Your telegram re Yampi  received and carefully considered.
As regards your first suggestion we think that in view of issues involved it is desirable that we should appear to be treating generously interests which are likely to be affected by our proposed action. We feel that sentence 'Government will be prepared to examine and consider equitable claims for reimbursement of expenditure which has up to this date actually taken place in connection with development operations directed towards exploitation of our iron ore resources for export' and particularly the words 'examine and consider' and 'equitable claims' adequately safeguard the Commonwealth. We think a claim for expenditure on plant or ships which could be utilized elsewhere or for other purposes would not be equitable.
With respect to your second recommendation, we desire point out that our letter to Consul-General  is in reply to lengthy and most emphatic letters received from him in which under instructions from his Government he protests specifically against any disturbance to 'basic foundations on which a vast amount of Japanese capital has been invested in Yampi Sound with definite approval and generous support of Western Australian Government'.
We feel we cannot possibly ignore the precise nature of this correspondence and write to Consul-Gencral as though merely conveying information of Government's decision as your previous telegram suggested. We gather from Thorby  that you think desirable refer to claims being investigated by Commerce Department. We think Government would necessarily be committed by anything any named Department did and reference to any particular Department would possibly be looked upon as having some concealed significance.
We share with you some uneasiness regarding the effect on Japanese Government of our action and we believe that reasonable method of avoiding unpleasant reactions by them is to adopt fair attitude regarding compensation. After all we have to avoid any suggestion in minds of world generally that we are another Mexico.
In view of foregoing Cabinet has decided on broad grounds to adhere to text of letter and statement cabled you yesterday.