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Settlement of the controversy of the Tlahualilo Company with the Government of Mexico

Note.—The Tlahualilo Company, whose legal title is “Compañía Agrícola, Industrial, Colonizadora, Limitada, del Tlahualilo, Sociedad Anónima,” was organized under the laws of Mexico August 25, 1885. In 1896 it mortgaged its properties and franchises for the purpose of securing an issue of £350,000 of bonds. The bond issue was made in London and New York. The properties of the company are situated on and near the river Nazas, Mexico. In April, 1887, the company entered into contract with the Mexican Government, approved by the Mexican Congress in 1888, by which the company was authorized to colonize its lands, to build a canal from the Nazas River and to take water from that river for irrigation purposes. In 1908 the Mexican Government issued regulations for the distribution of the waters of the river Nazas, which greatly reduced the amount of water the company had been receiving. The company protested and, having received no redress, instituted suit in the courts of Mexico against the Government. In the meanwhile the company requested the good offices of the British and American Governments. The American Ambassador at Mexico City was instructed to support the representations of the British Minister at Mexico City in behalf of the company. On August 5, 1910, the American Ambassador reported2 that on August 4 he accompanied the British Minister to the Foreign Office to present a British memorandum dated August 4, which, after reviewing the entire history of the company, concluded as follows:

In the conclusion thus stated His Majesty’s Government desire to say that they have not overlooked the reported plan and policy of the Mexican Government to conserve the waters of the Nazas River, and wish to assure the [Page 994]Mexican Government that they view with entire sympathy all efforts made by that Government to store and preserve for effective use in their arid regions the waters of their various streams and rivers. Moreover, they thoroughly understand and appreciate that in carrying out any extensive plan of conservation there may well be as incident thereto inconvenience and perhaps some loss to individual enterprises and undertakings. But His Majesty’s Government cannot admit, and they feel sure that the Mexican Government would not contend, that any plan of conservation should be undertaken and carried out which shall appropriate or wilfully confiscate without full and complete compensation, the lawful and established rights of private individuals; and if in the course of the consummation of any such conservation plan it should become necessary to take the lawful and vested property or interest of any private individual or company, that then and in that event the injured party must receive due, proper, and full compensation for any and all such property which it has been found necessary to appropriate.

His Majesty’s Government do not, however, understand that the present difficulties of the Tlahualilo Company arise as the result of any such conservation measures, but that on the contrary as the facts are presented they flow from and are the result of a disposition and purpose on the part of the Mexican Government, for some reason not apparent, to encourage and foster upon the lower Nazas River large agricultural enterprises at the expense of similar enterprises upon the upper river, and specifically and particularly (if the regulations of 1895 and 1909 are to continue in force) to bring about such a result in a way that will be all but wholly at the expense of the Tlahualilo Company. Therefore, His Majesty’s Government, without presuming to pass upon the national propriety or impropriety of the action so taken by the Mexican Government, must insist that if the fruition of this policy carries with it the destruction of British interests then and in that event the Mexican Government are under obligation fully and amply to compensate the British interests which are thus sacrificed. His Majesty’s Government therefore, desire to say in all friendliness but with all earnestness that if the present plans of the Mexican Government are carried out and such plans result in the loss and destruction predicted by the Tlahualilo Company, His Majesty’s Government will, at the proper moment, find it necessary to present to the Mexican Government a claim for damages for the injuries which have been suffered by those British subjects who have so heavily invested in this enterprise.

His Majesty’s Government are, however, sincere in their desire that such an eventuality may be avoided and to this end they renew the suggestion which they have already made and now make in connection with the representations made by the Government of the United States that every effort be made to reach with the Tlahualilo Company an amicable adjustment of this difficulty by allowing it to retain and by confirming it in such of its rights as will enable it successfully to carry out its enterprise which, as an individual undertaking, ministers in no small degree to the national prosperity of Mexico; and that pending such adjustment of this difficulty, or at least for one year, the Tlahaulilo Company be permitted to enjoy the abridged rights granted to it under the Regulations of 1895 in order that meanwhile its enterprise may not be completely destroyed.

