494.11/141
The Consul at Shanghai (Butrick) to the Secretary of State
Sir: I have the honor to refer to this Consulate General’s telegram no. 1037, November 25, 10 a.m. (1939),11 and subsequent despatches and telegrams, during 1939 and 1940 in regard to the developments from day to day in the negotiations between the Japanese consular, military and naval authorities and American claimants, having the purpose of establishing a mutually satisfactory basis for the local settlement of American property losses sustained during the current hostilities as a result of acts of the Japanese armed forces. It will be recalled that in its periodic telegraphic reports the Consulate General has informed the Department, in substance, of the respective views taken by the Japanese authorities and the American claimants, and of the informal participation in the negotiations taken by this Consulate General on behalf of American claimants. In view of the fact that a number of American claims have now been settled as a result of direct negotiations between the claimant and the Japanese authorities, and in further view of the fact that there are fairly reliable grounds for believing that the peak of solatia payments to be made by the Japanese Government may have been reached, and that further settlements based upon local negotiations may henceforward be comparatively infrequent, the Consulate General believes that it is advisable to submit the following comprehensive report, for the Department’s information, reciting in detail the progressive steps as a result of which the above-mentioned settlements have been concluded. The primary principles and factors controlling local negotiations have been reported to the Department from time to time, but it is thought that a statement showing the developments in somewhat greater detail might be of value and assistance to the Department in illustrating the Japanese views and position.
It will be recalled that subsequent to the fact-finding investigations carried out by the so-called “Ishikawa Detachment” of the Japanese Army during July and the succeeding months of last year, with a view to ascertaining amounts of “solatium payments” to be paid to American nationals who sustained property losses or damage as a result of acts of the Japanese armed forces, the Japanese consular officer in charge of American claims informally notified a member of the staff of this Consulate General that the Japanese military authorities were prepared to offer certain sums as solatium payments in a number of American cases. It was requested, however, that this office inform the respective claimants of the amounts of the tentative Japanese [Page 683] offers, which would not actually be made, however, until after the claimant had indicated whether he was prepared to accept the sum offered. The total amounts indicated as offers were exceptionally small in relation to the amounts claimed by the American nationals, and the methods adopted by the Japanese military in measuring the sums to be offered were somewhat unusual and appeared to be in derogation of established and recognized rights of claimants under international law. The foregoing development was fully reported to the Department by Shanghai’s telegrams no. 1037, November 25, 10 a.m. and 1084, December 6, 6 p.m. (1939).12 There are now enclosed, for the Department’s fuller information, copies of self-explanatory office memoranda dated November 17, 1939 and December 2, 1939,12 respectively, reciting in detail the substance of the Japanese proposals.
The Department replied to the above messages by its telegraphic instruction no. 480, December 7, 4 p.m. (1939)13 in which certain objections to the Japanese proposal were pointed out, in view of which this Consulate General was instructed not to transmit the tentative offers made by the Japanese authorities to the American claimants, and to disassociate itself entirely from any negotiations between American claimants and the Japanese authorities which had for their purpose the settlement of American claims on the basis outlined in this Consulate General’s two telegrams cited in the preceding paragraph. In compliance with the Department’s instruction, the substance of its viewpoint was informally conveyed to the local Japanese authorities and their reactions were reported to the Department by this Consulate General’s telegrams no. 1111, December 16, 1 p.m. (1939)13 and no. 1, January 1, 5 p.m. (1940),13 which summarized the main points set forth in greater detail in an office memorandum dated December 13, 1939, a copy of which is enclosed.13
Following the informal conveyance of the Department’s views to the local Japanese consular authorities, there appeared to be a marked change on their part in regard to the settlement of American claims, evidenced primarily by an apparent tendency to increase materially the amounts of the solatia to be offered, without, however, any real relaxation in regard to the basic question of principles of responsibility, measure of damages, rates of exchange and currency to be used in making payment, et cetera. They stated that they were prepared to increase the amount of solatia to be offered, as a gesture of sympathy toward American claimants, but they remained disinclined to discuss or recognize or in any way be guided by the above-mentioned so-called “principles”, as they were reluctant to permit the injection into local settlenient negotiations of any consideration of “responsibility” [Page 684] or “liability” in the legal sense of the terms. To ameliorate their strict stand in regard to the non-observance of “principles”, however, they stated that they were prepared to give “political consideration” to the settlement of American claims in a favorable manner, the implication being, of course, that although they could not permit themselves to be bound by the usual rules of responsibility under international law, they would, nevertheless, make more substantial payments of solatia than those originally indicated or than might be justified by a strict interpretation or application of their viewpoint. On February 2, 1940 the Japanese Consul General called upon the American Consul General and handed him a note verbale dated February 2, 1940, a copy of which is enclosed,14 in regard to the status of the local negotiations which had been carried on for the previous six months looking toward the local settlement of American property losses. The substance of this note verbale was reported to the Department in Shanghai’s telegrams no. 99, February 5, 8 p.m.14 and no. 100, February 6, 2 [4] p.m.14 However, in the interests of providing a complete picture of the situation there are enclosed copies of two office memoranda, both dated February 5, 194014 setting forth the substance of the interview between the American and Japanese Consuls General on February 2, 1940, and a subsequent interview on the same subject between members of the staffs of the respective Consulates General.
