CO129-622-3 War damage compensation- requisitioned railway stores and materials 19-1-1948 - 31-12-1948 — Page 16

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be given the opportunity of agreeing upon a communication to FARELF and Hong Kong in due

course.

Meanwhile in (20) here the War Office had suggested to the Treasury that this claim against, the Chinese Government should be set off against the Chinese Government claims for compensation for requisitioned railway materials. They also incidentally admitted that the claim for property rent and damage was due by the U.K. Government to the Hong Kong Government. In (21/24) we noted this with pleasure. (The War Office

had in the meantime in (25) said it was the Colonial Office, not the War Office, who had the obligation to pay the Hong Kong Government). Finally, in (32) the Treasury raised the responsibility for immediate payment and went back to the original War Office point of whether the requisition was not made by the British Military Administration simply because it was in fact the temporary Government of Hong Kong. Paragraph 7 of my draft to Mr. Mussett is intended to answer this once again and with the additional evidence of a quotation from a contemporary signal.

There has been no pressure on us from Hong Kong to get the Army to make further interim payments. At Hong Kong's request we have tried to collect evidence in this country of the state of the property when the Chinese troops entered on occupation (see (12) on 54416/48). This savingram also promises Hong Kong a further communication on the question of who is liable to meet interim claims. As is shown above we are still not in a position to make this communication. So far as the Chinese Government is concerned the state of the game is as recorded in (16) and the enclosure to (19) on 54416/48.

It will be observed that, while our case that liability for immediate payments is on the War office is (in my view) a good one, Hong Kong have given the other side a debating point by themselves making the claim for ultimate payment direct to the Chinese Government, and even, in doing so, waiving a claim in respect of furniture (see paragraph 6 of (1) on 54416/47). The waiving of part of the claim has in fact been noted by the War office (see paragraph 2 of (20)), though they have not based any argument on it.

6. There is, I think, only one point which concerns Mr. Scarlett in his new capacity in Accounts Department and that is the suggestion made by the War Office in (25) and again in (41) that the Colonial office should be responsible for making the immediate payments for rent and damage to property. This is rebutted in paragraph 7 of the draft to Mr. Mussett. I should be grateful if Mr. Scarlett would amend the draft on this point if he sees fit and, in view of his long

association