His Majesty’s Government, sincere in their desire that nothing whatever shall happen which may threaten in the slightest degree to disturb the traditional friendly relation of the two Governments and firm in its belief that a proper and equitable adjustment of this controversy is possible if it be approached in an amicable and conciliatory manner by the parties thereto, cannot urge with too much emphasis, in order to avoid expensive litigations and controversies which, if the Company loses, are almost sure to result in diplomatic representations and claims for large amounts in damages, that such adjustment as that recommended above shall be entered into by the Mexican Government and the Company at the earliest possible moment.

His Majesty’s Government feel confident that the Mexican Government will give earnest consideration to the suggestions made for an immediate amicable settlement of this controversy, but in case it should unfortunately transpire that such a settlement is for any reason impossible, His Majesty’s Government suggests the propriety of immediately submitting the whole matter for determination to the Permanent Court of Arbitration at The Hague.

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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 Office 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, replied1 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,2 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.

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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 [Page 998]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 reported1 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 [Page 999]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, 1911,1 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 City2 the text of the following instruction to the American Ambassador to Great Britain,3 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 attention [Page 1000]to the fact that the United States was willing to postpone further discussion of the concessionary rights pending an early final adjudication thereon by the Mexican courts, this Government discussed the San Fernando rights of the Tlahualilo Company and concluded with the following paragraphs: (Insert last two paragraphs of British memorandum of November 29.)1

“Notwithstanding the serious urgency with which the views of the two Governments and the propositions made by them were thus expressed, more than three months have now elapsed without any word having been received from the Government of Mexico as to its determination in the matter. In view of the full consideration which the subject has already received by the Mexican Government, as also of the absolute need of the Company for an early determination of the matter in order to prevent the infliction of still further injury which would go to swell the great damages already suffered by the Company, the Government of the United States finds itself under the necessity of again bringing this matter to the careful attention of the Mexican Government and of again requesting that the matter be given immediate consideration in order that the Mexican Government may at once inform this Government which of the alternative methods proposed it elects to follow in making a settlement of this really serious matter.”

The Department, having quoted the above instruction to the Embassy at London, instructed the Chargé d’Affaires to act in accordance therewith, and the British Government instructed its Minister to Mexico to join his American colleague on the lines suggested.2

The British note to Mexico, in conformity with the foregoing, was presented on March 16, 1911, supported by a note by the American Chargé d’Affaires on the 17th.3

In the meantime, on March 9, the American Chargé d’Affaires had informed the Department4 that the Mexican Supreme Court had on February 15 adjudicated the Tlahualilo case and that he would forward a summary of the decision, as soon as available. This was done shortly thereafter and showed that the Court had rescinded the concession, declaring that the Tlahualilo Company had not nor had at any time possessed any rights thereunder to the waters of the Nazas River.

The findings and decision of the Supreme Court occupy an octavo pamphlet of 193 pages5. The decision (pp. 190–193) is in translation substantially as follows:

First. The Compañía Agrícola Industrial Colonizadora Limatada del Tlahualilo has not justified the action for specific performance and for damages brought by it against the Federal Government on April 27, 1909.

Second. The Federal Government has justified its counterclaim for rescission of the contract of concession granted to said Company on June 2, 1888, and approved by decree of June 6, 1888.

Third. The Federal Government, represented by its Department of Fomento, is consequently absolved of the claim against it presented by said Company which claim comprises the following: (a) Fulfillment of the contract of May 30, 1888, as amended by the law of June 24, 1891. (b) Recognition of the water rights of said Company as set forth in the Regulations of June 24, 1891. (c) Reinstatement in the enjoyment of said rights. (d) Nullification, in regard to said Company, of the Regulations of June 15, 1895, and of the various orders that had for their object the reduction of the water rights confirmed to said Company by the Regulations of 1891. (e) Payment of the sum of $11,348,743.12 damages suffered up to September 1, 1908. (f) Payment of damages arising from curtailment of water supply to this date and those that may arise pending the re-entry of the said Company into possession of its water rights, calculated on the same bases that served in preceding calculations of [Page 1001]damages. (g) Payment of the further damages caused by emigration of colonists, loss of labor, cessation of industries and impairment of properties and improvements such as shall be ordered and proved in the course of this action and according to the bases of liquidation to be fixed by the court. (h) Payment of legal interest on the sums owing from the dates from which such obligations begin to run.

