893.102/11–2945
Memorandum Prepared in the Division of Chinese Affairs
Memorandum in re the International Settlement at Shanghai, China
definitions
In order to clarify what may be unfamiliar terms we make the following definitions: (a) the Land Regulations and By-laws for the Foreign Settlement at Shanghai, North of the Yang King Pang, will be designated as the Land Regulations; (b) the International Settlement at Shanghai will be designated as the “Settlement”; (c) the Council for the Foreign Community of Shanghai or as it is incorrectly called, the Shanghai Municipal Council, will be designated as the “Council”; (d) the words “the Settlement” designate the area set aside for the residence of foreigners,; (e) the word “Council” designates the Executive Committee or governing body of the Settlement; (f) the words “rate payers” designate the foreign tax payers and voters of the Settlement; (g) the words the “Provisional Council” refer to the Provisional Executive Committee or governing body of the Settlement organized in 1941; (h) the Treaty between the United States of America and the Republic of China relating to the Relinquishment of Extraterritorial Rights in China and the Regulation of Related Matters will be designated as the New American Treaty; (i) the Treaty between His Majesty in Respect to the United Kingdom and India and His Excellency the President of the National Government of the Republic of China for the Relinquishment of Extraterritorial Rights in China and the Regulation of Related Matters will be designated as the New British Treaty; (j) the National Government of the Republic of China will be designated as China; (k) the Japanese-sponsored Nanking Government of China will be designated as the “Puppets”; (l) citizens of the United States of America will be designated as Americans; (m) subjects of the United Kingdom and India will be designated British; (n) the United States of America will be designated America; and (o) the United Kingdom and India will be designated Britain.
facts
[Here follows brief survey of developments since 1845.]
Upon the advent of World War II, the Japanese Naval Landing party occupied the Settlement and requested the British and American Councillors to continue in office. Thereafter the Naval Landing party issued a proclamation stating that it would comply with International Law and ordering all civil servants to remain at their posts, otherwise they would be punished.
[Page 1383]On or about December 28, 1941, Mr. Okazaki, Japanese member of the Council, and concurrently Counsellor of the Japanese Embassy, informed the British Chairman of the Provisional Council, Mr. J. H. Liddell, that the Japanese Government could no longer permit American, British and Netherland members of the Provisional Council to perform their duties. Such members, however, were requested to continue the duties performed by them on Committees. Subsequent to this time, the American, British and Netherland members of the Provisional Council resigned, but continued to perform their duties as members of Committees.
Two American members of the Provisional Council, Messrs. N. F. Allman and R. T. McDonnell, and one British member, Mr. C. A. Haley, were not in Shanghai of [on?] December 8, 1941. They were unable to return and therefore did not resign. They are still, as far as can be ascertained, members of the Provisional Council.
In January 1942 Mr. Okazaki was elected Chairman of the Provisional Council, which continued to function without American, British and Netherland members. The majority of the foreign civil servants remained at their posts, while some of them were retired on pension or discharged. The Provisional Council continued to function in this manner until all of the American, British and Netherland Councillors and employees were repatriated or interned. In August 1943 the Japanese Government handed over the Settlement to the Puppets.
Upon the termination of the World War II, China assumed control and administration of the Settlement. Coeval with this act, China took possession of the assets of the Settlement without first making necessary agreements with other Governments concerned for the transfer of such administrative control and assets; without making any provision for the discharge of the obligations and liabilities of the Settlement; and without providing for the protection of all legitimate rights therein. Thereafter interested parties informally called the attention of the local Chinese officials to the fact that the Settlement had many creditors and unpaid obligations; and that a large group of former civil servants of the Settlement, most of whom were British, who had been interned or discharged by the Japanese, were without funds, satisfactory living quarters, or adequate food. The local officials replied that the matter had been referred to the Chinese Government for instructions.
