TNAG-0425-FCO40-471-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 189

CONFIDENTIAL

Reference

HKK 21/4

2578

Mr Rushfor Legal Adviser

Discussed

As P/A

with Treas

HONG KONG GOVERNMENT GUARANTEE IN CONNECTION WITH THE JAPANESE BID FOR THE UNDERGROUND

1. In connection with the award of the contract for the Hong Kong Underground Railway (estimated at mid-1972 prices to cost £500 million) the Japanese consortium (but not the Japanese Government) have asked for a guarantee from the Hong Kong Government. The Hong Kong Government are considering this request.

2. The situation may therefore possibly arise where the Hong Kong Government accepts a legally binding guarantee with foreign interests. In view of the constitutional position we should welcome your urgent views on whether, were the Hong Kong Government to default on the guarantee for any reason, such a guarantee could in any eventuality involve HMG.

3. Would the situation be different if

HMG did not object to the arrangement and therefore could be held tacitly to have accepted final responsibility

a.

Hold the Irplanese shivarely or

HMG made a public announcement that we would in no way be responsible were it necessary to invoke the guarantee.

or

b.

4.

The Governor's view is that since the Japanese have not asked for a guarantee backed by HMG (as the Asian Development Bank did for instance in connection with their loan to Hong Kong), no liability could fall on the United Kingdom. It seems to us, however, that in the event of the Hong Kong Government being unable to honour the guarantee (this might arise for instance if HMG were negotiating with the Chinese Peoples Republic for the reversion of the colony to China), then the United Kingdom Government could well be held responsible in international law and might well be under strong pressure to honour the guarantee. There also

appears to be a possibility that the Peking Government, as geographical successor in the instance above, might become involved.

5. We should welcome your comments.

22 October 1973

P. 7.0

CONFIDENTIAL

M A Goodfellow

Hong Kong and Indian

DD 145177 219242 500M 4,73 GM 3643/2

Ocean Department