proposal being that, in case a claim was set up by the United States, founded on the recognition of the Confederate States as belligerents, it should be open to the British Government to advance claims on their part, such as a claim for injury to British interests by the assertion and exercise of belligerent rights by the United States upon British commerce.

Lord Clarendon at once declined to entertain this suggestion.

In Mr. Fish's dispatch of the 25th of September, 1869, the Government of the United States intimated that they considered there might be grounds for some claims of a larger and more public nature, though they purposely abstained at that time from making them; but the grounds indicated were not limited to the acts of the Alabama and other similar vessels, or to any mere consequences of such acts, nor were these public claims then described or referred to in any manner as "Alabama Claims." That expression, the "Alabama claims," which first occurs in a letter from Mr. Seward to Sir F. Bruce, of the 12th of January, 1867, had always been used in the correspondence between the two Governments to describe the claims of American citizens on account of their own direct losses by the depredations of the Alabama and other similar vessels, and had never been employed to describe, or been treated as comprehending, any public or national claims whatever of the Government of the United States.

Down, therefore, to the time when Her Majesty's Government proposed the appointment of a Joint High Commission to settle the Fishery Question and all other questions affecting the relations of the United States toward Her Majesty's possessions in North America, no actual claim against Her Majesty's Government had been formulated or notified on the part of the United States, except for the capture or destruction of property of individual citizens of the United States by the Alabama and other similar vessels.

When Her Majesty's Government consented, at the request of the Government of the United States, that the "Alabama claims" should be dealt with by the High Commission, it was in the full confidence that the phrase "Alabama claims" was used by the United States Government in the same sense as it had been used throughout the previous correspondence and in the conventions signed by Lord Stanley and Lord Clarendon.

National claims of an indirect character, such as those referred to in Mr. Fish's dispatch, could not be comprehended under the term "claims generically known as the Alabama claims." The possibility of admitting as a subject of negotiation any claim for indirect national losses has never been entertained in this country; and it was therefore without the slightest doubt as to such claims being inadmissible that the British High Commissioners were appointed and proceeded to Washington.

At a meeting of the British and United States High Commissioners on the 8th of March, the latter, after a general statement of the claims of the United States, proceeded to say that, in the hopes of an amicable settlement, no estimate was made of indirect losses, without prejudice, however, to the right of indemnification on their account, in the event of no such settlement being made; and they afterward proposed, by direction of the President, that "the Joint High Commission should agree upon a sum which should be paid by Great Britain to the United States, in satisfaction of all the claims and the interest thereon."

Mr. Fish says that the President earnestly hoped that the deliberations of the Commission would have resulted in an acceptance by Her Majesty's Government of this proposition.

Her Majesty's Government cannot understand upon what this hope was founded. The position which the Government of this country have maintained throughout all the negotiations has been that they were guilty of no negligence in respect of the escape of the Alabama and the other vessels, and have therefore incurred no liability for any payment, and they still maintain this position.

The only ground on which Her Majesty's Government could be asked to pay any sum would have been an admission on their part that there had been such negligence as rendered them justly liable to pay a sum in compensation. This would have been an absolute surrender of the position which has always been held by this country, and a confession, which could never have been expected from them, that they had been guilty of negligence.

Her Majesty's High Commissioners, therefore, could only declare at once that a proposal of an "amicable settlement" in this particular form could not be entertained, and Her Majesty's High Commissioners, on the part of this country, immediately made a counter-proposal, namely, the proposal of arbitration, and this proposal, after being to a certain extent modified on the suggestion of the United States High Commissioners, was accepted by them.

The modification suggested by the United States High Commissioners, and accepted by those of Great Britain, was a concession of no slight importance on the part of this country, namely, that the principles which should govern the Arbitrators in the consideration of the facts should be first agreed upon; and this concession was very materially enhanced when, in order to strengthen the friendly relations between the two

countries and make satisfactory provision for the future, they further agreed that these principles should be those contained in the Rules in the VIth Article of the Treaty; for they thus accepted the retroactive effect of rules to which, nevertheless, they felt bound to declare that they could not assent as a statement of principles of international law in force at the time when the "Alabama claims" arose.

