Papers Relating to the Foreign Relations of the United States, With the Address of the President to Congress December 4, 1917

File No. 837.156/240

Minister Gonzales to the Secretary of State

No. 368

American Legation,
Habana, August 25, 1916.

Sir: I have the honor to enclose herewith a translation of a note, dated August 22, from the Cuban Secretary of State, replying to my note of August 7, relative to the matter of the Cuban Ports Company, addressed to him in pursuance of the Department’s instruction No. 235 of July 31, 1916.

I have [etc.]

William E. Gonzales

The Cuban Secretary of State to Minister Gonzales

[Inclosure—Translation]

No. 124

Department of State,
Habana, August 22, 1916.

Mr. Minister: On the 7th instant this Department received your excellency’s note⁹ relative to the matter of the so-called Cuban Ports Company, transmitting the instructions which in regard thereto were sent you by the Government of the United States.

Due to the absence from Habana of the President of the Republic when that note was received, reply thereto has been retarded, since, naturally, this Department did not care to undertake to answer it without first submitting the matter to the consideration of the President, not only because he is the head of the Executive Power and the First Magistrate of the nation, in whom the Constitution vests the direction of diplomatic negotiations, but because of the references to the President which are made in your excellency’s note. Accordingly, not until Monday, the 14th instant was the matter submitted to the President at a meeting of the Cabinet, and after a study of the note and examination of all the facts relating to the matter of the Cuban Ports Company, it was decided to draft a reply in the terms in which I now have the honor to do.

In the first place I must express to the Government of the United States the pleasure with which the Government of Cuba views its zealous interest not only in the credit of the Republic but to avoid diplomatic controversies with another nation which might, as stated in your excellency’s note, be fraught with serious consequences for Cuba; but, as a matter of fact, if the antecedents and facts which enter into this matter of the Ports Company are closely studied, it will be observed that the acts of the Government of Cuba in this matter have in no wise affected the credit of the Republic, which is as flourishing or more so than in the best of times, nor can any diplomatic complications be feared in the confident assurance that calm discussion of this matter will certainly result in convincing all that the acts of the Government of Cuba with reference to the aforesaid company are firmly grounded not only in the law of Cuba but in the laws of all countries, and therefore the Government of Cuba sees no reason why it should be subjected to censures which it certainly has not deserved.

It is true that the President of the Republic has on more than one occasion expressed his keen desire for finding a basis of amicable arrangement with those who lent their money for the work performed by the Cuban Ports Company, and I can assure you, and prove to you, that the President has not procrastinated in this matter.

Decree No. 522, in which the President ordered suspension of payments which were being made to the aforesaid company, and reference to the courts for ventilation of all questions relating to the validity of a corporation which, contrary to the laws of the land and more especially to the provisions of the very act of February 20, 1911, was not organized in accordance with the laws in force in Cuba, was issued on the 4th of August 1913, and from that moment began the activities of the company against that decree, entering first a suit in which the constitutionality of the decree was attacked and which was lost in the Supreme Court, and subsequently a contentious-administrative suit and another suit in the courts of ordinary jurisdiction brought by the bondholders.

Of these suits there is still pending decision of that brought by the bondholders; the suit brought by the company in the contentious-administrative court having been decided against the company and in full confirmation of the aforesaid decree of August 4, 1913; and it can be assured that in these suits it has been the company principally which has retarded their course, doubtless because the company deemed it advantageous to its interest to do so. Indeed in this Department a memorandum was received from your Legation, dated October 13, 1915, conveying the suggestion that the question be allowed to remain in status quo, that is to say, without decision by the courts, while the matter of a friendly arrangement between the interested parties was considered; and the company itself not only requested the suspension of trial in the courts, but on some occasion preferred a similar request to the President himself.

Notwithstanding that the various suits brought in this matter were pending determination by the courts, the President of the Republic viewed with pleasure and encouraged as far as possible the presentation in one of the Houses of Congress of bills purporting to authorize him to settle definitely all questions relating to the Ports Company, and to provide even for the indemnity in proper measure, on grounds of grace and equity, those who had in good faith lent their money to the company for its work.

After the Supreme Court had rendered its decision of November 8 last, confirming in all its parts the decree of August 4, 1913, issued by the President of the Republic, the President assumed the initiative in this matter, addressing, only two months after the date of the decision of the Supreme Court, a message to Congress recommending, among other things relating to the Ports Company, a determination whether, for reasons of grace and equity, Congress deemed it proper to compensate in some measure those who had lent their money to the company. The pertinent part of that message reads as follows:

“The need for making some provision for the circumstances arising from the aforesaid decree and from the Supreme Court decision to which I have referred, has not escaped the recognized wisdom of the legislative power; and consequently a bill in this connection was introduced in and passed by the Senate and is now pending action by the House of Representatives.

