1. At its meeting of December 19, 1945, the Cabinet considered Document No. 114 concerning a request from the United States Department of State for an extension of the present Agreement between Canada and the United States of America (for the waiver of claims arising from collisions between vessels of war) which was embodied in an Exchange of Notes dated May 25 and May 26, 1943'. The alternative courses of action suggested to the Cabinet were:

Not to enlarge the present Agreement;

To enlarge the present Agreement to include all ships and cargoes at the ultimate risk of Canada and the United States of America (subject, possibly, to the exclusion of the Canadian National Steamships);

c. To enter into an agreement of arbitration concerning all ships and car-goes at the ultimate risk of the Governments of Canada and the United States of America.

The Cabinet agreed that, as a matter of policy, it was desirable to extend the "Knock for Knock" Agreement to include all ships and cargoes at the ulti-mate risk of the two governments and that, subject to the concurrence of the Minister of Reconstruction, Canadian representatives should seek this end in negotiations with the United States; it being understood that, if the agreement were so extended, the Navy should compensate Park Steamships to the extent of their claims against the United States.

The Minister of Reconstruction, subsequent to the Cabinet meeting of December 19, 1945, signified his concurrence in the decision referred to in paragraph 2 above.

On April 10, 1946, the Minister of Transport indicated that fficers of the Department of External Affairs differed with officers of the Department of Transport and Justice as to whether or not it was intended by Cabinet that vessels of the Canadian National Steamships should be excluded from the proposed extension of the "Knock for Knock" Agreement. This dif-ference arose in connection with claims by the Canadian National Steamships against the United States, for damages sustained in a collision, in the amount of $119,000.00. The Cabinet has requested that representatives of these Departments should examine the question and submit a memorandum com-bining the views of the interested Departments and making specific recom-mendations for the consideration of Cabinet.

On April 13, 1946, representatives of the Departments of External Affairs, Transport, Justice, National Defence (Navy) and Reconstruction and Supply met to consider the matter. They came to the conclusion that the proposed extension of the "Knock for Knock" Agreement should apply only to public and war vessels in the possession and service of each country, in accordance with the Anglo-American interpretation of International Law, rather than to all vessels at the ultimate economic or financial risk of each government. It was the feeling of these representatives that this view is consonant with International Law and could be readily applied. It was pointed out that each major vessel of the Canadian National Steamships is owned by a separate limited company, the stock of which is owned by the Canadian National Steamships Company Limited, whose stock, in turn, is owned by the Grand Trunk Pacific Railway, whose stock is owned by the Canadian National Railways. Thus, while it might be said that vessels of the Canadian National Steamships are at the "ultimate economic or financial risk of the Canadian government", these ships are really owned and operated by a limited company and cannot be considered in the legal sense as "public vessels in the possession and service of Canada". It was therefore agreed that vessels of the Canadian National Steamships should be excluded from the proposed extension of the "Knock for Knock" Agreement.

The representative of the Department of National Defence (Navy) pointed out that steps bad been taken by that Department to make provision for the possible indemnification of the existing claims of the Canadian Na-tional Steamships in the amount of $119,000.00 and he was apprehensive that the negotiations for the extension of the "Knock for Knock" Agreement might be prejudiced if the vessels of the Canadian National Steamships were not included in it. A representative of External Affairs who was in Washing-ton at the time of the preliminary negotiations of September 19, 1945, felt that the exclusion of these vessels would not affect the negotiations; he sug-gested the Cabinet's policy should exclude these vessels subject to a further reference to Cabinet should the negotiations with the United States Depart-ment of State become deadlocked because of the non-inclusion of Canadian National Steamships vessels.

Since the Cabinet meeting of December 19, 1945, it has become ap-parent also that the United States of America may have a claim against Canada by reason of a collision of a Canadian war vessel and a United States flying boat in the possession and service of the United States govern-ment. It appears also that the United States may have a claim against Canada arising out of the docking of two United States public vessels in a drydock owned by the Canadian Government. The United States Government is anxious to have these claims included in the proposed extension. It is the opinion of the representatives of the five Departments concerned that these claims should be included in the Agreement providing the drydock and flying boat concerned were in the possession and service of each Gov-ernment.

Accordingly, it was agreed to recommend that Cabinet should establish the following policy for the Canadian representatives in the course of their negotiations with those of the United States of America:

"As a matter of policy, the Canadian representatives should seek to in-clude in the extended Agreement only those legal maritime claims by either government against the other government or any servant, agent or instrumen-tality of the other government or any vessel, flying-boat or drydock in the possession and service of the other government in respect of damages by reason of collision, salvage, general average, negligent navigation or negligent management of the said vessel, flying-boat or drydock; subject, how-ever, to appropriate provisions for adjustment of matters arising out of any insurance carried by either government.

"In negotiating with the representatives of the Government of the United States of America, the Canadian representatives should make clear the reasons for the non-inclusion of vessels of the Canadian National Steamships and, if required, should resist any attempt to have them included until such time as it appears that negotiations are likely to fail due to the lack of such inclusion; in which case the matter shall be referred for the further considera-tion of Cabinet".