Your telegram of 28th August, No. 256. 
The Portuguese Government have made it clear both here and in Lisbon that they are most anxious to re-establish their authority in Portuguese Timor with a minimum delay and that they are equally anxious, if possible, to do this by their own efforts and without any intervention by third parties. With this end they have already despatched one sloop which is due at Colombo almost immediately and are contemplating sending three or four more sloops very shortly. Furthermore, the transport 'Angola' with Portuguese troops on board will be ready to sail from Lourenco Marques in the next day or two. In addition, the Portuguese Government claim to have been informed through the Japanese Minister in Lisbon  that the Japanese Government are now ready to return Portuguese Timor to full Portuguese control though whether this arrangement can, in fact, be implemented must be open to doubt.
2. Our attitude has hitherto been to assure the Portuguese Government that we wish to place no obstacle in the way of re- establishment of their authority over Portuguese Timor, but may persuade them for operational reasons to route their first sloop via Colombo instead of as they wished, sending her direct to Timor. We do not feel, however, that we shall have any justification, once the Japanese surrender has been signed, for delaying this sloop at Colombo or for preventing 'Angola' and other sloops from sailing from Lourenco Marques direct to Timor if and when the Portuguese Government so desire.
3. Despite the attitude of the Portuguese Government described above, we fully understand your desire that the surrender of Japanese troops in Portuguese Timor should be made to an Australian force and we are quite prepared to approach the Portuguese Government accordingly. In view, however, of their own feelings on the subject, we anticipate that they will certainly wish to stipulate that the local Portuguese authorities and probably the first of the Portuguese sloops should be associated with the surrender. We think, too, that the Portuguese Government will certainly insist on an undertaking being given that the Australian forces which may enter Portuguese Timor to accept the Japanese surrender will be withdrawn as soon as the Japanese have effectively surrendered and been rounded up and Portuguese authority re-established, and in any case, not later than the arrival of the Portuguese troops in the 'Angola'.
4. In this last connection, we feel that a clear distinction should be drawn between the surrender of the Japanese forces in Timor which is essentially a military act and the restoration of civil administration in the Colony which, in our view, should clearly be left to the Portuguese especially since, as explained above, they are already taking action to re-establish their own position. A suggestion that Australian troops should temporarily occupy Portuguese Timor or that interim arrangements for the administration of the Colony should be made as suggested in paragraph 6(c) and 6(d) of your telegram under reference would, we feel, certainly be rejected by the Portuguese Government, would arouse great suspicion in their minds and would seriously prejudice the prospects of any future negotiations such as you have in mind. Furthermore, the Portuguese Government, would, we anticipate, certainly claim that any such proposal was contrary to the undertaking given to them in the name of the Commonwealth Government by the British Ambassador in Lisbon on 14th September, 1943 , regarding the maintenance of Portuguese sovereignty in her Colonial possessions after the war. They would reclaim that, in their reply of 4th October, 1943 , they expressed their readiness to discuss with the Australian Government matters relating to defence, commercial relations, etc. but would maintain that such discussions were impossible until their sovereignty over the island was fully re-established.
5. Any dispute between the Commonwealth Government and the Portuguese Government over Timor would inevitably react on the relations between the United Kingdom and Portugal and might have very embarrassing reactions here. The United Kingdom Government regard the maintenance of good relations with Portugal as of great importance at the present time, both for economic and financial reasons and on account of the facilities which we still enjoy under the Azores Agreement.  Anything which might interfere with the smooth working of this last agreement might, too, have unfortunate repercussions on United States interests. Besides, whatever may have happened in Timor in 1941 the United Kingdom cannot overlook the very considerable services subsequently rendered to the Allied cause by Portugal through the grant of bases in the Azores which have been of assistance to both the European and Far Eastern theatres of war and through the provision of credit facilities. Nor can it be overlooked that Portugal was ready and eager to take part in any operation to recover Timor.
6. We suggest, therefore, that it would be best to concentrate on the question of surrender and that His Majesty's Ambassador in Lisbon  should be instructed to make the following proposals to the Portuguese Government:-
(1) The Portuguese Government should be asked to agree that the military surrender should be made to Australian forces on the understanding that this force should be withdrawn as soon as the surrender arrangements had been completed.
(2) The Portuguese Governor, who we understand is still in the Colony, should be associated in the surrender.
(3) The sloop 'Bartolemeu Dias' now on its way to Timor via Colombo should also be associated in the surrender.
(4) If the Portuguese Government agree to these proposals, detailed arrangements should be made at once to provide for the synchronisation of plans.
7. We trust that no action to despatch Australian troops to Portuguese Timor will be taken in the meantime since any such action would seriously prejudice the chances of success of the Ambassador's representations.