The friendly spirit of Her Majesty's Government was further shown by their authorizing Her Majesty's High Commissioners to express the regret felt by Her Majesty's Government for the escape, under whatever circumstances, of the Alabama and the other vessels from British ports, and for the depredations committed by those vessels, and by their agreeing that this expression of regret should be formally recorded in the Treaty. Nor did Her Majesty's Government object to the introduction of claims for the expense of the pursuit and capture of the Alabama and other vessels, notwithstanding the doubt how far those claims, though mentioned during the conferences as direct claims, came within the proper scope of the arbitration. They acquiesced in the proposal to exclude from the negotiations their claims on behalf of Canada against the United States for injuries suffered from Fenian raids-an acquiescence which was due partly to a desire on their part to act in a spirit of conciliation, and partly to the fact, stated by Her Majesty's High Commissioners, that a portion of these claims was of a constructive and inferential character.

The importance of these concessions must not be underrated. Nor can it have been expected by the Government of the United States that concessions of this importance would have been made by this country if the United States were still to be at liberty to insist upon all the extreme demands which they had at any time suggested or brought forward.

Her Majesty's Government considered themselves justified in treating the waiver of indirect claims, in the event of an amicable settlement, proffered by the High Commissioners of the United States, as one which applied to any form of amicable settlement, and therefore comprised, in like manner, the form of amicable settlement proposed by the British High Commissioners, accepted on the part of the United States, and recognized in the preamble of the Treaty.

Such a waiver was, in fact, a necessary condition of the success of the negotiation. It was in the full belief that this waiver had been made that the British Government ratified the Treaty.

Her Majesty's Government are anxious that the considerations which made them hold this belief should be more fully explained to the Government of the United States than can be done in the form of a letter, and I have accordingly embodied them in a Memorandum, which I have the honor to inclose, and which I beg may be read with and considered as part of my present communication.

Her Majesty's Government do not deny that it is as competent for the Government of the United States as it is for themselves to assert that their own interpretation of the Treaty is the correct one. But what Her Majesty's Government maintains is, that the natural and grammatical construction of the language used in the Treaty and Protocols is in accordance with the views which they entertain, and sustains their assertion that the terms of reference to the Arbitrators are limited to direct claims, inasmuch as direct claims only have throughout the correspondence been recognized and repeatedly defined under the name of the "Alabama claims."

There are some passages in Mr. Fish's dispatch in which he defends the introduction into the American Case of the claims for indirect losses and injuries, which I cannot allow to pass without more special remark.

It is stated that they are put forward in the Case, not as claims for which a specific demand is made, but as losses and injuries consequent upon the acts complained of, and necessarily to be taken into equitable consideration in a final settlement of all differences between the two countries, and as not relinquished in the Treaty, but covered by one of its two alternatives.

Her Majesty's Government do not perceive what "alternative" in the Treaty can cover these claims.

If, indeed, by this language Mr. Fish is to be understood as referring to the two different modes provided by Articles VII and X of the Treaty, for arriving at the amount of the payment to be made by Great Britain in the event of any liability being established, the answer seems obvious, viz, that these alternatives are applicable only to the settlement of the amount of damages, and not to the measure of liability.

Again, Mr. Fish states that the Treaty was not an amicable settlement, but only an agreement between the Governments as to the mode of reaching a settlement, and that no proffer of withholding an estimate of indirect losses can be claimed as a waiver until the result of the arbitration is arrived at; but he overlooks the fact that the Treaty is called an amicable settlement, not merely in relation to the "Alabama claims," but as an entirety; and even in relation to the "Alabama claims" alone, it must clearly be taken that the amicable settlement which it professed to provide was arrived at from the moment when the treaty containing the agreement to go to arbitration upon the claims was signed and ratified. If, according to Mr. Fish's view, an amicable set

tlement after a reference to arbitration can only be arrived at by an adjudication of the claims, it is obvious that no waiver of any such claims could, under such circumstances, ever be made, for before the time for waiver (on this supposition) had arrived the claims would already have been decided upon.