Fourth. The contract of June 2, 1888, between the Secretary of Fomento as representative of the Executive of the Union and José de Teresa y Miranda as representative of the Compañía Agrícola Limitada so-called “del Tlahualilo,” which was approved by decree on June 6, 1888, is hereby rescinded.

Fifth. The intervention in this action of the Sindicato de Ribereños Inferiores del Río Nazas is pertinent only insofar as it coincides with the negative claim made by the Federal Government and with the counterclaim for rescission. It has no basis for declarations touching the transaction of May 22, 1888, nor any other controversy between the said Syndicate and the said Company whose respective rights are left unaffected.

Sixth. The question of costs is not here adjudicated: Each party will pay its own costs and expenses, and those incurred in common will be shared equally. * * *

So ordered, by a unanimous vote of the Tercera Sala of the Supreme Court of the Nation.

The Department of State, in view of this decision, on March 18 instructed, the Ambassador at London1 to say to the British Government:

That this Government, after preliminary examination of decision is convinced of desirability of immediately bringing to the attention of the Mexican Government the fact that the recent decision of the Mexican Supreme Court regarding the rights of the Tlahualilo Company cannot, for the reasons indicated below, be regarded as a satisfactory disposition of the matter, and the American Ambassador at Mexico City will be instructed to support and adopt representations to the Mexican Government upon this case, if representations embody the following essential points:

The Government of the United States finds itself under the necessity of declaring that the decision of the Court rescinding the concession and declaring that the Tlahualilo Company has not and never had any rights thereunder to the waters of the Nazas River cannot be regarded by the Government of the United States as a just, equitable, or satisfactory determination of the questions involved. The Government of the United States, therefore, has the honor to request either that the Government of Mexico, as heretofore requested by this Government, at once undertake to make a mutually satisfactory adjustment with the Tlahualilo Company regarding its water rights under its concessionary grant of 1888; or that, failing such an adjustment, the matter be immediately referred to arbitration. In the latter case and in case the Company’s San Fernando water rights be submitted to arbitration as heretofore proposed, the Government of the United States requests that both questions be dealt with at the same time. However, should the Mexican Government elect to restore the Company to the possession of its full San Fernando rights without arbitration, then the Government of the United States requests that the questions involved in the extent of the Company’s concessionary rights be at once submitted to arbitration under a separate protocol which will be proposed.

The above instruction was on the same day quoted in a telegram to the Chargé d’Affaires at Mexico City1 and he was instructed to act in accordance therewith in supporting such representations as might be made by the British Minister.

In response to the above instruction the American Chargé d’Affaires at London telegraphed2 on March 23 to the Department as follows:

Your March 18 was informally presented in substance on March 22 to the Foreign Office, with mention of its urgency. The judgment of the Mexican Supreme Court is daily expected and an answer will be given me immediately after its receipt.

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On March 30 the American Ambassador to Great Britain telegraphed1 as follows:

Embassy’s March 23 and Department’s March 18. The decision of the Supreme Court of Mexico received by the Minister for Foreign Affairs, who in view thereof concurs in proposal to address to Mexican Government a joint note on lines of your March 18, in which sense British Chargé d’Affaires in Mexico has been instructed.

The Department on March 31 replied:1

Your March 30. Refer to previous instructions and do not overlook that by reason of preponderant British interest the British Government assumes the lead in all Tlahualilo representations, the United States merely supporting and adopting the original representations made by the British Government.

The Ambassador answered this on April 3 as follows:2

Your March 31. I mentioned to Sir Edward Grey today that we expect his Government to assume the lead. Sir Edward seemed to have no objection to your view.

The Mexican Foreign Office on March 30 had sent a memorandum3 to the British Chargé d’Affaires in response to the British memorandum of November 29, 1910; this Mexican memorandum (prepared on March 4 in the Department of Fomento) goes minutely into the technical details submitted in the British memorandum, and concludes:

For these reasons it is not possible for the Mexican Government to admit any claims on the part of the Tlahualilo Company; for these same reasons the Mexican Government are not of opinion that the question is one for submission to an international court of arbitration.