Shortly after the Japanese authorities indicated that they would increase the amount of solatia to be offered in certain cases, and would give “political consideration” to the settlement of American claims, they requested that second or supplementary conferences be arranged for the purpose of discussing the cases in greater detail and giving greater consideration, at least nominally, to evidence presented by the American claimants in support of their claims. Actually, however, with one or two exceptions, it is apparent that the purpose of the second conference was merely to provide the Japanese consular officer in charge of claims with an opportunity to make an increased offer of solatium directly to the American claimant concerned. In very few of the supplementary conferences has anything more than a cursory re-examination of the facts and circumstances of the respective claims been made, the conference merely serving as a convenient vehicle for the Japanese authorities to make direct offers to the claimants. Up to the present time, it may be stated that although the secondary offers of solatia are decidedly higher than those originally indicated, they still fall far short—due to the depreciation in the value of the Chinese dollar (the currency in which the Japanese authorities insist that compensation is legally payable)—of the substantial compensation contemplated by the Department in its telegram no. 20, January [Page 685] 12, 5 p.m.,15 in which it was stated that payments should be made “in amounts which will substantially put claimants in status qua ante” As reported telegraphically from time to time, a number of American claimants have accepted the second offers made by the Japanese authorities, and the majority of these cases already have been or will shortly be closed by payment to the claimants of the solatia offered. In certain cases the claimant has been able to obtain payments from 20% to 30% greater than the amounts of the second offers made by the Japanese authorities, as the Consulate General has been able to suggest to the claimant that he consider the advisability of making a counteroffer in a greater amount.
As of possible interest, it may be stated that at the same time that the Japanese authorities indicated that they would increase the solatia to be offered and would give “political consideration” to American claims, it became increasingly apparent, on the other hand, that they were more strictly applying to individual cases the rule of land warfare which provides that there is no liability to make compensation for property destroyed or damaged as a result of actual fighting in the course of military operations. There were some grounds for supposing that as a quid pro quo for their favorable treatment in increasing the solatia payments, they were determined to take every advantage which might accrue to them as a result of the invocation and application of the rule of non-liability referred to above. They were not, however, willing to discuss this or other matters in principle, nor was the Department disposed, at that time, to authorize this Consulate General to enter into local discussions with the Japanese authorities in regard to the question whether the laws of war relating to non-responsibility for damages sustained in the course of military operations are applicable in the present conflict.
The Department therefore instructed this Consulate General, in its telegram no. 69, February 16, 4 p.m.,15 to suggest to the Japanese authorities that in dealing with individual claims which contained items of loss resulting from military operations, those items be segregated from other losses included in the claim on the understanding that such items would be, so far as the American Government was concerned, reserved for further consideration through diplomatic channels. Prior to the conveyance of this suggestion to the Japanese Consul General, however, the matter was discussed informally in several interviews between the American and Japanese consular officers in charge of claims. Copies are enclosed of office memoranda dated February 20 and 27, 1940,16 giving detailed accounts of the points raised and considered in the course of these preliminary interviews.
