SETTLEMENT OF CANADIAN WAR CLAIMS AGAINST ITALY; RELEASE OF
ITALIAN ASSETS HELD BY THE CUSTODIAN

Canadians with war claims against Italy have filed them with the Secretary of State's Department in response to advertisements published in November, 1948. It is believed that all claims have now been filed (with the possible exception of a few very minor ones). They are as follows:

(a) Aluminum Secretariat Ltd. $1,360,000 (approx.)

(b)Government of Newfoundland 256,000 "

(c) About 175 other Claimants 684,000 "

Total $2,300,000 "

Some of these claims are payable in lire, some in sterling and some in dollars. The above figures represent the total of claims filed. Many of them will have to be written down either because they are not legally valid or because the facts, when investigated, will not justify them.

2. Under the Treaty of Peace with Italy the Italian assets held by the Canadian Custodian may, if necessary, be used to settle Canadian claims against Italy. The total of these assets is at present estimated to be about $3.5 millions. This represents the book value of the assets; if they had to be liquidated to meet claims the amount realized might be substantially less. However, it appears that there is a substantial excess of assets over claims.

Italian Proposals

3. Since the Peace Treaty was signed in 1947 the Italian authorities have been asking for release of Italian assets. Most recently, in January, 1950, they have proposed that we should immediately proceed to release all these assets 63 At the same time Canadian claims would be submitted to the Italian authorities for screening and eventual payment. Machinery has been set up in Rome for dealing with claims from the United States and the United Kingdom. Similar machinery would be set up for Canadian claims.

4. This proposal cannot be considered satisfactory. The United States and the United Kingdom are most dissatisfied with the difficulties and delays that their claimants have encountered in Rome and have been protesting in vigorous terms. If all the Italian assets held by our Custodian were released, Canadian claimants would have no protection against similar unsatisfactory treatment.

A Lump Sum Settlement

5. Canadian officials have been pressing for a lump sum settlement. Under this the Italian Government would be asked to pay the Canadian Government immediately a lump sum roughly covering the total of valid Canadian claims. In return the Canadian Custodian would immediately proceed to release all Italian assets. Such a settlement was authorized by Cabinet on May 3, 1949 (see Cabinet Document of May 2, 1949 attached). Canadian claimants are likely to receive better protection under such a settlement than under any other. It would also avoid prolonged delays and substantial costs of administration.

6. The Canadian officials concerned are agreed that one more attempt should be made to reach a lump sum settlement. This attempt will be made when Mr. Charles Stein, Under Secretary of State, visits Rome in the near future. The Italian Ambassador here is known to be personally unsympathetic towards a lump sum settlement. It is hoped that discussions in Rome may bring greater success. On the other hand the Italian authorities may remain unwilling to make any settlement with Canada that differs materially from settlements already made in the United States and the United Kingdom.

7. It is desirable to set minimum amounts that would be acceptable in a lump sum settlement. The following figures show on the one hand the maximum amount of our total claims and the minimum amounts that can be asked for if our demands are to include only claims that are virtually unchallengeable both in law and on the basis of the facts of each individual case.

It should be pointed out that the lump sum would be paid partly in lire (and in sterling). There is a possibility of loss to the Canadian Government if the lire (or sterling) depreciates between the time the money is received and the time it is paid out to Canadian claimants. It may take two years to review all Canadian war claims.

8. In connection with our minimum claims one further concession might be offered to the Italians. We might agree to hand back to them any residue of the .lump sum that remained over and above the total of Canadian claims against Italy when these had been finally screened and validated by Canadian authorities.

Compromise Number One

9. This compromise would consist of two steps:

(a) The Italians would first implement the separate agreement on military relief. It will be recalled that an agreement has been approved under which they will pay the Canadian Government lire in cash and bonds amounting to $1.3 millions (U.S.) in discharge of claims of $28 millions. They are delaying this payment pending agreement with us on the release of Italian assets held by our Custodian.

(b) Canadian claims would then be officially submitted to the Italian authorities for payment. As claims were paid assets would be released by our Custodian; $3.00 worth of assets or more could be released for every $2.00 worth of claims met.

Under this compromise our claims would always be more than fully covered by the assets we were holding and the Italians would have a substantial incentive to pay claims. On the other hand the piecemeal release of claims under this formula would involve difficulties for our Custodian, and the Italians, who have been pressing hard for the immediate release of a substantial bloc of assets, are not very likely to accept it.

Compromise Number Two

10. This compromise also consists of two steps:

(a) The Italian authorities would first implement their undertaking regarding military relief. Immediately they did so our Custodian would take steps to release assets of approximately the same amount.

(b) Canadian claims would then be officially submitted to the Italian authorities for payment. As claims were paid further assets of approximately equal amounts would be released by our Custodian.

It is believed that this compromise would probably be acceptable to the Italian authorities.

11. If either compromise were adopted, and if the Italians did not pay Canadian claims reasonably quickly, we would always be in a position to liquidate the remaining assets and use the proceeds to settle claims.

Recommendations

12. 1 recommend that:

(a) Continued efforts be made to get a lump sum settlement. No settlement should be made involving less than $150,000; £62,525; and 600 million lire (as indicated in column 2 of paragraph 7 above). If necessary, the Canadian Government would undertake to return to the Italian Government any surplus if the lumpsum turned out to be greater than the total of valid Canadian claims (paragraph 8 above).

(b) If such a lump sum settlement turns out to be impossible then a settlement should be accepted along the lines of Compromise Number One or Compromise Number Two above

L.B. PEARSON

⁶² Voir le document 914./See Document 914.

⁶³ Voir le document 892./See Document 892.