1. Gov.
Desp. 15 conf.
Mr. Palmer (Ref. 4.49)
Mr Hall
26-1-50.
Z
During the war, advances totalling £695,000. were made to the Bri ti sh Red Cross Society for the relief of British civilian internees and other British subjects in Hong Kong. of this amount, only £425,000. was actually expended and a balance of £270,000 is therefore due to be refunded by the British Red Cross Society. Considerable argument with the B.R.C.S. has, however, developed over this point, and the money has not in fact been refunded as yet. Of the advances made, £140,000 came from Hong Kong funds in London and the rest from funds provided as loans to Hong Kong by H.M.G. and later treated as free grants by the terms of the financial settlement.
In (9) on 55387/48, before the financial settlement had been agreed to, the Governor said (see paragraph 3) ... "I trust that it may prove possible for H.M.G. to accept the total charge and to recover the unexpended balance in due course". It was not quite clear from this whether the Governor expected the unexpended funds to be recovered for the benefit of Hong
Kong or of H.M.G. Be that as it may the financial settlement followed shortly after (9) on 55387/48 was sent and then 18 months later a reply to this despatch was sent at (4) on 55387/49, suggesting that recoveries from the B.R.C.S. should accrue to H.M.G.
It is this despatch at (4) on 55387/49 which has prompted the rather acrimonious reply at (1) opposite. In (1) opposite the Governor expresses most strongly the view that any funds recovered from the B.R.C.S. should accrue to Hong Kong; this view he bases on a strict "letter of the law" interpretation of the terms of the financial settlement and argues that since the money in question was paid to the B.R.C.S. partly from Hong Kong funds and partly from funds which H.M.G. categorically stated were to be treated as free grants to Hong Kong, any recovery of money not actually spent must therefore go to Hong Kong. This seems to me a very powerful argument and one which I think H.M.G. cannot meet at the same level; i.e. if they stick to the letter of the law I think the Governor must win. Mr. Palmer, however, at 'B' of his minute of 30/4/49 on 55387/49 argues that as Hong Kong has no liability to bear any part of the advances made from U.K. funds, Hong Kong cannot therefore claim any recoveries from these advances. The Treasury's view quoted at 'A' of Mr. Palmer's minute of 30/4/49 is that any recovery is merely a recovery of over-issued U.K. funds and as such should accrue to H.M.G.
Both these arguments seem to me to fall down if Hong Kong insist on a strict interpretation of the financial settlement. By virtue of the terms of the financial settlement, Hong kong could argue that theoretically at any rate they were liable for the advances (in fact part of the advances were made from Hong Kong funds and it was only when these were exhausted that H.M.G. advanced money) and that they met their liabilities from funds made theirs by the finan- cial settlement. Similarly against the Treasury view they could argue that any over-issue was from Hong Kong funds as the funds concerned were made theirs by the financial settlement.
As I see it, the only arguments H.M.G. has against this point of view are more general ones, i.e.:-
(i) That H.M.G. had taken over a liability of
/Hong Kong's