That Her Majesty's Government never intended to refer these claims to arbitration, and that in ratifying the Treaty they never contemplated their being revived in the argument before the Arbitrators, must have been obvious to you from the language used in the debate in the House of Lords on the 12th of June, on the motion for an address to the Queen, praying Her Majesty to refuse to ratify the Treaty.

On that occasion I distinctly stated this to be the understanding of Her Majesty's Government, and quoted the very Protocol of the 4th of May, to which I have referred above, as a proof that these indirect claims had "entirely disappeared." When Lord Cairns, to whose speech allusion has been made in the United States Case, subsequently said that extravagant claims might be put in and take their chance, he was met with expressions of dissent. Moreover, Lord Derby, while criticising the negotiation and the terms of the Treaty in other respects, particularized the withdrawal of indirect claims. "The only concession," he said, "of which I can see any trace upon the American side is the withdrawal of that utterly preposterous demand that we should be held responsible for the premature recognition of the South as a belligerent power, in company with that equally wild imagination, which, I believe, never extended beyond the minds of two or three speakers in Congress, of making us liable for all the constructive damages to trade and navigation which may be proved or supposed to have arisen from our attitude during the war."

I observed that you were present in the House of Lords on that occasion, and you informed me, on the 16th of December, that you were present during the speeches of Lord Russell and myself, and that you communicated the next day the full newspaper report of the debate to your Government.

Sir S. Northcote, in the House of Commons, repeated, in other words, the substance of my remarks on the limitation of the terms of reference; and as his speech is printed in the papers on Foreign Relations, recently laid before Congress, it must also have been reported to your Government. But neither on the occasion of my speech, nor of his, nor when the ratifications of the Treaty were exchanged on the 17th of June, did you call my attention to the fact that a different interpretation was placed on the Treaty and Protocol by Her Majesty's Government and the Government of the United States; nor, so far as Her Majesty's Government are aware, was their interpretation, thus publicly expressed, challenged either by the statesmen or the public press of the United States.

Her Majesty's Government must therefore confess their inability to understand how the intimation contained in my note of the 3d of February last can have been received by the President with surprise.

Mr. Fish urges that the claims for national indirect losses which have been put forward on behalf of his Government involve questions of public law which the interest of both Governments requires should be definitely settled.

Her Majesty's Government agree with Mr. Fish that it is for the interest of both countries that the rights and duties of neutrals upon some of the points hitherto thought open to serious controversy should be definitely settled, and had hoped that such a settlement had been secured by the Rules to which they have given their assent: but they cannot see that it would be advantageous to either country to render the obligations of neutrality so onerous as they would become if claims of this nature were to be treated as proper subjects of international arbitration.

Whatever construction may be placed upon the Ist Article of the Treaty, it is impossible to sever the terms of reference therein contained from the Rules in the VIth Article; and the measure of liability under the Arbitration, therefore, will be the measure of liability incurred by any neutral State which, after acceding to these Rules, may, "by any act or omission," fail to fulfill any of the duties set forth in them.

The United States and Great Britain have bound themselves by the Treaty to observe these Rules as between themselves in future.

They have, moreover bound themselves to bring these Rules to the knowledge of other maritime Powers, and to invite them to accede to them. Could it have been expected that those Powers would accept a proposal which might entail upon a neutral such an unlimited liability, and, in some instances, might involve the ruin of a whole country?

Her Majesty's Government cannot for themselves accept such a liability, nor recommend the acceptance of it to other nations.