[Page 686]On February 27, 1940 the American Consul General called upon the Japanese Consul General and conveyed orally to him the substance of the Department’s suggestion in regard to the proposed segregation of certain types of property losses. After conferring with a representative of the Japanese Foreign Office who was then in Shanghai for the purpose of facilitating the settlement of American property losses, the Japanese Consul General replied that if the proposed segregation of losses was made, the result would be that many American claims would not be subject to local settlement. He suggested that, in lieu of segregation, the Japanese authorities would prefer that the “easy” cases be settled first, proceeding subsequently to local consideration of more involved cases (as those involving indirect losses sustained in the course of military operations). A copy of an office memorandum dated February 27, 1940 in regard to the substance of this interview was transmitted to the Department as an enclosure to this Consulate General’s despatch no. 2943 of March 1, 1940.18
In the course of the conference the Japanese Consul General took occasion to explain at some length the Japanese view in regard to property losses sustained as a result of military operations, pointing out that their practice was to divide such losses into two categories, “direct losses” and “indirect losses.” By “direct losses in the course of military operations,” for which no compensation or solatium will be made, it is understood that the Japanese consider that the property lost, destroyed, or damaged had acquired “enemy character,” as if an American-owned building had been occupied and used by Chinese troops, and the losses had resulted from the Japanese attack upon the Chinese troops therein. By “indirect losses in the course of military operations,” it is understood that the Japanese authorities consider such losses to be those caused by “mistake or accident” during the course of actual fighting, as if American property immediately adjoining an objective tainted with enemy character had been damaged by stray bombs or incidental shell fire. Claimants whose losses fall within the last-mentioned category will be offered solatia payments. It was stated that liberal consideration would be given to the classification of American claims in the two categories. The Japanese Consul General emphasized, however, that the Japanese authorities are proposing gratuitous payments in cases appearing to them to be meritorious, rather than indemnification on the basis of any legal liability.
In its telegraphic instruction no. 117 of March 14 [15], 4 p.m.18 the Department referred to the general question of segregation of losses occurring as a result of military operations and suggested that, if an individual claim includes items of loss falling within a classification [Page 687] with respect to which the Japanese propose to offer compensation, and also includes items of loss classified as “direct,” with respect to which compensation will not be made, it would appear that, if possible, the latter items might appropriately be segregated from the other items and deferred for further consideration. In accordance with the suggestion contained in the third paragraph of the Department’s telegram under reference, this matter was discussed with the appropriate Japanese consular officer who stated, in substance, that he saw no objection to the proposal as put forward. A copy of an office memorandum dated March 19, 1940 covering the substance of this interview is enclosed.19 Subsequently the Japanese Consul General informally agreed to the above-mentioned suggestion.
Despite the agreement reached, in principle, between the American and Japanese Consuls General in regard to the “segregation” of property losses classified by the Japanese authorities as “direct losses,” it shortly developed, in connection with the consideration of individual cases, that the Japanese authorities, particularly the naval and military authorities, were not prepared and did not intend to observe the spirit of the agreement. The first indication of the apparent renunciation of this understanding and the refusal on the part of the Japanese military authorities to be bound thereby, presented itself in the local negotiations between the China Finance Company Federal Inc., U. S. A., and the Japanese naval authorities in regard to property losses sustained by the Eddie Aerated Water Company, wholly owned by the China Finance Company Federal Inc., U. S. A. In this case, there were present property losses falling within the various classifications made by the Japanese authorities, i. e., losses caused by looting, “indirect losses” and “direct losses,” thus presenting a favorable opportunity for the application of the terms of the agreement reached by the Japanese and American authorities. Despite this fact, however, the Japanese naval authorities offered a solatium payment in a fixed amount, which payment was to cover all classes of property losses sustained by the American claimant regardless of any classification as previously indicated. This apparent renunciation of the undertaking on the part of the Japanese authorities, was discussed in considerable detail by the American and Japanese consular officers in charge of claims. Unfortunately, in this particular case, the American claimant appeared to be extremely anxious to effect local settlement on almost any grounds, and without reservations, and refused to support the stand taken, in principle, by this Consulate General. The American claimant accepted a small amount, payable in Chinese currency, and agreed that it constituted payment in full for all losses sustained as a result of acts of the Japanese forces, without regard [Page 688] to the character of the individual losses. For the Department’s information there is enclosed a copy of office memorandum dated March 28, 194020 reciting in detail the developments in connection with the settlement of the claim of the China Finance Company Federal, Inc., U. S. A. during a discussion of which the Japanese authorities apparently reversed their previous position in regard to “segregation” of “direct losses.”
