2
these bonds should be called in and an endorsement put on them of the order, if it should be obtained, sanctioning the change. I think there would be further difficulty if it was desired to carry out the matter, in accordance with the recent letter of the Director-General of Railways. No doubt if before the application to the court here had been made the local companies had submitted and we received instructions not to proceed, the matter could be dropped, but the application would, in my opinion, have to be put before the court in the definite form of substituting the new railway for the old, and not subject to such a condition as that the substitution was only to take effect if the local companies did not submit within a definite period, and when once the court had sanctioned the substitution of the one railway for the other, it would, in my opinion, thereafter be a breach of trust to let the funds be applied for the purposes of the old railway. Apart from these risks as to publicity, there is also, in my opinion, the possible chance that the court would say that the total change in the character of the undertaking was such as to take the case out of the category In other of a compromise which could be sanctioned under order 16, rule 9a- words, a compromise capable of being sanctioned under that rule would not, in my opinion, include one which involved the destruction of the whole trust and the substitution of a new one. Before I was informed that a very large part of the loan funds remained unexpended in the hands of the bank, I had thought it possible that the object which the Government has in view might have been effected by their creating a collateral security over the new railway in favour of trustees for the debenture-holders, and so practically setting free the revenues of the original railway, but, having regard to the express terms of the loan agreement, I do not think that the bank could justify parting with the residue of the funds for the purpose of enabling the new railway to be built with them. If the matter is of extreme importance, it may be thought wise to run some of the risks which I have referred to above, as I cannot suggest any other means of carrying out what is desired, for there is no doubt at first sight considerable analogy between the present case and that of the Northern Railway, although, for the reasons I have given above, I think that the court would at any rate require greater precautions to be taken to protect the interests of possible dissentients.
Lincoln's Inn, February 19, 1910.
F. WHINNEY.
[This Document is the Property of His Britannic Majesty's Government.]
[B]
CHINA RAILWAYS.
CONFIDENTIAL.
[6868]
No. 1.
Sir Edward Grey to M. Cambon,
438
8011
REC? REGE 18 MAR 10
[March 8.]
SECTION 1.
Your Excellency,
Foreign Office, March 8, 1910. I HAVE the honour to acknowledge the receipt of the memorandum com- municated by your Excellency on the 25th ultimo in regard to the Hukuang loan negotiations, to the effect that the United States group are prepared to surrender to the French group their engineering rights over 100 kilom. of the American portion of the extension of the Hankow-Szechuan Railway, and that the United States group have informed the French financiers that they consent to this arrangement on condition that His Majesty's Government make the concessions desired by the Government of the Republic.
These concessions are, as stated in your Excellency's note of the 14th ultimo :---- 1. That the British group should take the present French section of the Hankow--- Szechuan Railway in exchange for the fourth or most westerly section which was allotted to them by the Addis-Simon arrangement of the 14th May last; and
2. That they should agree to the appointment of a French sub-engineer on the Tankow-Canton Railway.
Your Excellency expresses the hope that His Majesty's Government will recognise the reasonableness of the French demands,
As I pointed out to your Excellency in my note of the 29th January, there appeared to be no good reason at the time for departing from the understanding of the 14th May, 1909, one of the provisions of which stipulated that—
1. The British and Chinese Corporation was to appoint the engineer for the Hankow-Canton line;
2. The German group was to appoint one for the Hupeh section of the Szechuan line; and
3. The Chinese Central Railways was to appoint one for the extension of the line from Ichang to Chengtu.
By a subsidiary agreement of the same date between Mr. Addis on behalf of the Chinese Central Railways and M. Simon on behalf of the French financiers, the Chinese Central Railways undertook to appoint a French engineer for the first half of the extension and a British engineer for the final half.
I am not aware that the position has altered since the date of that note, and I would remind your Excellency that the above arrangements were accepted and ratified at a meeting of the French directors in Paris, and were considered at the time both by the British group and by His Majesty's Government as final. It is true that the French Government have not formally given their assent to these arrangements, but it has been understood throughout the protracted negotiations that the French group never took any important decision without consultation with, and the approval of, their Government.
In regard to the statement that had the French Government not believed that, by virtue of the appointment of engineers of the different nationalities by rotation, the French and German groups would receive equivalent advantages to the English group, they would at once have protested against what they consider to be a flagrant breach of the spirit of the arrangement, I have the honour to observe that the principle in question was first introduced in an agreement signed between the three groups on the 6th July last in regard to future railway loans and construction in China. This agreement expressly excepts loans for the two railways now under discussion.
In the circumstances, His Majesty's Government regret that they do not see their way to accept the proposal made by the French Government. They do not consider, as they have on more than one occasion stated, that the inclusion of the American
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