No. 92.
Mr. Scruggs to Mr. Frelinghuysen .

No. 22.]

Sir: In the Hispano Americano, a newspaper published in Paris, there recently appeared the following item:

As is known, the Panama Canal Company have bought all the stock (shares) of the Panama Railway Company.

Upon this intelligence* * * the Colombian minister for foreign affairs, at the instance of the executive, addresses an official communication to the Senate, recommending chat a law be passed authorizing the President to make a formal reclamation for a large sum of money against the Panama Canal Company. The ground for the proposed reclamation is the damage to the business of the railway by the ship canal. The substance of the agreement in support of the proposed claim is as follows: From the reading of articles 2, 49, and 59 of the contract of April 15, 1850, between New Granada and the Panama [Page 218] Railway Company, known as the Pardes-Stephens contract; and of articles 1, 2, and 3 of the amended contract of July 5, 1867, between the same parties, and known as the Gutierrez-Totten contract, Señor Qui-jano formulates the following conclusions:

That the Colombian Government contracted with an American company for the building of an interoceanic railway through her territory; the Government granting to the company, as an equivalent for this work, the right to possess, use and operate it for a determinate period, guaranteeing that no other railway should be constructed within certain limits therein indicated.
That the Colombian Government is the true and sole proprietor of this railway, the company having possession of it in virtue of a contract of lease, whereby its use and operations are conceded for ninety-nine years in exchange for $1,000,000 paid to the Government in 1867, and for an annual rental of $250,000 during the entire period of the lease. In other words, that the Government, in 1867, sold the reserved right to redeem the original grant before its expiration, but not its ultimate or reversionary ownership of the railway.
That the obligation of the Government to the company, not to grant permission to establish, nor itself to establish, a competing line, does not embrace an interoceanic ship channel. Such a canal may be opened by another company thereto authorized by the Government; but should it pass through certain defined boundaries and limits, the canal company must indemnify the railway company for any damages resulting there from, the amount of indemnity to be fixed by arbitration, if not otherwise amicably agreed upon.
That whatever sum may be fixed upon as indemnity must be divided equally between the railway company and the Colombian Government.

This right of Colombia to a moiety of damages to the railway company resulting from the opening of a ship canal was provided for in article 14 of the purposed canal treaty of 1870, between the United States and Colombia; and although that treaty was never ratified and is therefore without legal existence, it nevertheless serves to show that Colombia’s right to the moiety of damages provided for in the Gutierrez-Totten contract of August 15, 1867, was fully recognized at the time by the American Government.

The Panama Canal contract of March 30, 1878, known as the Wyse contract, grants to the present canal company the exclusive privilege of opening and operating an interoceanic ship channel within Colombian territory; but article 3 of that contract stipulates that in case the canal should “pass to the west or north of a straight line connecting Capes Tiburon and Garachene” the grantees must either come to some amicable understanding with the railway company or else pay that company an indemnity, as provided for in the Gutierrez-Totten contract of 1867; and although in the canal contract of 1878 the recognition of the right of Colombia to a moiety of the damages is not expressly repeated, it must be held to be reasonably implied, because the reservation in article 3 of that contract accords with the provision for indemnity in the Gutierrez-Totten contract, wherein Colombia’s right to the moiety of damages is expressly set forth.

Assuming, therefore, that the right of Colombia to a moiety of the indemnity is incontrovertible, the secretary proceeds to consider, first, whether the price paid by the canal company for the Panama Railway is essentially the indemnity contemplated; and, second, whether Colombia has lost her right to claim her portion of the damages by the simple [Page 219] act of purchase referred to. He maintains that the first proposition must be resolved in the negative, since it was to avoid the indemnity that the canal company made the purchase. The railway company being thus indemnified by the price paid, it can now no further claim. The canal company which now takes its place and owns its original grant from the Government, as well as all its stock, cannot prefer a claim for damages against itself, nor can it prefer such a claim as successor to the railway company, since the destruction of this very claim was the object of the purchase.

But the Government of Colombia, which is the ultimate owner of the railway, and which will come into possession of it in the year 1966, has not been indemnified for losses to its business caused by the canal. Its right to claim a moiety of equitable damages must therefore still exist. Nor can this right be in any way affected by the recent sale and transfer of the road, because the Government is in no sense a beneficiary of that transaction.

Such, in brief, are the legal points raised in behalf of the proposed reclamation. Other considerations of a general nature are urged; * * * such, for instance, as that the only actual benefit likely to result to Colombia from the completion of the canal will be the 5 per cent. of tonnage rates imposed by the canal company 5 that its completion will cause the Government to lose a large income which it would otherwise derive from the Panama Railway; that the European and American Governments have never guaranteed any protection to the canal company; that Colombia alone of all the nations of the world, has shown her sympathy for the enterprise; that whilst the ultimate completion of . the canal may bring to Colombia some incidental benefits, it will likewise involve her in many and serious diplomatic questions, such as those with which Egypt is now contending; and that, in view of these considerations, M. De Lesseps ought to pay her the indemnity to which she is legally entitled.

It seems singular that the secretary, in thus making out his case, should have overlooked the provision in article 15 of the Wyse contract, whereby the De Lesseps company is obligated to Colombia to pay a sum of “not less than $250,000 annually,” in addition to the 5 per cent. of tonnage rates, in compensation for the loss of that income from the railway, should it be occasioned by the completion of the canal.

As the federal Congress is expected to adjourn within the next few days, it is not lively that any further action will be taken on this paper than its mere formal reference to the committee on foreign affairs; and should it be called up and reported upon next year, when the Congress reassembles, it will probably not be until after some authentic information touching the sale and transfer of the railway company shall have been received.

I have, &c.,