CO129-520-7 Public Utility companies- acquisition by foreign groups 4-12-1929 - 26-1-1930 — Page 38

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6. The remedy in such cases, however, is not to refuse to grant rights but to grant them under such conditions, whether by demanding a substantial rent for land or a minimum royalty upon output or by some other method, that it is not economi y possible for any interest, whether British or foreign, to acquire those rights unless it fully intends to exercise them.

7. The second manner in which foreign economic penetration may prove disadvantageous is more serious. It is obvious that if works of a public utility nature, such as electrical supply, gas, water, transport, telegraphic or telephone undertakings (including wireless), are permitted to fall into the hands of foreign nationals, firms or companies, or British companies controlled by a majority of foreign shareholders, the Government may be faced with serious difficulties in time of war or civil disturbance if the management of those undertakings refuses to co-operate with the Government or actively hinders it. Action of this kind may be taken at such a time or in such a manner that it is difficult or impossible for the Government to counter it, even if it possesses special powers under emergency legislation.

8. Such difficulties are, of course, more serious if the undertaking is in the hands of a foreign national or company. Where the owner is a British company, the Government can, in case of need, take drastic measures by way of taking over control or requiring the management to follow a particular course of action, without any danger of giving occasion for foreign diplomatic intervention. No Government is likely to claim the right to intervene on behalf of nationals who are shareholders of foreign companies unless the action taken to the detriment of such shareholders is manifestly oppressive. If drastic action be taken, however, in the case of businesses owned by foreign nationals, firms or companies, the action of the Government, even if it be taken in pursuance of local legislation, may give rise to claims which might have to be referred to international arbitration and may in certain events involve the Government in considerable liabilities for compensation.

I do not of course wish to imply that the property of British companies can be taken or used without payment, but the amount of payment in such cases can be fixed either by local legislation or by a reference to courts in which the claims would have to be decided in accordance with British law.

9. The policy to be followed in future, therefore, falls to be considered under two heads, policy in relation to existing undertakings of a public utility nature and policy in relation to projects for establishing such undertakings in future.

10. As regards existing public utility undertakings, the determination of policy depends principally upon the legal rights of those undertakings and the existing state of the law. Broadly speaking, I would not suggest that any action should be taken to curtail existing rights. In cases, however, where those rights are in the nature of a concession terminable at any time, or lapsing after a period of years, and are at present in possession of a British subject, firm or company, it would I think be proper

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to intimate, if any question of acquisition by foreign interests should arise, that those rights would be terminated, or not renewed, as the case may be, if the undertaking should cease to be under British control. By the term under British control mean that the company should be registered under British company law, with a British domicile; that the majority of the partners or voting shareholders are British subjects; and that the local general manager and a substantial part of the staff, including any officers in "key positions," are themselves British subjects.

11. As regards projects for future undertakings, it would, I think, be proper to require that, in all cases where the whole-hearted support of the owners would be essential or very desirable in case of war or civil disturbance, the undertaking should be and remain under British control.

Whether such provision should be made by legislation or by executive act would

be settled in the light of local circumstances, but if legislation is required it should be in the form of requiring British control in the case of all public utility undertakings of classes defined by enumeration in a schedule, with power to add, by public notice, to the classes of undertakings so enumerated.

I have the honour to be,

Sir,

Your most obedient, humble servant,

PASSFIELD.