Against this measure of solution the Mexican Government have in addition other observations to make, to wit:

(a)
The Tlahualilo Company are a Mexican Company constituted in accordance with Mexican laws, in the organization of which neither British nor American citizens appeared.
(b)
The Tlahualilo Company accepted as a condition of the concession submission to the Mexican courts.
(c)
The interests in the Tlahualilo Company held by persons who have solicited the support of the Governments of His British Majesty and of the United States of America are those of the mortgage loan issued on the Tlahualilo Company’s properties, as has at various times been proved and as is publicly known.

Consequently the only legitimate interest possessed by the holders of the mortgage bonds is that their loan be well guaranteed, and the only action open to the said bondholders is, not by proceeding against the Mexican Government, but against the Tlahualilo Company.

The Mexican Government therefore believe it to be their duty to decline the two extreme alternatives proposed by the British memorandum of November 29, 1910.

The Tlahualilo Company carried its case to the Mexican Court of Appeals, while the British Government on May 3 reiterated the representations made in the memorandum of November 29, 1910. The Mexican Government in reply4 on May 3 reiterated its statements in the memorandum of March 4 delivered to the British Legation on March 30; it emphasized the contention that as the Tlahualilo Company was a Mexican corporation diplomatic representations [Page 1003]could not be invoked, adding in support of its position many quotations from American and other decisions; and concludes:

In view of the soundness of the reasons above given the Government of Mexico hopes that the Government of His Majesty will not insist on the representations contained in the notes under acknowledgment.

On July 15, 1911, the Department of State instructed1 the American Ambassador to Great Britain to inform the Foreign Office that the American Ambassador to Mexico “will be instructed to support any informal representation by the British Legation in Mexico embodying the following essential elements”:

Owing to a desire of His Majesty’s Government to refrain from unnecessarily embarrassing the Government of Mexico during the present transitory disturbed political conditions in Mexico, no formal reply has yet been made to the note of the Mexican Government.

In order that this delay may not be wrongly interpreted, I am directed by my Government informally to advise your excellency that my Government can not accept the contentions of your excellency’s note as a satisfactory reply to the representations heretofore made, and particularly that it can not accept the contention that the fact that the Tlahualilo Company is Mexican operates as a bar to representations by His Majesty’s Government on behalf of British stock and bond holders of that company, but that on the contrary His Majesty’s Government must insist upon its right under the circumstances of this case to intervene for such stock and bond holders, such course being tn accord with well-recognized international precedents.

The American Ambassador to Mexico was instructed2 on July 15 to adopt and support informal representations by the British representative embodying the Department’s views as above expressed.

The British representative sent his note on August 2, 1911, supported on August 4 by the American Chargé d’Affaires. The British note reads as follows:

Upon receipt of the note from your Department dated May 3d last, on the subject of the Tlahualilo Company controversy, I lost no time in forwarding it to my Government for their consideration.

His Majesty’s Government being desirous to cause no additional embarrassment to the Mexican Government during the period of political unrest in the Republic, delayed for a time their reply to the above note, but I am now instructed to inform you that they can not accept the validity of the second contention put forward by the Mexican Government, namely that the Tlahualilo Company being a Mexican Company is not susceptible of intervention in its affairs on the part of a foreign Government. While His Majesty’s Government are prepared to await the result of the suit in the Court of Appeal, yet, should the verdict not give the Company that relief to which they are entitled, they will feel obliged to make diplomatic representations on behalf of the British interests which are involved.

The American supporting note says:

I am instructed by my Government to inform the Mexican Government that it fully endorses, approves and subscribes to the note presented to your excellency’s office by the Chargé d’Affaires of Great Britain at this capital, under date of the 2nd instant, this note being a rejoinder to one of the contentions of your excellency’s Government relative to the Tlahualilo controversy, as set forth in your excellency’s note of the 3d of May last to the British Legation, a copy of which your excellency’s office was good enough to transmit to this Embassy in note No. 34918 of the same date.