Are the Government and people of the United States themselves prepared to undertake the obligation of paying to an aggrieved belligerent the expenses of the prolongation of the war and other indirect damages, if, when the United States are neutral, they can be shown to have permitted the infringement of any one, or part of any one, of the three Rules through a want of due diligence on the part of their executive officers? To attach such tremendous consequences to an unintentional violation of neutrality

-it might be by a single act of negligence-would be to strike a heavy blow at the interests of peace; for war has scarcely any consequences more formidable to a belligerent than those which might thus be incurred by a neutral; and, while war offers a chance of gain, neutrality would, if such claims as these were once admitted, present without any such compensation the risk of intolerable loss.

With respect to the disclaimer made by Mr. Fish of any expectation or wish, on the part of the United States Government, to obtain any "unreasonable pecuniary compensation" on account of these indirect claims, I think it sufficient here to observe that, on the question of amount, the British people and Government have necessarily been obliged to look to the nature and grounds of the claims as they are stated in the Case of the United States, and have, of course, been unable to form a judgment from any other data of the expectations of those by whom the claims are advanced. If these claims could be considered as well grounded in principle, it appears to Her Majesty's Government to be capable of demonstration that the magnitude of the damages which might be the result of their admission is enormous. The grounds of these views are more fully stated in the Third Part of the inclosed Memorandum.

Mr. Fish has appealed to the proceedings at the Washington Claims Commission in connection with the Confederate cotton claims. Her Majesty's Government must, however, observe that there is no analogy between the two cases, as, by the Treaty, the Washington Commission has power "to decide in each case whether any claim has or has not been duly made, preferred, and laid before them, either wholly, or to any and what extent, according to the true intent and meaning of the Treaty;" no similar words being used as to the powers of the Geneva Tribunal.

It is the function of the Washington Commission to decide upon a variety of general claims, not of one kind, nor limited or defined beforehand, and Her Majesty's Agent was instructed that his duty would prima facie be to present such claims as private individuals might tender for that purpose for acceptance or rejection by the Commission, Her Majesty's Government not intending to make themselves responsible either for the merits of the particular claims or for the arguments by which they might be supported. The jurisdiction of the Geneva Tribunal was limited to one particular class and description of claims.

The facts are as follows:

On the 11th of November, in pursuance of the general instructions which had been given to Her Majesty's Agent, a claim upon a bond issued by the so-called Confederate States for a sum forming part of a loan called the "Cotton Loan," contracted by those States, and for the payment of which certain cotton seized by the United States was alleged to have been hypothecated by the Confederate Government, was filed at Washington; and on the 21st I learned from you that the United States Government objected to claims of this kind being even presented.

Some delay took place in consequence of unavoidable causes, with some of which you are well acquainted. And there were others, such as the necessity not only of communicating with my colleagues, but with Sir Edward Thornton, and of considering how far, under the same general description, there might be included claims substantially different. The dispatches from Her Majesty's Agent giving the details of the nature of the claims, and of the demurrer made to it by the United States Agent, did not reach me until the 6th of December. I had, in the mean time, ascertained from Sir Edward Thornton that the expression "acts committed" had been used by mutual agreement in the negotiations which preceded the appointment of the High Commission with a view to exclude claims of this class from the consideration of the High Commissioners; those words being also used in the XIIth Article of the Treaty with regard to private claims. The question was brought before the Cabinet at its next meeting on the 11th, and was finally decided on the 14th, as recorded in a minute by Mr. Gladstone. This decision was that the Confederate cotton claims should not be presented unless in the case of bonds exchanged for cotton, which had thereby become the actual property of the claimant, and directions were given for a dispatch to be sent to this effect, and on the 16th I informed you that you might write to Mr. Fish that Her Majesty's Agent would be instructed not to present any claims that did not come within the provisions of the Treaty.