“It is not my purpose now to discuss and advance an opinion upon this bill, which, doubtless, is predicated upon motives and reasons of justice on one hand, and on the other hand of grace and equity, which are fundamental and should not be lost sight of; my view being that, in this sense, that is to say, upon the broad basis of its most general lines, legislation may be enacted which, in the judgment of the honorable Congress, should conduce to accomplish the object which, as concerns the dredging and improvement of harbors, was sought in the act of February 20, 1911, and moreover, if indemnity, on grounds of grace and equity, of those who in good faith lent their money for the performance of the aforesaid works of dredging and harbor improvements, provision may be made for the adoption of proper measures for such compensation in the manner and to the extent which may be deemed just and reasonable.

Presidential Palace, Habana, 21 January 1916.”

The interviews and conferences which, after sending this message, the President had, at his own instance, with Representatives and Senators for the purpose of reaching some agreement in regard to the indemnities which, if proper, might be granted on grounds of grace and equity to those who lent their money for the company’s work, are of public knowledge. And, latterly, in view of the fact that at such conferences no definite arrangement was reached, the President appointed a commission to determine what the Executive could himself do in this matter, the majority of the commission holding, in their opinion dated May 30 this year, that only with the cooperation of Congress could anything substantial be accomplished in this matter, for on his own accord or on his own authority the President could do nothing by way of settlement.

From the foregoing it will be seen that the President has been active in his efforts to accomplish some result, even before the decision of the Supreme Court was rendered, but much more so after that decision was rendered, and I have to say, with the President’s authority, that he is still dealing with the matter, though the summer season and the proximity of the general elections make it difficult for Congress to meet in order to consider and take action upon the matter.

I cannot but cite a fact which is of decisive importance in this matter, namely, that only the suit on constitutionality brought in the Supreme Court and the contentious-administrative suit brought by the company have been definitely decided, both of course against the company, and that there is pending decision not only the suit brought by the bondholders, now in the Supreme Court, but also the suit to determine the nullity or forfeiture of the charter or instrument of organization of the Cuban Ports Company brought by the public prosecutor, which, as previously stated, has not yet been determined.

These two suits are of capital importance in this matter, but of much greater importance is that brought by the public prosecutor, in which the question is to be decided specifically whether the company’s corporate instrument shall be declared null or forfeit; for this Department particularly wishes to invite your excellency’s attention to the quite important point that the President, in his above-mentioned decree of August 4, 1913, did not declare that instrument null and void, nor much less decree what in your excellency’s note is termed the cancellation of the concession. What the President did in that decree was to declare that, since the act of February 20, 1911, provided that the Cuban Ports Company should be organized in accordance with the laws of Cuba in order that it might receive the concession, and said company was not organized in accordance with the laws of Cuba, the Government could no longer continue making the payments which under that act were to be made to the company, and that consequently the Secretary of Justice should take appropriate action in the courts to obtain a judicial decree of nullity or forfeiture and, in a proper case, to procure the punishment of anyone guilty of crime in connection with the organization and other acts of the company.

The Supreme Court decision of November 1915 was confined to a confirmation of the grounds of the President’s decree; declared the payments properly suspended and upheld the other provisions of the decree. It is in the other suit above-mentioned where the Government of Cuba, through the public prosecutor as its legal representative, seeks a decree of nullity or forfeiture of the corporate instrument of the company—the suit in which it is to be definitely settled whether such nullity or forfeiture is proper. The present legal status is this: the decree of August 4, 1913, has, as stated, been confirmed by the Supreme Court, because the court holds that the company was not in fact organized in accordance with the laws in force in the Republic as required by the concession act of February 20, 1911.

It will be seen, therefore, that the question involved is not as to the concession, nor as to whether those who lent their money to the company did so in view of a concession granted by an act of Congress, but as to whether the concession was in fact granted to those to whom the act directed that it should be granted, namely, the Cuban Ports Company, which in order to obtain the grant should be organized in accordance with the laws of Cuba, and it seems clear that if that company did not conform to the laws of Cuba and organize in accord therewith, it could not and ought not to have been held to be the concessionaire.

The statement in your excellency’s note relative to the bondholders having represented to the Government of the United States that the occasion seems to have arisen to assume that the Government of Cuba has taken over the operation of the company, and that steps should be taken to appoint appraisers to determine the value of the securities of the company with a view to the purchase thereof by the Government of Cuba, seems to be an error on the part of the bondholders, since the Cuban Government has in no wise contracted the obligation to make such purchase of the securities of the company in any case, and much less in the present case, in which it has not taken over the operation of the company but has merely declared that it should not continue recognizing the personality of that company and making the payments to it provided by the law because not organized in accordance with the laws of Cuba.

