TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 18

CODE 18-77

Mr Hum HKD

SECRET

Reference

#KK 10/2 194

RECEIVED IN REGISTRY

26 OCT 1233

DESK OFFICER

INDEX

PA

Action Taken

see (95

HONG KONG: FINANCIAL OBLIGATIONS

see 52

1. You have asked me for very urgent advice on the question raised in the letter from Mr Beastall (Treasury) to r Clift of 4 October. I have spoken to Sir I Sinclair and Mr Rushford about the genesis of the two sentences in Annex I to the 1982 Special Study on the Future of Hong Kong, which read as follows:-

"Moreover, generally speaking HMG have no specific liability for the financial obligations of the Hong Kong Government. However, in the last resort HMG would be regarded as responsible for Hong Kong since it is a colony over which, formally speaking, they have plenary powers of control, both executive and legislative.'

Mr Rushford remembers them but was not their author. There appears to be no evidence in the file to suggest that either he or Sir I Sinclair drafted them.

A

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2. "Financial obligations of the Hong Kong Government" are in law the debts of the Crown, acting in right of Hong Kong. It is correct that the Crown has in the same capacity reserved the right to legislate in respect of Hong Kong (Article IX of the Letters Patent). In that sense it is free to legislate, at any time and acting in right of Hong Kong, in order to establish from which resources those debts are to be discharged. If those resources were to become exhausted the Crown's debts would still subsist The Crown would then, I suppose, have the legislative power to annul the debts altogether, but if it were to do so we should be likely to be faced with formidable legal problems because:-

(i) this would be confiscatory legislation, and in so far as it affected debts owed to foreign nationals or governments it would give rise to claims under inter- national law for compensation; and

(ii) if any particular debt were owed as a result of any

treaty applicable to Hong Kong, it would be a breach of the treaty to dishonour it, and again this would give rise to claims under international law for compensation.

SECRET

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