The Chargé in Costa Rica (Thurston) to the Secretary of State

No. 274


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Expressed simply, the present status of the controversy is this:


The Government claims the Corporation has failed to actually produce oil within the three years stipulated in Clause (i) Article One,


The Corporation asserts that Clause (i) Article One does not and in common sense can not imply that the Corporation obligated itself to produce oil in an unproved field within a given time under penalty of forfeiture of its concession.

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The Government claims that the Corporation “without the previous consent of the Executive Power made transfer of shares to the Sinclair Enterprise” in alleged violation of a clause of Article Thirteen


The Corporation states that “the Pinto-Greulich Contract was transferred to the Costa Rica Oil Corporation in accordance with Article Sixteen. The Costa Rica Oil Corporation is today the owner of the contract and it has not transferred the contract by sale, lease, mortgage or in any other manner to the Sinclair Company or to any other person or Company. It is a well established principle of Costa Rican corporation law and every other corporation law, that the assets of a corporation—and the Pinto-Greulich contract is the principal asset of the Costa Rica Oil Corporation—are vested in the corporation, not the shareholders, and the transfer of the shares of a corporation from hand to hand neither modifies the legal capacity of the corporation nor alters its assets nor affects its obligations.”


The Government claims that the two above mentioned violations of the contract are cited, as causes for which the contract may be cancelled, in Article Thirteen, paragraph one of which grants to the Government authority to declare the contract extinct if “…18 exploitations …18 are not made within the periods stipulated” or if the contract “be transferred, be it by means of sale, lease etc.”


The Corporation holds that the “administrative declaration of caducity which the concession provides the Government may make in certain cases, cannot be made until after the arbitration provided for by the terms of the Concession has been had and the finding is against the Company”; that notwithstanding the Government’s contrary opinion the Corporation has not been called upon to defend itself and has not submitted a defense, as stipulated in the final paragraph of Article Thirteen; that Clause(k) Article One provides for arbitration of any dispute in the form described in Article Fourteen, and that arbitration in any other form will be refused, and


The Government maintains that Article Fourteen contemplates arbitration only of disputes concerning the drilling of wells or the [Page 998] commercial exploitation of the deposits, and that Clause (k) Article One admits to arbitration under Article Fourteen only disputes concerning matters specifically cited in Article One,


The Corporation insists that such a limited interpretation is unnatural and unfair, and that Clause (k) Article One applies to any dispute.

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I have [etc.]

Walter C. Thurston
  1. Omission indicated on despatch.
  2. Omission indicated on despatch.