CO129-624-14 Finances- relief stores- Hangover stores and Siamese free rice 1-7-1948 - 31-12-1951 — Page 71

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No 10]

5. In the light of further considerations which has since been given to this problem I now feel, however, that the proceeds of sale during the period of the British Military Administration must be regarded as reducing the cost of that Administration since the latter was functioning in place of the Civil Governments: and that as the net cost of the British Military Administration has been borne as a final charge on United Kingdom funds, His Majesty's Government has in this manner discharged to Hong Kong its obligation to Hong Kong in respect of its share of the £181,000 related to the British Military Administration period.

6. As regards any part of the rice which may have been sold after the Civil Government was re-established the proceeds of which, subject to the further information asked for in paragraph 3 above, are presumed to have been paid over to His Majesty's Government as part of item C(b), you may wish to contend that different considerations arise. It is of course impossible to say whether or no this particular rice resulted in sales in the period subsequent to the Military Administration period, and any division between receipts from sale during the two periods would have to be on a purely arbitrary basis. Moreover it is clear that on the arbitrary basis of assessing Hong Kong's share referred to at the end of paragraph 4 above, any notional credit due to the Colony has no relation to the actual rice delivered to, and therefore sold in, that territory. It appears that the rice was probably shipped from Thailand from January to March 1946 and if any sales took place during the period subsequent to 30th April, 1946 (a point on which it is presumably impossible to krtain), than a decision still remains to be taken as to

amount be credited to Hong Kong in respect of a portion of the total amount arbitrarily assigned as Hong Kong's share (£181,000) in relation to another arbitrary assessment of the proportion which the sales subsequent to 30th April, 1946, bears to the total sales.

7. You will appreciate that the two questions of "hangover" stores and proceeds of sale of Siamese free rice in the post British Military Administration period are related to the extent that they represent a possible claim and counter claim both arising out of the action taken by the British Military Administration on behalf of the Colony prior to the establishment of Civil Government. In the case of "hangover" stores there is a possible claim by His Majesty's Government against the Colony for the value of stores not paid for by the Colony; whilst in the case of any post British Military Administration sales of Siamese free rice paid over to His Majesty's Government (as to which see paragraph 3) there is a possible claim by the Colony aganist His Majesty's Government.

8. I have informed you of the further aspects of this problem to which consideration has been given subsequent to the despatch of my savingram of 9th August, 1948, in order that you on your part may also be able to consider the matter further prior to the forthcoming discussions.

SECER.

Copy sent to:-

Treasury

Mr. R. G. Marris