convenience, and the practice of all civilized nations require that contracts be regulated and interpreted as to their fulfillment in accordance with the laws which were in view when it was negotiated. Otherwise the rights and responsibilities of the parties would entirely depend upon the laws of the country whose protection, might be eventually sought.

Mr. Secretary Bayard, confirming the same principle, in January, 1886, expressed himself thus:

The rule thus laid down is not new. It has been applied by this Department in innumerable cases, many of them involving great injuries. As a general rule, a claim growing out of a contract is not a subject for diplomatic discussion, and this rule is strictly applicable in cases wherein the claimant has voluntarily gone to the debtor country to establish a business strictly connected with the mercantile interests of that country. This Government would absolutely reject any claim of a European sovereign to exercise an international supervision over any of our railways or commercial corporations in the United States which might belong to subjects of that sovereign. A rule which this Government would refuse to recognize itself, it can not properly impose upon others. The rule so established does not, however, prevent our diplomatic representatives in foreign parts from using their good offices under the instructions of this Department, commending before the Government to which they are accredited, such claimants as this Government may deem justifiable creditors of the foreign Government. Both parties must, however, understand that such good offices are not official acts.

The claim of the North and South American Construction Company is one of those not protected by the official action of Governments, and is not a subject for presentation or action in a diplomatic way. That company went to Chile for the sole purpose of concluding a contract with the Government, and by the mere fact of concluding that contract, it was subject to the exclusive jurisdiction of the Chilean law and authorities.

Claims growing out of contracts, as Mr. Seward observed, are in a very different condition from those arising from injuries caused to person or property of individuals by act of a foreign Government. These latter claims, and not the former, are sheltered by diplomatic protection of the interested Government.

[Page 82]

When the company went to Chile to conclude the contract it knew that upon its conclusion it would forthwith become subject to the legislative jurisdiction of the country in all relative to the execution of the contracted obligations. By its spontaneous act it thus accepted the consequences of a situation which it itself had created. And, in order that in no case could there be any doubt of this, it was stipulated in the contract itself that the company should be deemed a Chilean citizen for all the effects of the contracted obligations.

In considering the possibility of negotiating a new convention of arbitration, my Government can not forbear to take into account the peculiar character of that claim, and it has reached the conclusion that it would be neither just nor in conformity with international usage to accept it on the same footing as the others and submit it to similar proceedings of adjustment. My Government believes that if the said company alleges any right against Chile, it should freely resort to the Chilean laws and courts under whose rule the contract was concluded. Any other way would tend to introduce a lamentable disturbance into the principles so well established which regulate this class of transactions.

As for the place where the commission of arbitration should sit, I have already had the honor to state to your excellency that, in the view of my Government, it should be the city of Santiago. The fact that it has already once consented that the former commission should sit at Washington permits it to hope that, by way of reciprocity at least, your excellency will now accept its proposal that the proposed commission be organized in Santiago. Almost all the pending claims being those of American citizens against the Government of Chile, a reasonable application of the principles which regulate the bringing of civil suits under the common law would indicate Santiago, the local headquarters of the Government upon which the claim is made, as the natural and proper place for the proceedings of the tribunal. This has been so understood and practiced in the relations with Chile, and under similar circumstances, by the Governments of France, Germany, Great Britain, Italy, and, in general and without exception by all the European nations who have concluded with Chile conventions intended to settle similar claims. The circumstance that in this city are found the greater part of the documents concerning the claims would not be a sufficient reason to depart from a principle based upon considerations of justice and international courtesy. The removal of those papers, which are not numerous, and of which the greater part are in print, would occasion no considerable material inconvenience, whereas in the proceedings of a new convention to be effected in Washington the Government of Chile would be obliged to transport a part of its archives to justify its action in regard to such claims as remain incompletely or insufficiently proved.

It would seem also natural that the Government upon which a claim is made should be left at liberty to furnish, without exceptional embarrassment and difficulty, justification for its acts, and this is ordinarily found in its own archives, which obvious reasons of convenience prevent from being transferred to other places.

The Government of Chile ardently desires to remove, by honorable and equitable means, every motive of disagreement between the two countries; and your excellency’s well-known integrity leads it to hope that you will find fully justified the reasons which move it to accept the arbitration, provided it shall take place at Santiago, and provided there be eliminated therefrom the claim of the North and South American [Page 83] Construction Company, for the settlement of which there exist more adequate means, and more conformable to international practice.

I improve, etc.,

Domingo Gana