The Acting Secretary of State to the Paraguayan Minister ( Gondra )

No. 3

Sir: The Construction and Engineering Finance Company of New York have made representations to this Government in respect to the alleged premature termination by a decree of February 21, 1918, of a concession granted to this company by the Paraguayan Government. The main facts in the case, briefly stated, are represented to be that on October 18, 1915, a law of the Paraguayan Congress was promulgated authorizing the Government to enter into a contract with the company mentioned for the purpose of improving the port and river front at Asuncion; that on October 25, 1915, a formal contract was signed by the Construction and Engineering Finance Company, for this purpose; that about December 27, 1915, plans for the improvement of the port and river front were submitted to the Paraguayan Government, and were approved by it on March 30, 1916; that owing to the delay of the Paraguayan Government in approving the plans, work was not begun within four months after the promulgation of said law, (the period prescribed in Article III of the said law), and consequently the President, by a decree of February 18, 1916, extended this period two months, (that is, to April 18, 1916); that on this last date the company, in good faith, began construction under said law and contract, and before the suspension of work on November 29, 1916, had expended in materials and labor the sum of $200,000; that owing to the condition brought about by the war, including the increased activity of submarine warfare in the latter part of 1916, and early in 1917, preventing the shipment of materials, machinery, etcetera, and particularly the entrance of the United States into the war, on April 6, 1917, it was impossible to continue and conclude the financing of the project in the United States or elsewhere, or to procure certain necessary machinery for completing the construction of the projected works; that on December 6, 1917, the company duly notified the President of Paraguay of the exigencies of the situation in respect to obtaining the necessary supplies for construction, and requested the recognition of the situation as force majeure within the meaning of those terms as used in the law and contract; that on February 21, 1918, the President of Paraguay refused to recognize the plea of force majeure and announced the expiration of the contract for noncompliance, on June 18, 1918; and that on March 16, 1918, the company petitioned the Government of Paraguay for arbitration under Article XXIX of the law mentioned, on the question whether the terms force [Page 329] majeure included the condition resulting from the war which prevented the completion of the projected works.

The company further represents that since the termination of hostilities, and the prospect for a return to normal business conditions, it has every confidence that it will need only a relatively brief interval within which to resume construction under the contract, and that in view of all the circumstances, and in equity and justice, it is entitled to generous consideration in the adjustment of its difficulties.

Relying on these representations, the Government of the United States has examined the law and the other documents presented in the case, and desires to present for your kind consideration its feeling in respect to the matter. I presume it will not be doubted that conditions arising out of the great war, practically since the last of 1916, have affected throughout the world all construction projects which were not necessary for the effective prosecution of the war, and that, as a consequence, there have been great difficulties in obtaining funds, materials and labor for completing construction work already started before that time, or beginning new work since that time. I take it for granted that the Paraguayan Congress and Government having by a law sanctioned, and by a contract provided for, the construction of port works at Asuncion, and having officially celebrated the inauguration of the work by a public ceremonial, participated in by its President and Government Officials on May 29, 1916, did regard those works as highly necessary to the improvement of the port, and for the accommodation of shipping, and that the necessity for such works and the desire of your Government that they be completed, have not been lessened but rather have been enhanced by war conditions, particularly in view of the prospect of increased commerce between the United States and Paraguay, and between Paraguay and other countries upon the return of normal conditions of trade. And I suppose it will be admitted that the advent of peace will be accompanied by facilities for obtaining the requisities of construction. Considering these circumstances, and considering further the friendly relations existing between the two Governments which we represent, I venture to suggest for Your Government’s consideration, whether it should not in equity and justice, and in the interest of all parties concerned, interpret Article III of the law so as to allow an extension of the period within which the works contemplated by it were to be completed. I am led to entertain the thought that the President has authority to make such an extension, not only by the terms of the law, but by his act in extending, by the decree of February 18, 1916, the period within which construction was to begin. I [Page 330] desire, therefore, to propose, informally by way of good offices, on behalf of the company, that the President under the terms of Article III of the law, authorizing him to recognize force majeure issue a decree, based upon the presentation of new facts, modifying the decree of February 21, 1918, and extending the period for completion of work to the expiration of twenty-six months after the signature of the Treaty of Peace by the United States. If your Government should find it possible to take such action, the company would have, as I am advised, ample time in which to complete the port improvements proposed, and the present controversy would be adjusted not only to its satisfaction, as it states, but, I venture to assert, to the advantage of Paraguay in securing the completion of a great public work which can not fail to promote the future development of its trade.

Accept [etc.]

Frank L. Polk