Jackson v. People's Republic of China

• Decision Date: 01 September 1982
• Docket Number: No. 79-C-1272-E.,79-C-1272-E.
• Citation: 550 F. Supp. 869
• Parties: Russell JACKSON, et al., Plaintiffs, v. The PEOPLE'S REPUBLIC OF CHINA, a foreign government, Defendant.
• Court: U.S. District Court — Northern District of Alabama

550 F. Supp. 869

Russell JACKSON, et al., Plaintiffs, v. The PEOPLE'S REPUBLIC OF CHINA, a foreign government, Defendant.

No. 79-C-1272-E.

United States District Court, N.D. Alabama, E.D.

September 1, 1982.

W. Eugene Rutledge, Birmingham, Ala., for plaintiffs.

No appearance entered for defendant.

MEMORANDUM OPINION

U. W. CLEMON, District Judge.

Plaintiffs, holders of certain bonds issued by the Imperial Chinese Government in 1911, brought this action against the People's Republic of China seeking payment of those bonds which are now in default. Plaintiffs filed suit pursuant to the Foreign Sovereign Immunities Act of 1976, 28 U.S.C. §§ 1330, 1391 and 1602 et seq. (hereinafter "Immunities Act"). This case is presently before the Court on motion of plaintiffs for default judgment pursuant to Rule 55, F.R.C.P.

Historical and Factual Background

With more than 4,000 years of recorded history, China is one of the oldest countries in the world. Its civilization flourished economically and culturally in the earliest stages of world civilization. Until modern times, China's development had been independent of other countries because of the spirit of its people as well as its geography.

Imperial China was born in 221 B.C. with the institution of the rule of the first emperor of the Ch'in Dynasty. During the rise and fall of the different Chinese dynasties China made great strides in agricultural productivity, cultural development and political unity. The political institutions of imperial China embodied a combination of Confucian Theory (characterized by respect for tradition, conventional social relationships and rule by benevolence) and Legalist practice (characterized by stern laws and severe punishments).

In the 16th century, during the Ming dynasty, drastic changes began to take place in China which would have far reaching effects on its insular nature. European explorers arrived in South China, followed by traders and missionaries. The importance of these events is that they heralded an end to China's isolation and the beginning of East-West contact.

China's preoccupation with tradition and its own cultural superiority made it reluctant to change in the face of western influence. However, its resistance was slowly dissipated, first by the acceptance of western technology. Its acceptance of and adoption of some western institutions was hastened by its defeat in the Sino-Japanese War (1894-1895) at the hands of an Asian country that had become more modernized than China. In the early 1900s, in a period known as the Manchu Reform Movement, China embraced modernization in earnest. One of the changes was the construction of a railway system in order to develop the economy, consolidate the defense system and strengthen national unification. The Hukuang Railway was a part of this expanding system.

In 1911, the Imperial Chinese Government sold, issued for sale and authorized the issuance for sale in the United States certain bearer bonds, more particularly described as follows:

The Imperial Chinese Government 5% Hukuang Railways Sinking Fund Gold Loan of 1911, First of a Series for 6,000,000 Pounds Sterling, each bond denominated in either 20 or 100 Pounds Sterling. Bonds of £20 each Nos. 1 to 2500 and Bonds of £100 each Nos. 70,151 to 84,650 are countersigned by or on behalf of the Hongkong and Shanghai Banking Corporation, Bonds of £100 each Nos. 84,651 to 93,650 are countersigned by or on behalf of the Deutsch-Assiatische Bank, Bonds of £20 each Nos. 32,501 to 70,000 and Bonds of £100 each Nos. 93,651 to 101,150 are countersigned by or on behalf of the Banque de l'Indo-Chine and Bonds of £20 each Nos. 70,001 to 70,150 and Bonds of £100 each Nos. 101,151 to 116,120 are countersigned by or on behalf of Messrs. J.P. Morgan & Co., Messrs. Kuhn, Loeb & Co., The First National Bank of the City of New York, and the National City Bank of New York.

The proceeds from the sale of these bonds were used to build the final link in the north-south railway system. This link, the Hukuang Railway, connects Beijing, formerly Peking, and the port city of Canton. Prior to the completion of this railway, goods were transported either over land on poor roads or circuitously by the sea and the Yellow and Yangtze Rivers which run east-west. Consequently, the Hukuang Railway was a major step forward for fast and efficient transportation between north and south. It is still in operation as an integral part of China's railway system.

