1. Canada has signed Peace Treaties with Hungary, Italy and Roumania. Under these Treaties,

          (a) Canadian nationals are entitled to compensation, in local currency, for war damage done to their property up to the extent of two-thirds of the replacement value of the property;

          (b) the Custodian has the right to seize, retain or liquidate assets of their nationals within the limits of our claims against these countries.

2. The War Claims Branch of the Secretary of State's Department has prepared a detailed report on the claims of Canadians against Hungary, Italy and Roumania. All the claims are now recorded and the total of the claims is as follows: Hungary - $9,462,962.04 Italy - 2,161,906.55 Roumania - 1,047,839.95 These are the maximum figures of claims against these countries. They include certain claims for compensation for nationalization which it may not be possible to entertain under the terms of the Peace Treaty.

3. The totals of the assets of the nationals of these countries currently held by the Custodian are as follows: Hungary - $ 596,361.54 Italy - 4,851,040.81 Roumania - 291,658.64

4. As yet, no attempt has been made to "screen" our claims; no attempt can be made until we have entered into negotiations with the three countries concerned. The Secretary of State will be recommending the establishment of a Royal Commission to screen the claims and to satisfy the individual claimants. The question now arises: on what basis should we start to negotiate?

5. In my opinion, the settlement of Canadian claims should be considered as a charge against the ex-enemy country as a whole, and not as a charge against individual citizens of that country who happen to have assets in the hands of the Canadian Custodian. For this reason, I advise a "lump-sum settlement" for each country. Under such a settlement, Canada would first receive a lump-sum payment for the compensation of its claims against the ex-enemy country; the Custodian would then return to the registered owners all the assets of that country in Canada.

6. The alternative would be for the Custodian to start liquidating the miscellaneous assets in his possession; out of the moneys he received the Government could then meet some of the claims of Canadians against these three countries. We may be forced into this rather clumsy and unfair procedure, if we cannot arrange a lump-sum settlement; but it seems desirable to try for the lump-sum settlement first.

7. In the case of Italy, assets held by the Custodian exceed our claims. Therefore, we can probably arrange a settlement which will provide full satisfaction for claimants. If the Italian Government will provisionally put at our disposal a sum sufficient to satisfy all the claims we have recorded, we can then proceed to screen these claims. Afterwards we can return to the Italian Government any surplus that may be left.

5. In the case of Hungary and Roumania, our claims exceed greatly the assets held by the Custodian. A lump-sum settlement would probably be sufficient to satisfy only the most deserving claims. These countries will probably be less willing than Italy to enter into negotiations. We may be forced into the procedure mentioned in paragraph 6 above.

9. The Government of Newfoundland has claims against Italy totalling $277,760.63. The Newfoundland Custodian holds Italian assets worth $26,092.53. 1 recommend that we espouse Newfoundland claims when we are negotiating with Italy for the other Canadian claims.

10. I recommend, with the concurrence of the Secretary of State for Canada and the Minister of Finance, that the Department of External Affairs be authorized to enter into negotiations with these three countries individually to effect the best possible lump-sum settlements for the satisfaction of war claims and for the release of enemy assets.¹⁴

L.B. PEARSON

¹⁴ Le Cabinet approuva cette recommandation le 3 mai 1949.
Cabinet approved this recommendation on May 3, 1949.