This Document is the Property of His Britannic Majesty Government] 437
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CHINA RAILWAYS.
CONFIDENTIAL.
[7739]
No. 1.
Reco 18 MAR 10
[March 5,]
SECTION 4.
Mr. C. S. Addis to Foreign Office,(Received March 5.)
Dear Sir Francis,
Hong Kong and Shanghae Banking Corporation,
31, Lombard Street, London, March 4, 1910. I ENCLOSE counsel's opinion on the Chinese proposal to apply the funds destined for the Shanghae-Ningpo Railway to the construction of another line.
The opinion appears to be conclusive against Liang's suggestion that the court should allow its sanction, if obtained, to be held in terrorem over the local companies in order to compel their submission. Apart from that, it appears to be doubtful if even a definite application to the court would be successful, and the risks attaching to it are so great that, unless you take a different view, we are not disposed to take any further action in the matter.
Yours truly,
C. S. ADDIS.
Enclosure in No. 1.
Opinion of Mr. Whinney respecting the Shanghae-Hangchan-Ningpo Railway.
THE fact that there are large funds in this country standing in the bank representing the proceeds of the Shanghae-Hangchow loan is no doubt sufficient to give the court here jurisdiction to deal with the matter in the way in which it dealt with the case of the Northern Railway of China if the court should come to the conclusion that this case falls within the principle of that case. There are, however, it appears to me, certain well-defined distinctions which may make it much more difficult to obtain a like order in the present case. The principle upon which that order was made was that, proceedings having been instituted for the administration of the trust Fund upon the footing that the purpose for which it was contributed had failed, the court then sanctioned a compromise by which the main purpose of the loan was given effect to, but the subsidiary purpose for which it was contributed, which had become incapable of performance, was waived, In the present case it is of the essence of the transaction that the court should be informed that the whole and absolute purpose for which the loan was made has become incapable of being carried out and what is desired to be done is that the entire application of the loan should be changed and the funds applied in the making of a railway in a totally different place and possibly of a totally different character.
This really implies the entering upon a speculation of an entirely different character from that for which the money was contributed, and I think the court would say that it was impossible to hind a minority of the debenture-holders without giving them the opportunity of having their moneys refunded. In the present case there is an absolute agreement as to the purpose for which the moneys were to be applied, and under article 14 the moneys are to remain with the bank until required for railway purposes, which I think would mean the railway purposes stated in the agreement, so that probably the bank would not be justified in honouring requisitions if it knew that the funds were to be applied for other purposes than those mentioned in the agreement.
Under these circumstances, I think, therefore, that the court would be very unlikely to allow the matter to be dealt with without the fullest advertisements and invitations to any of the parties who might desire to dissent to appear and contest the matter in court, and I think it is almost impossible to hope that the matter could be got through with as little publicity as was done in the last case, and in addition to this, as the "bouds themselves contain the agreement by the Govern- ment as to the application of the moneys, it would, in my opinion, be essential that
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