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the firms concerned had a greater moral claim than the claims from the Chinese firms referred to under B above. We accordingly suggested that a 25% payment might be made. The Governor thought such a basis of settlement would probably prove satisfactory to the majority of the claimants. then came up against the difficulty that the Ministry of Supply refused to consider any payment on that basis, but that if the Colonial Office considered such payment should be made, the Colonial Office should be responsible and not the Ministry of Supply. The Ministry of Supply's arguments for not making any payment were that if there had been a pre-war insurance scheme against war risks the losses and materials would have been recovered by the manufacturers who could then have refunded the advances made by the European merchants. Such an insurance scheme would not of course have covered the risk of seizure of the goods by the enemy. In so far as the goods were not seized by the enemy presumably the Chinese contractors sold them. In that event the European firms still had a claim against the Chinese contractor rather than against the Supply Council. The Ministry of Supply's arguments that if any payments were to be made then the Colonial Office should make them, are set out in No. 31 on the 1948 file. The arguments are quite fantastic to my mind. If, however, we are not ourselves fully convinced that any payment is justified, then we need not trouble to answer the Ministry of Supply's arguments on this point except perhaps to say that we do not accept them as valid. As regards the claims themselves, Hong Kong have never suggested that there was any legal liability. The terms and conditions of the orders are shown on the form behind No. 9 on the 1947 file. It there states that payment will be made against godown warrant or mates' receipts If then the stores were never even delivered to godown, no legal liability arises. Once we depart from the legal liability basis (especially in Hong Kong where there is no war damage compensation scheme) we should be in deep waters. I consider therefore that we must now decide that we inform Hong Kong that the Ministry of Supply refuse to consider any payment in respect of these claims and that as no legal liability appears to arise we feel we cannot pursue the matter any further. In fact, it might have awkward repercussions locally if we were to single out these particular non-legal claims for full or part payment [especially when difficulties are being experienced to obtain settlement of claims which everyone admits are
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3. The next batch of claims appears to be against the Government of India. Dividing them into the same categories A, B, C, the position appears to be as follows:-
A. Claims for goods supplied.
$3,410,744 or £213,171. Hong Kong submitted the claim for the Government of India but has received no written reply. Hong Kong thinks India may have referred the claim to the Ministry of Supply.