In this connection I have the honor to say that the Government of the United States cannot accept any more than that of Great Britain the contention that the fact that the Tlahualilo Company is a Mexican corporation [Page 1004]operates as a bar to diplomatic representations by the Governments concerned, on behalf, of their respective nationals who are stock and bond holders in the company, such protective intervention being in accord with well-recognized international precedents.

Further and more formal reply to the note of your excellency’s Government of May 3d last will, without doubt, be made by His Britannic Majesty’s Government in due time, and will in all probability, after having been considered by my Government, be fully subscribed to by it.

Copies of the foregoing notes were forwarded to the Department of State on August 4.1

Interviews with the President of Mexico had meantime been had by the American and British representatives looking to a suspension of legal proceedings and a settlement out of court, but came to no conclusion, and on August 29, 1911, the British Chargé d’Affaires requested the Mexican Government “that the legal proceedings may be continued and carried to their conclusion with all possible celerity.”2 To which the Mexican Government acceded.

The time prescribed by law for rendering the decision expired December 16, 1911, but the Court of Appeal had not yet decided the case on that date. On December 21 the British, and on the 22d the American representative, called the Foreign Office’s attention to this delay.3

Matters so stood until July 24, 1912, when the Court of Appeal rendered its decision, the first paragraph of which is as follows:

First. The decision of first instance, dated February 15, 1911, rendered by the Third Chamber of the Supreme Court, in the civil suit brought by the Compania Agricola, Industrial, Colonizadora Limitacla del Tlahualilo, S. A., against the Mexican Government, concerning the observance of the contract of May 30, 1888, and the payment of damages is hereby confirmed in every respect.

The remaining portion is merely a repetition of the orders of the lower court. This decision, however, was not unanimous, as one of the three judges in a dissenting opinion favored the essential contentions of the plaintiff company. The decision was forwarded4 on July 24 to the Department, and on August 12, 1912, the American Ambassador was instructed5 that:

For reasons already brought to the attention of the Mexican Government (see British memorandum presented August 4, 1910, and approved by this Government; British memorandum of November 29, 1910, also approved by this Government) as well as for other considerations not now necessary to mention, the Department cannot accept the decision of the Supreme Court of Mexico in the Tlahualilo case as a satisfactory disposition of the questions involved in the controversy between the Tlahualilo Company and the Mexican Government.

Moreover the Department is convinced that the only proper and satisfactory method of adjusting this dispute is by arbitration, which, to be of most service to the Company and to the Government of Mexico, should be immediate.

The Government of the United States cannot admit the validity of the contention of the Government of Mexico that the fact that the Tlahualilo Company—the party immediately involved in the controversy—is Mexican, operates as a bar to representations by this Government for and in behalf of the American stock and bond holders possessing the real beneficial interest in the enterprise, but on the contrary this Government must insist upon its right under the circumstances of this case to intervene for such stock and bond holders, such course being in accord with well-recognized international precedents (British note of August 2, 1911, approved by this Government.)

[Page 1005]

The attitude of the Governments of the United States and Great, Britain upon the question of representation in such cases was made clearly apparent in the measures mutually taken by them in the now famous Delagoa Bay Case,1 a case practically on all fours with the present, the principle of which has been repeatedly affirmed.

You will approve and support for and in behalf of the American interests in this claim any note or memorandum delivered by the British Minister at Mexico City to the Minister of Foreign Affairs of Mexico embodying essentially the above position and looking to the early making of an agreement for the submission of the Tlahualilo case to arbitration including in such arbitration both the San Fernando and Concessionary water rights.

For information regarding contention of the Mexican Government as to nationality of enterprise, see counter-case of the United States in the Alsop Claim, pp. 70–86, Moore’s Digest, VI, 647 et seq.; as to finality of decisions of local tribunals see idem pp. 254–255, 258, 268, 287, 667, 698; and as to weakening security hypothecated to bondholders, see idem page 724.

