Foreign Relations of the United States Diplomatic Papers, 1936, General, British Commonwealth, Volume I

811.114 Canada/50827/11

Memorandum by the Assistant Chief of the Division of Western European Affairs (Hickerson)

[Washington,] April 11, 1936.

Mr. Wrong, Canadian Chargé, called at the Department at five o’clock yesterday afternoon at the request of Mr. Phillips to discuss the liquor embargo legislation. Mr. Phillips explained to Mr. Wrong that the Secretary, he, Judge Moore, Mr. Hackworth and Mr. Hickerson had all devoted a very large amount of their time to this question during the past three months with the view to bringing about some adjustment which would meet the wishes of the Canadian Government and permit our Treasury Department without the proposed legislation to proceed with its claims against the Canadian distillers. He explained that in particular we had faced a difficulty in respect to amicable settlements out of court; he commented that the Canadian Government in its two written communications to us on the subject and Mr. Wrong in all of his conversations with officials of the Department had urged the desirability of settlements out of court while the Treasury Department had been in the past adamant on the subject. He stated that the Treasury Department had felt that these claims ought to be adjudicated in court, particularly in view of the fact that the amounts claimed are large and that the responsibility for any reduction in the amounts should rest upon the court.

Mr. Phillips went on to say that he was therefore happy to be able to give Mr. Wrong what he considered some very good news. He thereupon handed Mr. Wrong the attached memorandum which he went over with him point by point. Mr. Phillips stated that Mr. Wrong will, of course, observe that the Treasury Department and the Department of Justice, which has now come into the picture, have finally acquiesced in the request of the Canadian Government that efforts be made to settle these cases out of court. He stated that moreover the attached proposal incorporated a proposition put forward by representatives of the Canadian distillers in Washington recently that the proposed legislation be delayed for at least a month and then proceeded with only if the Canadian distillers are found unwilling to negotiate settlements or to give satisfactory commitments to contest these suits in court and to protect the United States Government from loss in the event judgments are rendered in its favor.

Mr. Phillips explained that the present proposals represented the result of a tremendous amount of work on the part of officers of this Department and of the Treasury Department and that he felt that the way is now prepared for an amicable settlement of the whole question provided the Canadian distillers really desire settlements. He added that if settlements out of court cannot be achieved, the Treasury Department is prepared to discuss on a purely realistic basis with the distillers commitments for them to appear in court and to protect the United States Government from loss in the event favorable judgments are rendered. He added that in these circumstances the Department of State had done everything that it could do and that the matter was now up to the Canadian Government and the Canadian distillers; that if settlements of some sort could not be arranged in the next thirty days, the Department could take no further action.

Mr. Wrong raised several points in connection with the memorandum. He was particularly interested in paragraph four (page three) and the statement that the Treasury Department and the Department of Justice will be free to proceed with the proposed legislation if the negotiations with any one of the four principal distillers are fruitless. He stated that he hoped this did not mean that the Canadian Government was expected to acquiesce in the legislation even though the negotiations failed because it could not do this. He raised the question of the omission of Melchers Distillery. Mr. Hickerson explained that the Treasury Department officials had advised him that the omission of Melchers from this list does not mean that the Treasury Department is abandoning its claim against Melchers but that the Treasury is not yet in a position to proceed against Melchers and that they therefore did not wish to make a settlement with Melchers a condition for dropping the legislation. He added that the claim against Melchers will be in the same category as the claims against liquor producers in certain other countries.

Mr. Wrong stated that he would communicate with his Government as soon as possible and let us have their answer.

John Hickerson

[Annex]

The Department of State to the Canadian Legation ³⁰

Memorandum

(1) The Canadian distillers will give commitments not to increase their exports of whiskey to the United States over the present volume during the period which is to be set aside for negotiating settlements; some allowance may be made for normal increase in business.

(2) The Canadian distillers will give commitments not to dispose of their stocks of American type whiskey elsewhere.

(3) The individual companies will give commitments to “sit down with Treasury officials and discuss the nature and quantum of the claims alleged to exist with a view to reaching some solution”. This proposal is understood to mean (a) reaching an amicable settlement out of court, or failing this, (b) discussing terms, conditions and practical measures in respect to the companies’ submitting to the jurisdiction of the American courts and protecting the United States against losses on judgments which might be obtained. Officials of the Department of Justice will take part in the conversations.

Subject to the above mentioned conditions, the Treasury Department will agree to a delay not exceeding one month (dating from April 13) in the pending legislation, during which the following steps will be taken with a view to obviating the necessity for the legislation if possible.

(1) The Treasury and the Department of Justice, acting jointly, will receive representatives of the Canadian companies individually and undertake to arrive at a satisfactory settlement of the United States Government’s claims against them, subject to the condition that the two Departments will state the amount, as at present calculated, of the Government’s claim against each company but will not be required either to disclose the particulars of the claim or to discuss the facts or laws supporting it.

(2) In the event of the failure of the parties to agree on a settlement, they will undertake to make an arrangement which will bind the companies to submit to the jurisdiction of the United States courts so that the claims may be litigated on their merits, and to provide satisfactory security for the payment of any judgments which may be rendered in favor of the United States Government.

(3) The Canadian companies are to be informed that any persons designated to represent them in conferences with the two Departments must be fully empowered then and there to bind their principals with respect to the points covered above.

(4) If the negotiations with the companies carried on in accordance with the foregoing should be fruitless as to any one of the following companies, namely:

• Distillers Corporation—Seagrams;
• Hiram Walker—Gooderham and Worts;
• Consolidated Distillers; and
• United Distillers,

the Treasury Department and the Department of Justice will be free to proceed with the proposed legislation.

30. Handed to the Canadian Chargé on April 10, 1936.