What has really occurred in this connection is this: The President of Cuba, General José Miguel Gómez, issued on May 12, 1913, that is to say a few days before the expiration of his term of office, which expired eight days later, or on the 20th of the same month, decree No. 510, in which the right was accorded the Government to take over the works and perform the dredging and harbor improvements in ports of the Republic upon indemnity of legitimate holders of the company’s securities; but the fact is that, on various grounds, among others, that the decree gave to the United States certain intervention, whereas the United States as a foreign nation could appear in no pact save in the form of a treaty, or otherwise, but always subject to the ratification of the Senate, President Menocal annulled said decree No. 510 in all its parts, leaving it without legal force or value; and the present legal status is that said decree No. 510 is not in force because annulled on June 21, 1913, by decree No. 246 of President Menocal, while against such annulment the company has obtained no favorable resolution nor has attempted even to combat it in the courts.

With respect precisely to this decree No. 246, your excellency’s predecessor Mr. Beaupré indicated to this Department in the same year, 1913, the desire of his Government that publication of the decree be suspended until the receipt of instructions, and soon thereafter, in a note of the very 21st of June 1913, addressed to Sr. Torriente, then Secretary of State of the Republic of Cuba, Mr. A. M. Beaupré, Minister then of the United States to Cuba, stated that he had just received a telegram from the Washington Government stating that it inclined to the opinion that the question of the legality of the aforesaid decree should be decided only by the competent Cuban authorities. Therefore, on this occasion, the American Government recognized that in so far as the legality of that decree was concerned, the Cuban Government was within its competent jurisdiction and could act freely in the matter.

It will thus be clearly seen that the attitude of the Government of Cuba in the matter in question is to continue to withhold payments to the so-called Cuban Ports Company as provided in the decree of August 4, 1913, confirmed in all its parts by decision of the Supreme Court of November 8, 1915, on the ground that the aforesaid company is not legally organized, and to await the final decision not only of the suit brought against the Government by the bondholders, but also the suit brought in 1913 against the company by the public prosecutor in representation of the Government of Cuba; without prejudice to continuing in the meantime its efforts to reach a settlement that shall put an end to the whole matter of the Cuban Ports Company, efforts which, as stated before, the President made unofficially prior to the rendering of the Supreme Court decision of November 8, 1915, and by the official means of the message to Congress after that decision had been rendered.

In respect to the concluding part of your excellency’s note, where you say:

“My Government, without desiring at this time to enter into any discussion as to the legal rights of the parties to the contract in question under the terms thereof just mentioned, desires me to point out that the Cuban Government, inasmuch as it has, acting through its President, terminated the company’s concession, would appear to be in a position at once to take steps to effect a satisfactory solution of the existing regrettable difficulties between itself and the company by promptly instituting the proceedings suggested by the holders of the company’s securities.”

I must refer to what I have already stated in this note, namely, that the bondholders, who, as stated in your excellency’s note, have suggested this idea, cannot properly make such a recommendation nor sustain this claim, and that for various reasons.

The first reason is that, as I have already pointed out, the procedure in question was provided for in decree No. 510, of May 13, 1913, of President José Miguel Gómez, which was revoked in full by President Menocal in his decree No. 246 of June 21, 1913, and accordingly, the only legal ground which the bondholders would have had for this procedure of the purchase of the securities by the Government of Cuba must be considered to have completely disappeared and to have been extinguished by the act of complete revocation of the decree authorizing such procedure.

Another reason is that it is not clear how the bondholders can request through diplomatic channels that this procedure of the purchase of the securities by the Government of Cuba be carried out when the fact is that, in addition to its being known to them that the decree authorizing such procedure of the purchase of securities by the Government has been revoked in full and is therefore without legal force, said bondholders, through the Trust Company of Cuba, their legal representative, have still pending in the courts a suit against the Government, claiming not only what they call the mortgage represented by their bonds but the resumption of payments by the Government in accordance with the act of February 20, 1911, and compensation of damages; it being incompatible for said bondholders to sustain at the same time two such contradictory extremes as that their character of mortgagees be recognized and the Government continue making the payments provided for in the act before mentioned, with the compensation of damages which they also seek, and that the Government be assumed to have taken over the operation of the company and should therefore proceed to purchase, after due appraisal, all the securities of the company. Or in other words, the bondholders seek through the diplomatic channel exactly the opposite to what they are seeking in the suit which is still pending decision in the Supreme Court of the Republic of Cuba.

