Memorandum, Disposition of Former Chinese Airlines, Aircraft, and Properties in Hong Kong

SECRET SECURITY INFORMATION REVISION File DISPOSITION OF FORMER CHINESE AIRLINES, AIRCRAFT, AND PROPERTIES IN HONG KONG Background: Until November 9, 1949, the China National Aviation Corporation (CNAC) and Central Air Transport Corporation (CATC) held in the general Hong Kong area some 82 planes and a quantity of other aviation equip- ment. On that date, 11 of the planes belonging to these two corporations defected and flew to Chinese Communist territory, carrying three members of both Chinese staffs. The remaining aviation equipment, which became the subject of litigation, included 71 transport aircraft, approximately 1,000 to 1,200 tons of spare parts, shock and ground equipment, and an unknown amount of liquid assets. At the time the defection occurred, CNAC was 80% owned by the Chinese Government and 20% owned by Pan-American Airways (PAA). CATC was 100% owned by the Chinese Government. On December 12, 1949, it was announced that the Chinese Government had sold out its interests in both CNAC and CATC to Chennault and Willauer, owners of the Civil Air Trans port, Inc. (CAT Inc.) which was formed in December 1949 as a holding company for the aircraft and property acquired from the two former Chinese airlines CNAC and CATC. The PAA's 20% stock interest in CNAC was sold to the Chinese Government on December 30, 1949 in a transaction which removed any adverse American claims to the title transferred to CAT Inc. At the request of the Chinese National Government, immediately after the defections in November, the Hong Kong court issued an injunc- tion restraining the removal of any of the property. As a result of claims of the Chinese Communist managerial elements of the airlines, the matter was placed in litigation to be heard by the Hong Kong court. On February 23, 1950, the Hong Kong court rendered a judgment rejecting CAT Inc.'s application for appointment of a receiver for CNAC and CATC assets. The basic point of the Chief Justice's decision was that possession and control of the property by defected Communist officers and employees of the two airlines made the property immune on the ground of sovereign immunity from judicial procedures, thereby placing the suit outside the jurisdiction of the Hong Kong court. The injunction restraining removal of the property was dissolved. On March 8, 1950, CAT Inc. filed notice of an appeal against this decision and on March 24, 1950, filed formal application with the Hong Kong Supreme Court for an interim injunction. The counsel for the PC/R Chinese Communist employees pleaded immunity on behalf of the Communist regime and the injunction was denied. This denial was appealed and, 71. in conjunction with the appeal from the February 23, 1950 decision, was heard on April 27, 1950. Prior to this hearing, however, neither the British 094118 SECRET SECURITY INFORMATION