In view of the facts hereinbefore related, it appears that the American Government has a substantial interest in the Settlement, which it has sponsored and protected by diplomatic representations, and even armed force, almost from its very inception. Relying upon the [Page 1384] treaties, Land Regulations, and American protection, American business enterprises and two large American Public Utility Companies, the Shanghai Power Company and the Shanghai Telephone Company, have invested large sums of money in Shanghai. The Council has since its inauguration employed some Americans, and the action of China in taking over the control and administration of the Settlement affects about fifteen of them. These former employees have a variety of claims, including pensions, superannuation funds, gratuities, and traveling expenses. No accurate statement can be made as to the number of American debenture holders without access to the Council’s records. It is believed, however, that a number of Americans have invested their savings in these securities.
The purpose of this memorandum is to discuss the liability of the Chinese Government and to make suggestions for the joint action of the American and British Governments in order to rectify the present unsatisfactory condition. The salient points for discussion are: (1) the effect of China’s taking over of the administration and control of the Settlement, and (2) the appointment of a commission similar to the former Court of Foreign Consuls, by America, Britain, China and other interested powers to pass upon claims of creditors and to make necessary agreements.
the effect of china taking over the administration and control of the settlement
In order to determine the effect of China taking over the administration and control of the Settlement, the new American and British Treaties should be analyzed and construed. Article III of the New American Treaty provides:
“The Government of the United States of America considers that the International Settlements at Shanghai and Amoy should revert to the administration and control of the Government of the Republic of China and agrees that the rights accorded to the Government of the United States of America in relation to those Settlements shall cease.
“The Government of the United States of America will cooperate with the Government of the Republic of China for the reaching of any necessary agreements with other governments concerned for the transfer to the Government of the Republic of China of the administration and control of the International Settlements at Shanghai and Amoy, including the official obligations of those Settlements, it being mutually understood that the Government of the Republic of China in taking over administration and control of those Settlements will make provision for the assumption and discharge of the official obligations and liabilities of those Settlements and for the recognition and protection of all legitimate rights therein.”
Article IV, Sections 1 and 2 of the New British Treaty contain provisions which are almost identical with Article III of the New American Treaty.
[Page 1385]In construing the pertinent clauses of the new treaties, due regard and consideration must be placed upon the Land Regulations.
Article XXVIII of the Land Regulations provides:
“Hereafter should any corrections be requisite in these Regulations, or should it be necessary to determine on further rules, or should doubts arise as to the construction of, or powers conferred thereby, the same most he consulted upon and settled by the Foreign Consuls and Local Chinese Authorities, subject to the confirmation by the Foreign Representatives and Supreme Chinese Government at Peking.”
In view of what is hereinbefore stated, the new American and British Treaties may be interpreted as follows:
First, the American and British Governments have relinquished their rights in the Settlement; second, the agreement of all the treaty powers is a condition precedent to the complete rendition of the Settlement; third, when China takes over the control of the Settlement, she must assume and discharge its liabilities; and fourth, China is estopped to deny the validity of the acts of all regimes, de jure or de facto, which governed the Settlement.
It appears, therefore, that the effect of China taking over the administration and control of the Settlement is to make her liable to discharge all the obligations of the Settlement.
The American Government is entitled to discuss matters of this nature with China according to the new American Treaty which provides as follows:
“It is mutually understood that questions which are not covered by the present treaty and exchange of notes and which may affect the sovereignty of the Republic of China shall be discussed by representatives of the two Governments and shall be decided in accordance with generally accepted principles of international law and with modern international practice.”
A note to the new British Treaty contains a similar provision. This leads us to a discussion of the suggested remedy.
america, britain, china and other interested powers should appoint a commission similar to the former court of foreign consuls to pass upon claims of creditors and make necessary agreements
We have already demonstrated that the Land Regulations as the fundamental law of the Settlement should be considered in construing the New American and British Treaties. Article XXVII of the Land Regulations provides:
“And be it further ordered that the executive Committee or Council may sue and be sued in the name of their Secretary for the time being or in their corporate capacity or character as ‘Council for the Foreign Community of Shanghai’, and such Committee, Council or Secretary shall have all the rights and privileges which private complainants [Page 1386] have, to recover and enforce judgments obtained by them and shall also incur the obligations which private defendants have in proceedings at law or suits in equity commenced against them, provided that the individual members of the Council or their Secretary shall not be personally responsible, but only the property of the Council, and all proceedings against the said Council or their Secretary shall be commenced and prosecuted before a ‘Court of Foreign Consuls’, which shall be established at the beginning of each year by the whole body of Treaty Consuls”.
