TNAG-1270-FCO40-1620-Financial-policy-in-Hong-Kong-1983 — Page 20

CODE 18-77

A!

B

SECRET

Reference

HKK-100/7

RECYLD IN LOISTRY

2/

Mr Burrows Legal Advisers

Buyrows

HONG KONG: HMG'S LIABILITY

PA

Taken

1. We spoke yesterday evening about the attached letter from Beastall in the Treasury.

W52

2. Mr Beastall is paraphrasing the last two sentences of para 1 of annex I to the special study on the future of Hong Kong prepared in August 1982. The Treasury and the Bank of England were fully involved in the drafting of the annex. The attached file does not throw any light on the genesis of the two sentences in question. The draft sent to Hong Kong for comment (folio 4) included a simpler formula, Presumably the later expansion was agreed around the table at a meeting. I understand from those involved that Mr Rushford represented the legal advisers at all the meetings on Hong Kong. In addition, both Sir Ian Sinclair and Mr Rushford received copies of the relevant papers in final draft form (folio 19) and in final form (folio 33).

3. It would be very helpful to have your comments on the legal implications of the formula in question in the light of the questions in Mr Beastall's letter. You suggested last night that it might be necessary to distinguish between different circumstances in which HMG might incur a potential financial obligation to assist Hong Kong:

(i)

(ii)

(iii)

Potential liability for any external obligations incurred by HKG, for example the obligation to repay a loan raised outside the territory.

A potential responsibility to assist, if necessary, in action by the HKG to support a public utility faced with financial collapse.

A more general potential responsibility to commit the resources of HMG in a crisis where the reserves of the HKG might be insufficient to avert a collapse of the local currency.

(iv) The special case of pensions payable to former colonial

servants, where (as in Aden) the successor to a colonial administration refused to assume these obligations.

4. All this leaves aside what Mr Beastall describes as 'the political aspect'. Our first reaction is that it would be unwise to move away from the formula contained in the 1982 paper, and to acquiesce in any redefinition of the formula which more clearly separated financial from political obligations.

5. I should be grateful for your comments.

5 October 1983

cc Mr Clift

SECRET

سلامت

CO Hum

Hong Kong Department