TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 24

CONFIDENTIAL

that our failure to draw the matter to the attention of D

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the Hong Kong authorities was to their detriment in that

for example it led to their buying more sterling than they

would otherwise have done in later months,, then this would

weaken our position in insisting on the more rigorous

interpretation. But although my grasp of the facts of the

situation is somewhat shaky I do not think that this was

the case.

The United Kingdom argument would be :-

(1) The critical words must be read in context and in the

light of the position as the UK understood it when she

drafted this gloss on her extended undertaking. The

modified settlement basis is not a bilateral agreement or

understanding but a unilateral statement of a condition

imposed by the UK in exchange for,agreeing to allow Hong

Kong to benefit from its own erroneous interpretation of

the word 'accidental'. Therefore it should be construed

primarily with reference to the UK understanding and there

is no reason for giving Hong Kong the benefit of the doubt

in case of ambiguity.

(2)

There is no doubt that as regards the original

accidental breach provision the intention was that if

accidental breach occurred the provision could be invoked

provided that the country in breach put itself above MSP

at the end of the following month. The content of this

requirement would vary according to what was happening

during that following month. Automatic variations such as

increases in stock market value or accruals of interest

should not be disregarded in assessing whether there was

likely to be a shortfall. The UK never intended that the

an ount to be purchased should be a purely academic

amount denigned, so to speak, to achieve MSP retrospectively.

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