TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 46

GPS 590 CYPHER/CAT A

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Aterling

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NEXI

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ORWELL

R1

(MF9/393/1) 23

TO ROUTINE HONG KONG TEL NO. 579 OF 19/6/74.

YOUR TEL NO 594: STERLING GUARANTEE.

RE:

24 J..1/4

HKK 5/10.

1. WE REGRET THAT MISUNDERSTANDING PERSISTS ABOUT THE PROVISION

RELATING TO ACCIDENTAL BREACHES.

2..

PART OF THE PROBLEM IS ASSOCIATED WITH YOUR VIEW THAT HMG HAS SOUGHT TO RESTRICT THE APPLICATION OF THE ACCIDENTAL

BREACH PROVISION CONTAINED IN PARA 2 OF OUR TEL NO 1209

OF 26 NOVEMBER 1973 (DESCRIBED IN WHAT FOLLOWS AS THE NOVEMBER FORMULA). WE CAN ASSURE YOU THAT THERE HAS BEEN NO INTENTION ON

OUR PART TO RESTRICT IT IN ANY WAY.

За

YOU SUGGEST IN PARA 5 OF YOUR TEL THAT THE NOVEMBER FORMULA WOULD HAVE ACCOMMODATED ANY BREACH (NOT INVOLVING A

DELIBERATE REDUCTION IN STERLING HOLDINGS) WHICH RESULTED FROM

A FALL IN MARKET PRICES. WE DO NOT ACCEPT THIS INTERPRETATION

BECAUSE IT FAILS TO TAKE INTO ACCOUNT THAT THE NOVEMBER FORMULA

EXPLICITLY EXTENDED ONLY TO BREACHES THAT ARE PURELY

ACCIDENTAL, NOT TO ANY BREACHES,

1. THERE THEN ARISES THE QUESTION OF WHAT BREACHES CAN BE

REGARDED AS PURELY ACCIDENTAL, ALTHOUGH YOU HAVE ASKED, RY IMPLICATION, FOR GREATER PRECISION, WE THINK IT HADVISABLE

TO TRY TO SET OUT A COMPREHENSIVE LIST OF POSSIBLE ACCIDENTAL

BREACHES. THIS WOULD, IN ANY CASE; HARDLY BE TO THE ADVANTAGE

OF PARTICIPANTS SINCE UNLISTED BREACHES WOULD THEN HAVE TO BE

TREATED AS INELIGIBLE, IN OUR VIEW, THE MOST SATISFACTORY COURSE IS TO AVOID BUILDING IN MFLEXIBILITY, AND WE ASSURE YOU THAT OUR

NITENTION TO AND REMAINS TO INTERPRET THE ACCIDENTAL BREACH

PROVISION IN A FAIR AND REASONABLE MANNER.

15.

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