The purpose of Land Regulations XXVII was to give a legal remedy to persons having claims against the Council by providing a fair and impartial Court wherein redress might be obtained. This Court operated for many years and adjudicated numerous cases, sometimes in favor of the Council and frequently against the Council. It had a code of procedure and a Secretary and conducted litigious disputes in a manner similar to Anglo-Saxon Courts.
Prior to December 8, 1941 the words “the whole body of Foreign Consuls” were construed to mean those Consuls whose Governments had treaties with China providing for extraterritoriality. These Consuls were the Consuls for the United States, Britain, Japan, Denmark, the Netherlands, Belgium, Sweden, Norway, France, Italy, Switzerland, Brazil and Spain who elected the Court of Foreign Consuls every year. Shortly before World War II commenced, there was some difference of opinion as to whether or not the Treaty between China and Spain providing for extraterritoriality had been abolished. The Court of Foreign Consuls generally consisted of three members, who were usually the Consul Generals for America, Britain and Japan, although the Consul Generals of the other governments did occasionally serve on the Court. The nations which did not have treaties with China providing for extraterritoriality, and whose Consul Generals, with some exceptions, did not vote for members of the Court of Foreign Consuls were Russia, Germany, Finland, Cuba, Greece, Chile, Mexico, Poland, Venezuela and Guatemala. The Consul General for Germany at one time insisted that he was entitled to vote for the Judges of the Court of Foreign Consuls, and it is believed that on one or two occasions he did so vote.
The new American and British Treaties, in abolishing American and British extraterritorial rights in China, have also abolished the Shanghai Consular Body as it existed before World War II. It is possible, however, for America and Britain to negotiate with China for the appointment of a Commission with powers similar to the former Court of Foreign Consuls. The appointment of a Board of Judicial Inquiry in 1925, as hereinbefore related, to investigate the incident which took place in the Settlement on May 30, 1925, is a precedent for the appointment of such a Commission. It would be advisable to [Page 1387] obtain the approval of the interested Powers other than America, China and Britain. Since Germany and Japan were defeated in World War II, it would appear that it would not be necessary to consult them.
The powers of this Commission should be set forth in a carefully drawn terms of reference. The powers of the Commission might include:—(1) the same prerogatives formerly exercised by the Court of Foreign Consuls; (2) the authority to make and enforce its own rules of procedure; (3) the authority to give final judgments against the Chinese Government which should be enforced if necessary by levying upon and selling the assets of the Settlement in the same manner as a Court levies a writ of execution upon the assets of a judgment debtor; (4) the right to employ the necessary personnel to enable it to perform its functions; (5) the right to issue subpoenas and to require the production of papers and documents from any person or government; (6) the right to punish for contempt; (7) the power to negotiate and make the necessary agreements providing for the rendition of the Settlement as provided in Articles III of the New American Treaty and IV, sections 1 and 2 of the New British Treaty; and (8) the right to perform all other acts which they may deem necessary to carry out the new Treaties. All interested parties and governments should have the right to appear before the Commission, either in person or by Counsel, and to present their claims. The question of financing the Commission should be given careful consideration. Each Government might pay its own appointees and its share of the expenses, which upon the termination of all proceedings might be repaid by the Chinese Government.
conclusion
In conclusion it appears that: First, the American Government has a substantial interest, both political and financial, in the Settlement, which it has sponsored and protected by diplomatic representations, and even armed force, almost from its inception; second, these American interests fully justified the Government in making in conjunction with Britain, diplomatic representations to China concerning the liabilities of the Settlement which she has not only assumed but is liable to discharge; and America and Britain may desire to persuade China and the other Powers concerned to agree to the appointment of a Judicial Commission similar to the former Court of Foreign Consuls.
Dated November 30, 1945.