CONFIDENTIAL
}
DRAFT TELEGRAM TO HONG KONG
YOUR TEL NO 467:
STERLING GUARANTEES
1. Thank you for the report in your telne 467 of the recent
discussion in the Executive Council.
2,Recent exchanges between us have, of course, focussed on
what may be termed the outer limits to interpretation of
the accidental breach provision. But this emphasis on the
breaches which the provision does not accommodate has tended
to distract attention from the breaches which it does
accommodate.
3. The accidental breach provision would cover as accidental
any breach which could not have been reasonably foreseen or
prudently provided against. In particular, the provision
would cover a breach that arose as a result of a substantial say, the last two of three
fall in gilt prices in, the last days of the month.
Moreover,
para.3(2) of the Declaration does not exclude the possibility
Several
that twe/successive months might show breaches that were
accidental in the sense described above provided in such a
cach
case that action had been taken in the second month to correct
any
1
e breach that had arisen in the previous month.
4.
All this being so, and after further reconsideration of the
Hong Kong case, we do find it hard to see what unmet need
remains for any reformulation of this provision which would be consistent with the object of condoning only.accidental, repeat
accidental, breaches. We just cannot see as unsympathetic or
legalistic a reluctance on the part of HMG to go beyond a dispensation which provides a let-out in respect of any purely accidental breach. There is no question of lack of goodwill
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