TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 23

CONFIDENTIAL

Reference

Miss Pestell

in

The point on which I understand that you would like

legal advice is the co struction of the words in the

'modified settlement basis' : 'the sterling which,

accordance with your interpretation of the accidental breach provision, was purchased during March in order to comply with the provision...'. Although I am

that issue has not been joined on this I will for

convenience refer to the 'UK argument' and the 'long

Kong argument'

aware

In my view the Hong Kong argument would derive support

from the following considerations :

(1) The wording of the provision taken literally refers

to a fact and not a legal requirement. The text does not

say which should have been purchased during March in

order to comply with the provision'. It says 'which

was purchased' Therefore provided that Hong Kong

acted in good faith they were, it may be argued, entitled

to interret the accidental breach rovision wrongly

•

in respects other than the one of which we were aware

when we drafted the modified settlement basis. The

sterling which they actually bought with the purpose of

complyin; with the provision, however misguided to ir interpretation of it, comes within the words of the

formula.

(2) IIMG or at least the Bank have been or should have

been aware of the misunderstanding for many months

and have not draw the matter to the attention or the

Hong Kong authorities. This reasonably gave the long

Kong authorities grounds for supposin; ti at the UK acquiesced in their interpretation. If it could be sho......

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COMTIDENTAL.