During the period from January 1, 1940 until about April 15, 1940 the Japanese consular, military and naval authorities were extremely active in attempting to effect local settlement of American property losses by direct negotiations between the Japanese authorities concerned and the American claimants. These negotiations were facilitated to a certain extent by action on the part of this Consulate General in bringing the parties together, and in supplying to the Japanese authorities detailed statements in regard to the facts and circumstances of the property losses sustained by American claimants. In the great majority of conferences between the American claimants and the Japanese authorities, a member of the staff of this Consulate General was informally and unofficially present, as authorized by the Department.
As a result of the above-mentioned negotiations for local settlement, twenty-one cases of American property losses have been settled by the payment of so-called solatia directly to the American claimant by either the Japanese Army or Navy through the medium of its representative in Shanghai. Five of these settlements were effected in Nanking. In each and every case in which American claimants have accepted the Japanese offers of solatium, the claimant has been fully informed of the views of the American Government in regard to the principles of responsibility, and the measure of compensation which, under international law, would appear to control the settlement of his claim. At the same time the Consulate General has impressed upon the various claimants the necessity of fully supporting their allegations of Japanese responsibility for the loss or damage by the submission of definite and conclusive evidence in regard thereto. The Consulate General, however, has expressly refrained from advising the claimant as to whether he should accept or reject a Japanese offer of local settlement, and has left the decision in that respect entirely to the claimant’s own discretion. In general, it has been observed that the great majority of American claimants have been anxious to close their cases by the acceptance of the Japanese offer of solatia, despite the fact that in all instances this resulted in their obtaining but a comparatively small percentage of the alleged actual value of the property lost, destroyed, damaged or looted.
[Page 689]There have been a number of cases which have been the subject of local discussions between the Japanese authorities and American claimants, however, which appear to have failed entirely of settlement. In particular there may be cited the claims of the Poplar Grove Farms Federal Inc., U. S. A., Mr. H. D. Rodger, the American Far-Eastern Match Company (refusal of solatia decided by the Japanese authorities on basis of their own investigation without discussion with representatives of American claimant), Mr. Lemuel K. Taylor, the Bible Seminary for Women, the Carolina Leaf Tobacco Company Federal Inc., U. S. A. and a number of individual claims.
For the Department’s records and information, there is enclosed a detailed list of all cases in which offers of solatia have been indicated by the Japanese authorities, or have been made directly to the American claimant by the Japanese authorities.21 In this list the Consulate General has set forth, in the case of each claimant, the value in United States currency of the property losses sustained, the value after conversion into Chinese currency at the rate of exchange prevailing on the date of loss, the amount of the original offer of solatia tendered by the Japanese authorities, the amount of second and third offers of solatia, the counter-offers made by the American claimants and the disposition of the case, either by acceptance and settlement on the part of the American claimant, or by refusal of the Japanese offer. In a great many of the cases in which offers have been made, no agreement has been reached and these cases may be considered as still pending.
With respect to the twenty-one cases which have been settled, the total value of the property lost, destroyed or damaged, as alleged by the American claimants, is in the sum of $61, 101.81 United States currency which, converted to Chinese currency at the average rate of CH$1.00 equals US$0,295, would be $207,948.86 Chinese currency. The original offers of solatia made by the Japanese authorities in these cases totaled $115,307.07 Chinese currency, but they were subsequently increased to a total of $150,090.00. As a result of counteroffers made by the American claimants in certain cases, the final settlements were increased somewhat to a total of $157,090.00 Chinese currency.
Summary
This despatch summarizes, in somewhat greater detail than has been reported to the Department by telegram, the developments in regard to negotiations between American claimants and the Japanese authorities for the local settlement of American property losses sustained as a result of acts of the Japanese armed forces. As a result of these [Page 690] negotiations, twenty-one cases have been settled by the payment of so-called “solatia payments” to the American claimants.
Very respectfully yours,