The substance of this telegram was transmitted2 on August 15, 1912, to the American Embassy at London. The British Government approved the position taken and Sir Edward Grey inquired through the Ambassador3 on September 7 whether or not the American Government would be willing to take the initiative in the demand for arbitration, basing its demand on the Treaty for the Arbitration of Pecuniary Claims, of January 30, 1902,4 extended by a convention signed at Rio de Janeiro August 13, 1906,5 and ratified by the United States and Mexico. If so, instructions would be sent to the British Minister at Mexico City to expedite such action as the British and American Governments may consider desirable.

In conclusion Sir Edward said that the Mexican Minister for Foreign Affairs had recently stated that he would be willing to discuss the case with Mr. James Brown Potter, President of the Mexican Cotton Estates of Tlahualilo, Limited, with a view to settlement, and that the British Government had no wish to object thereto but could not postpone arbitration negotiations, which should continue simultaneously.

On September 13, 1912, the Department of State, referring to the foregoing and previous correspondence, sent to London6 a draft preamble for a protocol of arbitration, to replace that of November 14, 1910, the remainder of the protocol to stand as in that of November 14. The Ambassador was instructed that the Department felt that the two Governments should not acquiesce in a perfunctory objection by Mexico to the language of the draft but should insist on its form as presented unless Mexico adduced some well-founded objection. As to the initiative being taken by the United States the fact that the Tlahualilo holding company was a British corporation and the majority of its stock and bond holders British, it would materially weaken the representations for this Government to take the initiative. But the United States would invoke the Pecuniary Claims Convention, if Mexico showed a real unwillingness to arbitrate, in its notes supporting any British representations that might be made.

This position was accepted by the British Government, which instructed the British Minister to Mexico to present the amended convention to the Mexican Government and urge its acceptance. This was reported from the American Embassy at London on October [Page 1006]9, 1912.1 Further amendments were agreed on by the two Governments during October and November,2 and on November 20 the British Legation’s note demanding arbitration and transmitting a copy of the draft protocol was sent to the Foreign Office.3

The Mexican Minister for Foreign Affairs had meantime left for Washington to discuss in person ail the affairs pending between his Government and the United States, including the Tlahualilo case, and the arbitration matter was held in abeyance. The Minister returned during January, 1913, and the following correspondence ensued.


[1295] The American Ambassador to the Secretary of State.

File No. 412.11T54/205.


[1296] The Secretary of State to the American Ambassador .

File No. 412.11T54/205.


[1297] The American Ambassador to the Secretary of State.

File No. 312.11/1282.


[1298] The American Ambassador to the Secretary of State.

File No. 412.11T54/219.


[1299] The American Ambassador to the Secretary of State.

File No. 412.11T54/221.

  1. File No. 17063/109.
  2. File No. 412.11T54/113.
  3. File No. 412.11T54/113.
  4. These are the rights embodied in the purchase from Don Juan Flores, before mentioned.
  5. File No. 412.11T54/127.
  6. File No. 412.11T54/127.
  7. File No. 412.11T54/133b.
  8. File No. 412.11T54/133a.
  9. See ante.
  10. File No. 412.11T54/137.
  11. File No. 412.11T54/141.
  12. File No. 412.11T54/139.
  13. File No. 412.11T54/149.
  14. File No. 412.11T54/138a.
  15. File No. 412.11T54/138a.
  16. File No. 412.11T54/140.
  17. File No. 412.11T54/143.
  18. File No. 412.11T54/143.
  19. File No. 412.11T54/145
  20. File No. 412.11T54/156.
  21. File No. 412.11T54/159.
  22. File No. 412.11T54/159a.
  23. File No. 412.11T54/159b.
  24. File No. 412.11T54/165.
  25. File No. 412.11T54/167.
  26. File No. 412.11T54/169.
  27. File No. 412.11T54/178.
  28. File No. 412.11T54/181.
  29. For. Rel. 1900, p. 903.
  30. File No. 412.11T54/181.
  31. File No. 412.11T54/187.
  32. For. Rel. 1905, p. 650.
  33. See p. 1349 of this volume.
  34. File No. 412.11T54/187.
  35. File No. 412.11T54/195.
  36. File No. 412.11T54/196a, 196b, 198, 199, 200.
  37. File No. 412.11T54/202.