No. 69.
Mr. Scruggs to Mr. Frelinghuysen.

No. 142.]

Sir: You are already aware of the controversy between the Colombian Government and the Panama Canal Company resulting from the [Page 122] purchase by the latter of the controlling interest in the Panama Railway Company; and likewise of the controversy between the same parties touching the payment of expenses incident to a military force along the line of the works of the canal.

I now have the honor to transmit, under separate cover, by this mail, duplicate copies of a report by the Colombian minister of finance to the Congress of the Republic “showing the progress and present status” of both these controversies. Its great length and my want of clerical assistance renders it quite impossible to send you an English translation, but its salient points may be briefly stated as follows:

The Colombian Government claims (1) that the canal company should pay the expenses of keeping up such a military force as may be necessary to maintain order and give security to the interoceanic transit along the line of the canal works, in accordance with a fair interpretation of article 8 of the contract of March 23, 1878;* and (2) that the company should pay to Colombia the indemnity reserved to the Republic in article 2 of the contract of July 5, 1867, with the Panama Railway Company, since by article 3 of the contract of March 23, 1878, this indemnity is made part of the consideration for the concessions to the canal company.

With reference to the first named, it seems that the company in Paris refuses to ratify the agreements of the 6th of June last, made with its agent in Bogota, for the payment of $55,000 annually for the maintenance of a military force along the line of the canal works, and that it now offers to pay only $20,000 annually for that purpose, which Colombia rejects. The clause of the contract (of March 23, 1878) on which the Government bases this claim is the last sentence in article 8, and reads as follows: “Será igualmente de cargo de la compañía el pago de los gastos que ocasione la mantencion de la fuerza publica que se juzque necesario para la seguridad del tránsito interoceánico;” or, being translated, provides that “the expenses occasioned by the maintenance of such a public force as may be deemed necessary to the security of the interoceanic transit shall be likewise paid by the company.” The company, however, construes this as relating to the water transit, after the canal shall have been opened.

With reference to the second claim above mentioned, it is predicated upon the following clause in article 3 of the contract of March 23, 1878, and which I translate as follows:

If the line of the canal to he opened from ocean to ocean should pass to the westward and northward of an imaginary straight line connecting Cape Tiburon with Point Garachine, the grantees shall come to some amicable understanding with the Panama Railway Company, or pay to it an indemnity to be determined according to the provisions in law 46, of the 16th of August, 1867, approving the contract of July 5, 1867, and amendatory of the law of April 15, 1850, relative to the construction of a railway from ocean to ocean across the Isthmus of Panama.

Law 46, of the 16th of August, 1867, here referred to, merely approves the modified contract with the Panama Railway Company of July 5, 1867, the second article of which, in the English text, is as follows:

The Government of the Republic binds itself, during the time that the exclusive privilege which is conceded to the company for the working of the railroad remains in force, not to construct for itself nor to concede to any person or company, by any title whatever, the power to establish any other railroad on the Isthmus of Panama; and it also stipulates that while the said privilege continues in force the Government shall not have the power of undertaking for itself, nor permitting any person to undertake without the concurrence and consent of said company, the opening or working of any maritime canal which may unite the two oceans across the said Isthmus of [Page 123] Panama to the west of the line of Cape Tiburon, on the Atlantic, and Point Garachine, on the Pacific. But it remains stipulated that the right which is conceded to the company to give its consent does not extend to its opposing the construction of a canal across the Isthmus of Panama (except on the actual route of the railroad itself), hut only to its exacting an equitable price for such privilege, and as indemnification for the damages which the railroad company may suffer by the rivalry or competition of the canal.

If the sum which may be demanded by the company shall not appear equitable to the Government of the United States of Colombia, then it shall be fixed by arbitrators in New York or Panama, one to be named by the Government and the other by the company; and in case of their not agreeing, the two shall name a third, whose decision shall be without appeal. In pronouncing their decision the arbitrators shall take into consideration the grounds upon which the company rests and the information which the Government shall give upon the matter, and in view thereof they shall decide, without appeal, as they may deem most just and equitable. The sum, whatever it may be, which shall be finally designated, shall belong, one-half to the railroad company and one-half to the Government of Colombia.

The Colombian Government contends, therefore, that whilst it is optional with the railroad company to demand indemnity, its failure to do so does not destroy Colombia’s right to demand the moiety of such damages caused to the railway by the canal as may meet her approval or as may be fixed by arbitration; that if the canal company, in disregard of the reversionary interests of the Government in the railroad, have made certain negotiations with the railway company which evince a purpose to destroy or avoid rights incident to those interests and contrary to the spirit of the contract of March 23, 1878, the nation may, and ought to, demand of it damages therefor; that if those negotiations took the form of a purchase, at an exorbitant price, of a majority of the shares in the railway company, merely for the purpose of avoiding the payment of indemnity, the injury caused to the railway itself by opening a canal within the limits named will be none the less real; and that, as the Government was not consulted in such transaction, its rights in the railway cannot be held to be nullified or in any way impaired by it; consequently, the Government, as the ultimate owner of the railway, has no other alternative than in a demand upon the canal company for the moiety of any damages caused to it by the opening of a maritime canal along its line.

For the purpose of pressing this claim upon the canal company the Government commissioned a special agent* to treat with it in Paris.

The agent was courteously received, but his mission has proved an utter failure. The company, when pressed by him for some expression, stated quite plainly that the demand as presented could not be entertained. This led to a lengthy and somewhat acrimonious correspondence between Dr. Galindo, Colombian minister of finance, and M. de Lesseps, which you will find in the report to which I have already referred, but which, up to the present time, seems to have been wholly barren of any practical results.

I have, &c.,


P. S.—Since the date of this dispatch, and before the closing of the mail, I learn that the President, in accordance with a resolution of the Senate, has instructed the Colombian diplomatic agent in Paris to suspend all negotiations with the canal company touching the reclamations referred to until Congress can take some action in regard thereto.

W. L. S.
  1. Made March 20, but ratified by Congress March 23, 1878.
  2. Dr. Gil Colunje, of Panama, formerly Colombian minister for foreign affairs.