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the Commonwealth office have now provided that there is no unilateral guarantee or assurance by H.M.G. which would in any way strengthen the E.C.G.D.'s potential claim on the assets of the Hong Kong Government. Apart from the damage it would cause if it became public knowledge any such guarantee or assurance would amount to no more than a statement of intent by H.M.G., and could not in any way tie the hands of Parliament or of any future government (even if, we ourselves were prepared to tie our hands in this way).
You have no doubt taken legal advice as to how far the joint and several guarantee which you have been seeking would strengthen your formal claim against the assets of the Hong Kong Government "if the worst happened". I would comment, however, that whatever form of guarantee you had from the Hong Kong Government, the disposal of the assets of that Government would be a matter for political decision (and legislative action) by the British Government of the time. It is difficult to see how you can get round this problem, unless you can devise a form of guarantee which would mean that in certain circumstances, assets would automatically cease to be assets of the Hong Kong Government and pass to E.C.G.D. It seems to us very doubtful whether you could ever negotiate this kind of guarantee with the Hong Kong Government.
I am afraid therefore my conclusion is that you cannot look to the Treasury or the Commonwealth office, or to the existence of formal or informal understandings about the future of assets of the liong Kong Government, to safeguard your position in regard to the Hong Kong Tunnel. You will have to come to a decision about underwriting by looking at the case in the normal commercial terms and decide what standards you are prepared to apply.
I am copying this to Malcolm Shepherd in the Commonwealth Office.
(D. TAVERNE)
CONFIDENTIAL