TNAG-0448-FCO40-513-Sterling-assets-and-balance-of-payments-of-Hong-Kong-1974 — Page 68

CONFIDENTIAL

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DRAFT TELEGRAM TO HONG KONG

YOUR TEL NO 467:

STERLING GUARANTEES

1. Thank you for the report in your telne 467 of the recent

discussion in the Executive Council.

2,Recent exchanges between us have, of course, focussed on

what may be termed the outer limits to interpretation of

the accidental breach provision. But this emphasis on the

breaches which the provision does not accommodate has tended

to distract attention from the breaches which it does

accommodate.

3. The accidental breach provision would cover as accidental

any breach which could not have been reasonably foreseen or

prudently provided against. In particular, the provision

would cover a breach that arose as a result of a substantial say, the last two of three

fall in gilt prices in, the last days of the month.

Moreover,

para.3(2) of the Declaration does not exclude the possibility

Several

that twe/successive months might show breaches that were

accidental in the sense described above provided in such a

cach

case that action had been taken in the second month to correct

any

1

e breach that had arisen in the previous month.

4.

All this being so, and after further reconsideration of the

Hong Kong case, we do find it hard to see what unmet need

remains for any reformulation of this provision which would be consistent with the object of condoning only.accidental, repeat

accidental, breaches. We just cannot see as unsympathetic or

legalistic a reluctance on the part of HMG to go beyond a dispensation which provides a let-out in respect of any purely accidental breach. There is no question of lack of goodwill

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