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MR WALKER
HONG KONG
RECEIVED IN REGISTRY No. 51
2- APR 1974
HKK 57/10
BREACH OF PRESENT DECLARATION
сс
Mr Payton B/E
Mr Cambridge FCO
Mr Stuart FCO
Mr Aust FCO
PA
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Spoken Fir Walker
We await replies from the 29/3
thy me.
This is OK,
1. Goodfellow
42Hong Kong telegram No. 381 reports that Hong Kong
its
view of the proper interpretation of the accidental breach provision. Hong Kong has bought sterling so as to bring their sterling at end-
(Incidentally March up to the 25 September level of £313 million.
this is probably a mistake for 26 September).
2. Until the full figures are available and we can see the extent of the 10% deduction of TOER, we cannot work out in detail the amount that Hong Kong is claiming. However it is clear that they have tried to maximise their eligible balances and will expect compensation as if there had been no breaches in December, January and February. They are therefore challenging the validity of the upper limit which we worked into the offer made to Hong Kong.
30 There is no action which we necessarily must take at present. I see no reason, from anything in this latest telegram, to depart from the terms of the offer already made. Indeed it shows how right we were to limit the eligibility for compensation since Hong Kong would, if there were no limit, be eligible for compensation on an (The amount of sterling which they may only hold for a few days. reduction of 10% in MSP for the new Declaration means that the sterling purchases made in the last few days can be disposed of very early in April without disqualifying Hong Kong from the new guarantee.) We should probably await the further representations from Hong Kong which are promised in the first sentence of the telegram.
And we can study all the relevant figures in the light of legal advice, when these have been obtained, before making a decision on what payment to make. However, to make absolutely sure that there is no room for doubt, it might be worthwhile to send a short telegram on the lines of the attached draft immediately to Hong Kong.
W L ST CLAIR
29 March 1974