Lastly, it is evident that, in view of all the facts, it cannot be held that the Government of Cuba has decided to take over the operation of the company and to proceed to acquire the company’s securities by purchase, even were decree No. 510 authorizing this procedure still in force, which, having been revoked by decree No. 246 of June 21, 1913, it is not; for what the Government of Cuba actually did in this case was to decide and declare, as it perforce had to do, that it should not continue making payments to the Cuban Ports Company, nor should the latter continue the works of dredging and harbor improvements provided for in the fundamental act, namely, that of February 20, 1911, for the reason that said act directed that the concession should be given to the company upon the condition that it be organized in accordance with the laws of Cuba, and that, it being discovered that said company had not complied with the laws, it should not have been concessionaire indicated in the act nor could continue as such, and, consequently, payments which were theretofore being made should be discontinued and the matter taken to courts for final decision of everything concerning the legality of the company.

Moreover, the bondholders, or their trustee, the Trust Company of Cuba, are aware also that a suit is before the courts brought by the Government seeking a decree of nullity or forfeiture of the charter or instrument of organization of the corporation known as the Cuban Ports Company because of failure to comply in said instrument with the provisions of laws in force, and that said suit will be decided by the judge before whom it is pending as soon as defendants file their final answers.

In view of all these facts it is quite evident that the Government, and especially the President of the Republic, has not been procrastinating or tardy, but that his efforts for a definite settlement have perhaps been premature and untimely, inasmuch as suits are still pending in the courts, one of which was brought by the bondholders themselves; and therefore it does not seem that the Government of Cuba can be properly criticised, having proceeded and proceeding in this matter in thorough good faith and adhered to the mandates of the law, as any other nation would have done whose laws were unfulfilled and disregarded by a corporation upon which, without prejudice to the general obligation of organizing in accordance with the laws of Cuba, the act itself of February 20, 1911, authorizing the dredging and harbor improvements in ports of Cuba, specifically imposed the obligation to organize in accordance with the laws of Cuba.

Both the company and the bondholders are bound to abide by what has already been determined, and what is yet to be determined in the suits still pending, by the courts, upon whom the ascertainment of all rights and obligations in the premises devolves. The Government of Cuba is of course willing to fulfill all its obligations, and will beyond any doubt fulfill those which may arise from the determinations of the courts. In this case there is no question of the fulfilment of any obligation with respect to Cuba which the Treaty of Paris imposed upon the United States and which should be assumed and fulfilled by the Government of Cuba as stipulated in Art. 3 of the appendix to the Constitution known as the Platt Amendment. The question involved arises from a contract between the Government of Cuba and a Cuban corporation, a corporation which under the general laws and the special law had to organize in accordance with the laws of Cuba and which the Government of Cuba, and subsequently the Supreme Court, have declared not to have observed those laws, and accordingly the Government of Cuba acted within its rights in suspending payments and submitting the question to the courts for final determination. The Government of the United States itself has recognized that in such matters, concerning questions of internal administration of Cuban affairs, and the merits of contracts between the Government of Cuba and third persons, the Government of Cuba alone has competent jurisdiction save in so far as such matters may be affected by the provisions of the Platt Amendment, as the Secretary of State of the United States expressly communicated to the Cuban Ports Company in a letter dated June 11, 1912, quoted, in this pertinent part, in the note which Mr. Beaupré, Minister of the United States, addressed to the Cuban Government on February 25, 1913.

It is not necessary to state that the so-called Platt Amendment is not involved in this matter, since, as before stated, it does not refer to obligations with respect to Cuba which were imposed upon the United States by the Treaty of Paris and which should be assumed and fulfilled by the Government of Cuba, the question involved being merely whether the holders of securities of the Cuban Ports Company have or have not any rights in the premises, and if so, what those rights are, a question still to be settled by the courts of Cuba in the suit brought by the bondholders. The President, it is true, has sought a full settlement of the question by means of an equitable arrangement, but it cannot be held on this account that the well-intentioned efforts of the President of the Republic are to be construed as creating obligations which the President has not intended to and could not impose upon the Republic.

Finally, all claims in connection with the matter of the Ports Company which may be brought against the Government of Cuba, not only by the company itself but by foreign nations, such as Great Britain, must be discussed on legal grounds only, and settled strictly on their legal merits, without any fear that the credit of Cuba will suffer or that a dangerous situation will confront the Republic, a situtation which could never arise with one who, as the Cuban Government, only wants to discuss these matters calmly and to have them settled, finally, as they should be settled, in the understanding that, once settled, the Government of Cuba will not refuse to fulfill what it shall justly have to fulfill.

I avail [etc.]

Pablo Desvernine

9. Not printed. See Department’s instruction No. 235 of July 31, 1917, ante.