Although it appears that the understanding need not necessarily have extended beyond the rejection by the Commissioners of the claims, under the XIVth Article, by which the Commissioners have power to decide whether any claim is preferred within the true intent and meaning of the Treaty, (as was done with various claims under a similar Article in the Claims Convention of 1853,) Her Majesty's Government acceded to the construction which the United States Goverrment had put upon that understanding.

Mr. Fish will observe the feeling by which Her Majesty's Government were guided in coming to their decision on the 14th. They desired to put the most favorable construction upon any understanding which the United States Government might have supposed to exist.

Information reached me the next morning by telegraph of the adjudication, which

Her Majesty's Government had not expected to take place, upon the merits of the claim by the Commissioners. This required a reconsideration of the instructions, and fresh instructions were sent by the mail of the 23d, and also by telegraph, to Sir Edward Thornton to arrange with Mr. Fish that the presentation of claims which appeared to be manifestly without the terms of the Treaty should be withheld, and that when Her Majesty's Agent was of opinion that a claim belonged to a class that ought not to be presented, it would be desirable that an agreement to that effect should be made and signed by Sir Edward Thornton and Mr. Fish. These instructions were communicated to Mr. Fish.

Her Majesty's Agent has since acted in accordance with the decision of the Cabinet of the 14th of December. New claims of the like character have been tendered to him by parties who were unwilling to acquiesce in the decision of the Commissioners as applicable to their own cases, but which claims, under instructions from Her Majesty's Government, have not been presented.

I have now placed in your hands, for examination by the Government of the United States, a statement of the reasons which, in the opinion of Her Majesty's Government, sufficiently show that claims for indirect losses are not within the meaning of the Treaty; that they were never intended to be included by Her Majesty's Government; that this was publicly declared before the ratification, when the error, if any, might have been corrected; that such claims are wholly beyond the reasonable scope of any Treaty of Arbitration whatever; and that to submit them for decision by the Tribunal would be a measure fraught with pernicious consequences to the interests of all nations and to the future peace of the world.

I appreciate the desire substantially, if indirectly, expressed by the Government of the United States, to be advised of the reasons which have prompted the declaration made by me on behalf of Her Majesty's Government on the 3d of February, no less than the friendly and courteous language which has been employed by the United States Secretary of State. The present letter is intended by Her Majesty's Government, not as the commencement of a diplomatic controversy, but as an act of compliance with that most reasonable desire. They are sure that the President will be no less anxious than they are that the conduct of both Governments should conform to the true meaning and intent of the instrument they have jointly framed and signed, whether that meaning be drawn from the authoritative documents themselves or from collateral considerations, or from both sources combined.

Entertaining themselves no doubt of the sufficiency of the grounds on which their judgment proceeds, they think it the course at once most respectful and most friendly to the Government of the United States to submit those grounds to their impartial appreciation. Her Majesty's Government feel confident that they have laid before the President ample proof that the conclusion which was announced by me on the 3d of February, and to which I need hardly say that they adhere, cannot be shaken. I have, &c.,

GRANVILLE.

[Inclosure 2 in No. 13.] MEMORANDUM.

PART I. On the waiver of claims for indirect losses contained in the 36th Protocol.
PART II-On the construction of the Treaty.

PART III.-On the amount of the claims for indirect losses.

PART I.

On the waiver of claims for indirect losses contained in the 36th Protocol.

The first Protocol of the Conferences of the High Commission begins with a recital of the powers of the British Commissioners, stating Her Majesty's purpose in their appointment to be to "discuss in a friendly spirit with Commissioners to be appointed by the Government of the United States the various questions on which differences had arisen between Great Britain and that country," and to "treat for an agreement as to the mode of their amicable settlement."

The Protocol of the 4th of May recounts that the American Commissioners stated, on the 8th of March, "that the history of the 'Alabama,' and other cruisers which had been fitted out, or armed or equipped, or which had received augmentation of force in Great Britain or in her Colonies, and of the operations of those vessels, showed (1) extensive direct losses in the capture and destruction of a large number of vessels with