CO129-606-6 Hong Kong Loan- Financial settlement 7-3-1949 - 23-12-1949 — Page 3

* Para. 5(c) of the Report.

Mr. Bourdillon.

1.

3

Now that our despatch to Malaya has been

denial' sent, on the question of liability for claims, we must consider sending a reply to Hong Kong

I set out the case, as I saw on the same question.

*

it in my minute of the 16th of October 1948, and I think we are driven to the conclusion that this problem is one which must be settled by the Hong Kong Government and that there is little purpose in pursuing the proposal put up by Mr. Allen that the Service Department should contribute towards the expenditure involved to the extent of 65% of the amount of the claims. The War Office and the Air Ministry

The of course would not look at any such proposal. Admiralty on the other hand, so far as I have gathered from Mr. Severs, is somewhat sympathetic to the idea that some contribution should be made to the Hong Kong Government in respect of the ships which were used as block ships primarily for the naval defence of Hong Kong. I do not suppose however that the Treasury would agree to a contribution solely by the Admiralty. There might be a case for asking Treasury to consider increasing the £1,000,000 grant already made especially in view of the free grant element of the assistance which has been given, or offered rather, to the Malayan Government in respect of their War Damage Compensation Scheme, if in fact it were established that the Hong Kong Government would have to meet claims of approximately $ 25 million or £1million - see paragraph 5 (a) of Mr. Allen's report. 65% which he suggests should be met by the Service Department is approximately £1 million.

2. But it is not possible to state what the amount of the claims will be until claimants have pursued their claims on a legal basis by all possible means; and obviously we have no case to go to the Treasury for an increased grant when no one knows what is the amount of the liability.

3. I don't think Hong Kong has really thought out this problem to its logical conclusion and Hong Kong do not appear to have considered what would be the repercussions if the Admiralty accepted the responsi- bility of meeting these claims on "moral" grounds and this established a priviledged class of claimants. Mr. Allen touches on this very important aspect of the problem at the end of paragraph 4 of his Report, but the Governor in his despatch at No. 83 on the 1948 file does not seem to have given it any consideration.

Whilst therefore not ruling out the possibility of consideration being given to further assistance if in fact further assistance eventually proves to be justified (Treasury have not finally ruled this out in the case of Malaya see paragraph 5 of No. 3), we should put the whole case to Hong Kong as primarily a problem for them to deal with.

I submit 2 drafts for consideration.

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