Foreign Relations of the United States Diplomatic Papers, 1939, The Far East; The Near East and Africa, Volume IV

494.11/111: Telegram

The Secretary of State to the Consul General at Shanghai (Lockhart)

Washington, January 3, 1940—11 a.m.

3. Your 1111, December 16, 1 p.m.

1. Department’s first fundamental objection to Japanese proposal relates to matter of determining amount of claimant’s loss without taking into account any evidence submitted on behalf of a claimant to establish quantity and value of property lost. If documents such as inventories, vouchers, contractor’s estimates and other evidence of character mentioned in paragraphs fourth and fifth of Department’s statement of August 27, 1938¹⁵ are disregarded it is not perceived on what basis military authorities reach their conclusions regarding amount of loss.

2. Apparently after having thus reached their conclusions regarding the amount of a claimant’s loss, military authorities fix the amount to be offered in settlement, which amount is not the amount of the loss as determined by them but some other amount which represents merely a percentage even in cases in which the loss is the direct result of acts of military authorities not in the course of military operations.

3. Even if it were assumed that in a particular case the Japanese estimate of a claimant’s loss approximated the actual loss sustained, the Department perceives no justification for the whittling down process referred to in paragraph 2 above, particularly in cases in which the loss is the direct result of acts of military authorities not in the course of military operations.

4. With reference to the matter of payment in depreciated currency, the Department considers that in cases in which liability exists, claimants are entitled to compensation in amounts which will fully cover losses and damages sustained, or, in other words, amounts which should put them in status quo ante. It would appear that payment in depreciated currency will not accomplish this end in the majority of cases. For example a claimant whose building at the time of destruction in 1937 had a value of 1,000 Chinese dollars would not be fully compensated for his loss were he now to receive that amount in Chinese currency since it would obviously be impossible for him now to replace building for such amount in view of currency depreciation and resultant rise in reproduction costs. The effect of the Japanese proposal is to impose upon such claimants losses resulting from currency depreciation although such depreciation was apparently largely, if not entirely, the direct consequence of Japanese action in China. Department feels that, in general, the amount and kind of currency required to reimburse fully for damages to or destruction of property should vary according to circumstances of individual cases.

5. The Department considers that it would be inadvisable for the Consulate General to enter into any discussion with the Japanese authorities regarding the question whether the rules of war relating to nonliability for damages sustained in the course of military operations are applicable in the present conflict. However, if, as indicated in telegram under reference, Japanese propose to offer settlements in some cases involving losses sustained in the course of military operations and if claimants receiving such offers seek your advice, it may be suggested to them that in view of Japanese disclaimer of legal liability in such cases, claimant should, from a practical standpoint, seriously consider the advisability of accepting the best offer obtainable through negotiations following their counterproposals which Japanese military apparently expect to receive as a consequence of their original settlement offers. The probability that they will otherwise recover nothing in such cases should be borne in mind.

6. In view of the considerations mentioned in paragraph 3 of telegram under reference the Department concurs in your suggestion to have consular representative attend conferences between Japanese authorities and individual claimants but still entertains the view that in the absence of indications that amounts offered by Japanese approximate actual losses your office should not transmit them to claimants.

7. Department hopes that foregoing observations may be of assistance to your office in endeavoring to convince local Japanese authorities of the inadequacy of amounts offered in settlement. For your information it may be stated that in pursuance of Department’s authorization Tokyo has informally reported to Foreign Minister the Department’s view that settlement offers made at Shanghai do not afford a basis for expecting payment of equitable amounts in compensation to injured American claimants. Department deems it advisable that cases be settled locally if reasonably satisfactory compensation is obtainable and you are requested to keep it informed of developments.

Sent to Shanghai. Repeated to Chungking, Peiping and Hankow. Shanghai please airmail code text to Tokyo.

Hull

15. Not printed.