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PUBLIC RECORD OFFICE

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ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-

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PUBLIC RECORD OFFICE, LONDON

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(c) Debts due to enemy subjects allowed to carry on business in British or

allied territory;

(d) Debts due to enemy subjects in neutral territory.

(e) Debts due personally to enemy subjects interned in Australia (e.g., on personal accounts in partnerships, or on personal accounts with the employees of the firm).

13. The conclusion I have come to is that the word "enemy" should be left to bear its natural sense, and that for the purpose of the use of this term in the Ordinance no distinction should be drawn between enemies resident in enemy terri- tory and enemies resident elsewhere. On the other hand, it may prove convenient, as the liquidations proceed, that certain classes of debts (or even certain individual debts) to enemies should be discharged in the liquidation, rather than that they should stand over for enforcement elsewhere after the War. I have accordingly reserved power to the Governor to give special directions for this purpose (Section 6 (b)). In the Straits Ordinance (Section 12) express provision is made for the payment of debts due to other enemy firms in course of liquidation, but in the circumstances of Ceylon I think it would be better that a general power should be reserved. As this provision goes beyond the instructions of the Secretary of State his attention should be called to it, and his directions as to the exercise of the power reserved invited. My recommendation is that no definite lines should be laid down at present, but that the Governor should be instructed to defer action until the facts are ascertained.

14. With regard to the debt of Mrs. Freudenberg above referred to the Ordinance will work out as follows:-If it is thought convenient that the debt should be discharged special directions can be given under the power reserved to the Governor under Section 6 (b). If no such directions are given, then, under Sections 21 and 23 (a) of the Ordinance, whether the mills are sold or acquired, the proceeds will be paid to a special account and held at the disposition of the Governor. Mrs. Freudenberg can thereupon make such application to the Govern- ment as she may be advised.

15. Status of Interned Enemies.--The question just discussed raises a kindred question, namely, that of the status of interned enemies. Before these persons were interned they had the right of access to the Courts of the Colony. Their intern- ment (according to English decisions) did not affect that right, which has been, in the case of Messrs. Freudenberg & Company, exercised through their controllers. Nor * would their removal from one place of internment in British territory (Diyatalawa) to another (Australia) seem in principle to affect it, although on this point the provisions of the Civil Procedure Code (which by Section 466 gives a right of suit to an enemy resident in the Colony by permission of the Governor) might be held by implication to exclude it. The Ordinance provides special legal facilities for the determination of questions arising in the liquidation (see Chapter IV.), and limits legal proceedings to the procedure there provided for. It would, however, in my opinion, cause inconvenience if the representatives of interned enemies were allowed access to the Court for disputing questions that might arise between their principals and the liquidators. Such questions would no doubt ordinarily relate either to the subject of "private estates" or to debts claimed from the firm under liquidation. Questions on the former head would be excluded by the reservation of the question of what constitutes partnership property to the Governor in Executive Council (Section 35), and those under the latter head by the direction that the liquidator shall not provide for debts due to enemy creditors (Section 6). Other questions might, however, arise incidentally, and I have, therefore, taken the necessary steps to exclude enemies from the facilities above mentioned, and by way of further security I have provided that if any question arises as to whether any particular person is an enemy "for the purposes of the Ordinance that question shall be determined by the Governor in Executive Council (Section 35) There is nothing, however, in these provisions to prevent the liquidator bringing before the Court any question relating to an enemy, if he so desires, or for the Court directing that the enemy shall be heard if it thinks it expedient.

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16. My justification for this course is that the liquidation of these businesses is not intended to be a judicial measure, but an administrative one. The Govern- ment should itself, in dealing with enemy subjects, determine the limits of its own action. It would be out of place that it should content itself with enunciating formulas and then provide legal procedure in which the application of those formulas should be disputed between the enemies with whom it is dealing and the

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fiquidators it has appointed to carry out its policy. Any special matters on which justice may require that the interests of any enemy subject should be repre- sented may be brought before the special officer (the Custodian) whom the Government appoints for the purpose of controlling the liquidation.

17. A question arises in this connexion with reference to the special position of Mr. Siegmund Freudenberg. Mr. Siegmund Freudenberg is technically a British subject (having been born in Ceylon), but to all intents and purposes is as much a German as his brothers. There is nothing to prevent him at this moment from instituting (through his attorney) a suit for the dissolution of the partnership between himself and his brothers and for the taking of an account, or, when the liquidation is instituted (unless special measures are taken), from commencing proceedings for the determination of his rights in remainder with reference to the legacy of £50,000 to his mother and the mortgage of the mills in connexiou with it. It seems to me that in all the circumstances it would be most expedient that any questions that may arise with reference to Mr. Siegmund Freudenberg should be dealt with administratively, rather than judicially, and I have, there fore, taken measures throughout the Ordinance to put a partner in an enemy firm on the same footing as an enemy. Mr. Siegmund Freudenberg is, so far as I am aware, the only partner in an enemy firm in the Colony who is not an enemy subject.

18. Outstanding Liabilities.-As previously explained, these are, in the case of Messrs. Freudenberg & Company, very extensive, and the most considerable of these liabilities is that of Philip de Silva.

19. With regard to Philip de Silva I have elsewhere drawn attention to the facts that his sudden collapse would cause great local inconvenience, and also that he is said to be controlling the most valuable plumbago mines in Ceylon, the output of which (through a contract with the Morgan Crucible Company) is being supplied to the allied Governments. My recommendation is that the controllers, as principal creditors, should intimate to him that he must make an arrangement with all his creditors under which his liabilities must be liquidated before the close of the year.

This would no doubt involve a composition with his creditors (includ. ing Messrs. Freudenberg & Company) and the working of the amount of the com. pounded liabilities in instalments; but it should be an essential term of any such arrangement. that if the instalments as they fall due are not punctually paid up to, say, the end of September, it should be open to the controllers to institute insolvency proceedings. The antecedents of Philip de Silva are of so dubious a character that, in spite of the favourable views now entertained with regard to his good faith and his prospects, it would be well that any arrangement made should be as definite and as carefully guarded as possible. Mr. Cooke (of the firm of Messrs. F. J. & G. de Saram, the solicitors of the controllers) showe extraordinary skill and versatility in effecting the previous arrangement, and I have no doubt that (under the supervision of the Custodian of Enemy Property) he will succeed in effecting another.

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20. With regard to the other outstanding liabilities I think that the same limit of time should be generally indicated, subject to the same proviso. Custodian, when he takes charge of the liquidation, will be able to make recom. mendations in detail as to any special measures that may be required.

21. In view of the possibility of the liquidation being protracted by matters such as the case of Philip de Silva, I have provided in the Ordinance that a liquida- tion may be declared concluded subject to any pending matter or matters (see Section 30).

22. Prize Claim Appeals.-The result of the prize claims referred to in my previous memorandum is in favour of the Crown on all points. The controllers have applied to the District Court for directions as to an appeal, and the Court, after fully considering the circumstances, has directed them not to appeal.

23. Extent of Application of Ordinance.--The instructions received from the Secretary of State seem to relate solely to firms carrying on mercantile business at commercial ports. Nothing is said as to agricultural estates. There are in Ceylon a few estates owned by enemy subjects. One (as mentioned above) belongs to Mr. Hagenbeck, another belongs to Mrs. Hagenbeck, a third belongs to a Mr. Hahn, and yet another to a Dr. Cuntze, and is mortgaged to Freudenberg & Company. If it is desirable in the interests of the Empire to extirpate German commercial houses in the Crown Colonies it would seem to be also desirable to extirpate, German planters. This, however, is a matter of general policy, and

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