The 5% Hukuang Railway Bonds provide, among other things, that

The Bearer of this Bond is entitled to receive from the Imperial Government of China the principal sum of £100 Sterling (or, on £20 Bonds, £20 Sterling) on the 15th day of June 1951 with interest thereon until repayment at the rate of five percent per annum, payable half-yearly on the 15th day of December and the 15th day of June in each year in accordance with the coupons attached hereto....

The interest on this Bond will be payable on the surrender of the proper coupons hereto annexed. If redeemed the principal of this Bond with premium (if any) will be payable at or after the redemption date, on the surrender of this Bond with all coupons thereon not then due; if not redeemed, the principal will be payable at or after the due date on surrender of this Bond. All interest will cease on the principal becoming payable and provision having been made for its payment, whether the Bond shall be presented for payment or not. All payments of principal and interest on this Bond will be made in London in Sterling money of Great Britain at the office of the Hongkong and Shanghai Banking Corporation or (at the current rate of Sterling exchange of London on the day of presentation) in Berlin in Reichmarks at the office of the Deutsch-Asiatisch Bank, in Paris in Francs at the office of the Banque de l'Indo-Chine, and in New York in Dollars at the offices of Messrs. J.P. Morgan and Co., Messrs. Kuhn, Loeb & Co., The First National Bank of the City of New York and the National City Bank of New York, and such other offices in London, Germany, France and New York, respectively, as shall be notified by advertisement by the said respective Banks or Bankers. The Imperial Government of China pursuant to an Imperial Edict, dated the 20th May, 1911, hereby engages that the principal moneys and interest hereby secured shall duly be paid in full, and it further declares that this Bond and its Coupons and all payments made and received in connection therewith are exempt from all Chinese taxes and imports.

In 1912, shortly after the Hukuang bonds were issued, a revolutionary movement culminated in the replacement of the Imperial Chinese Government by the Republic of China. The government made timely interest payments on the Hukuang bonds until December 15, 1930. After that date, only two other interest payments were made. These were half interest payments made on June 15, 1937 and June 15, 1938.

In the spring of 1937, the government of the Republic of China which was then led by Chiang Kai-shek, offered a compromise program to honor the Hukuang bonds. The government sought to extend the due date on the principal value of the bonds from June 15, 1951 until June 15, 1976. The compromise program was never assented to by the bondholders and was never carried out by the government because of the outbreak of the Sino-Japanese War in July, 1937.

The war with Japan continued until it announced its willingness to surrender in 1945. From that point until 1949, China was wracked with the turmoil of a civil war as the Communist Party of China fought to take control of mainland China. On August 13, 1947, the prime minister of the national government issued the following statement relative to the Hukuang bonds:

China pledges her honourable intention to repay those external loans the service of which was suspended in the course of the Sino-Japanese war. In no way does the conclusion of new loans in recent years prejudice the security of these pre-war loans or vitiate the rights of holders of such bonds. At the same time, China hopes soon to start a progressive programme of debt rehabilitation in accordance with the policy of upholding the national credit. Like so many other postwar nations today, China will yet need international economic assistance to rehabilitate her trade and industry so as to strengthen her ability to make debt payments. Nevertheless, the National Government is determined to do its best to fulfill its obligations and sincerely hopes that financial conditions will soon show sufficient improvement to enable it to make arrangements for an early resumption of the service of pre-war loans. (Plaintiffs' Exhibit 6).

The Communist party seized control of China in 1949 and established the People's Republic of China. The former national government withdrew to Taiwan.

It is an established principle of international law that "changes in the government or the internal policy of a state do not as a rule affect its position in international law. A monarchy may be transformed into a republic, or a republic into a monarchy; absolute principles may be substituted for constitutional, or the reverse; but, though the government changes, the nation remains, with rights and obligations unimpaired." Lehigh Valley R. Co. v. State of Russia, 21 F.2d 396, 401 (2d Cir.1927) (quoting Moore, Digest International Law, vol. 1, p. 249). The People's Republic of China is the successor government to the Imperial Chinese Government and, therefore, the successor to its obligations. The People's Republic of China has made no provision for payment of the principal due on the Hukuang bonds.

Jurisdiction

Under 28 U.S.C. § 1330(a), this Court has subject matter jurisdiction without regard to the amount in controversy over any nonjury civil action against a foreign state, agency or instrumentality as to any claim for relief with respect to which the foreign state or agency is not entitled to...