Bonython v Commonwealth
[1948] HCA 2(1948) 75 CLR 589
[1948] 1 ALR 185
(Judgment by: Starke J)
Bonython
v Commonwealth
Judges:
Latham CJ
Rich J
Starke JDixon J
McTiernan J
Judgment date: 31 May 1948
Judgment by:
Starke J
Case stated for the opinion of the Court. The plaintiffs are the registered holders of inscribed stock issued by the Commonwealth. The stock was issued pursuant to a debt-conversion scheme whereby the Commonwealth took over (inter alia) the liability of the State of Queensland upon various debentures issued by it: see The Government Loan Act of 1894 (Q) (38 Vict No 32); Financial Agreement Acts 1928, 1929 and 1932; Debt Conversion Agreement Act 1931; Commonwealth Inscribed Stock Act 1911-1945. By the conditions under which this stock was issued the holders for the time being were entitled to the rights which conformed in all particulars with the rights conferred by the Queensland Government debentures. These debentures entitled the holder to the principal sum therein mentioned in "pounds sterling" and which, together with interest at the rate of 31/2 per cent per annum, were secured upon the Consolidated Revenue of Queensland.
The principal sums were payable on 1 January 1945 either in Brisbane, Sydney, Melbourne or London, at the option of the holder but notice was required to be given to the Treasurer of the Colony on or before 1 July 1944 of the place at which it was intended to present the debentures for payment of such principal.
But it must be observed that the debentures were surrendered and the stock issued in lieu thereof was Commonwealth stock charged upon the Consolidated Revenue Fund of the Commonwealth appropriated for that purpose: see Commonwealth Inscribed Stock Act 1911-1945, s 6. And also it must be observed that the stipulation requiring notice to the Treasurer of the Colony of the place at which it was intended to present the debentures for payment became inapplicable for the debentures were surrendered and the Commonwealth took over the liability by the issue of its own stock, which is inscribed in a stock ledger, but the owner may apply for stock certificates to bearer which are transferable by delivery. It does not appear in the case that stock certificates were applied for or issued to the plaintiffs. The option, however, of the holders to require payment at Brisbane, Sydney, Melbourne or London remained. And it is further to be observed that the currency in Queensland appears to have been regulated by the Coinage Act of New South Wales of 1855 (19 Vict No 3), and the Treasury Notes Act of Queensland (30 Vict No 11 and 56 Vict No 37). All that need be said of these Acts is that the gold coin issued from the Royal Mint or the Branch Mint at Sydney were the only legal tender for payments except as therein provided.
The law which governs the interpretation and the extent of the liability of the Commonwealth on the stock issued by it is undoubtedly the Australian law. That law is the proper law of the contract because it is the system which has the closest and most real connection with the transaction (Mount Albert Borough Council v Australasian Temperance & General Life Assurance Society Ltd (1938) AC 224, at pp 240-1; R v International Trustee for the Protection of Bondholders Aktiengesellschaft (1937) AC 500).
The Australian law and the English law do not differ in this respect. The word "pound" or the words "pound sterling" designate English moneys: the money or unit of account in which debts and prices are expressed. The monetary systems of England and Australia doubtless rest upon independent constitutional powers. But the money of account of both England and Australia is and always has been the same: see Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd (1934) AC 122. Debts and prices are expressed in terms of pounds, shillings and pence. The pound was and is the unit of account in both England and Australia. A pound in Australia is, as in England, a pound whatever its value in exchange (The Baarn (1933) P 251, at p 265). "It is a mistake to define the unit of account in terms of the metallic standard; for the unit of account is that which persists even when the standard changes" (Hawtrey, Currency and Credit, 3rd ed (1928), p 212).
Money as a means whereby debts are discharged derives its character from its relationship to the money of account since the debts must have been expressed in the terms of the latter. The money of account is the description or title and money is the thing which answers the description: see Keynes, A Treatise on Money, Vol 1, pp 3-4.
The question is what is the proper construction of a contract to pay a certain number of pounds sterling at the option of the holder of stock in Brisbane, Sydney, Melbourne or London. The words should, I think, be referred to the money of account which was common to England and Australia and not to money whereby the obligation might be discharged. It is an obligation to pay a sum of money expressed in a money or unit of account common to England and Australia.
How then is that obligation to be discharged? A comparison of the decisions in Broken Hill Pty Co Ltd v Latham (1933) 1 Ch 373 and Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd (1934) AC 122 solves, I think, that problem.
In Latham's Case (1933) 1 Ch 373 mortgage debentures were issued promising to pay a certain number of pounds in either Australia or London at holder's option. The Australian law appears to have been the proper law of the contract: see Latham's Case (1933) 1 Ch, at pp 388, 409-410. The primary judge held that the payment to debenture holders electing to be paid in London must, both as to principal and interest, be in sterling without deduction of the exchange value of the pound in Australia. By a majority the Court of Appeal resolved that the debentures should in all cases be paid in Australian currency and converted into sterling at the rate of exchange current in London on the due date for payment.
In the Adelaide Case (1934) AC 122 this decision was overruled. The company was an English company. Its capital included certain preference shares issued in England and held by parties registered in England as the holders thereof. The shares were converted into stock. The company passed a special resolution that all dividends should be paid in and from Adelaide or elsewhere in Australasia. The company paid dividends on its stock by delivery to its stockholders of warrants payable in South Australia. The stockholders registered in England claimed that they were entitled to be paid their dividends in sterling in England in English legal tender for the full nominal value thereof and not subject to deduction for Australian exchange.
But it was held that the company discharged its obligation by paying in Australian currency that which was in Australia legal tender for the nominal amount of the dividends.
Lord Tomlin said (1934) AC, at pp 145-146: "Now where in an English contract governed prima facie by English law there is a provision for performance in part in another country the prima facie presumption is that performance is to be in accordance with the local law . . . That must mean, applied to the facts of this case . . . that the obligation to pay is an obligation to pay a sum of money expressed in a money of account common to the United Kingdom and Australia, and that when the payment under the terms of the obligation has to be discharged in Australia it has to be made in what is legal tender in Australia for the sum expressed in that common money of account. It cannot mean that it is an obligation to pay a sum of money expressed in money of account which is not Australian money of account and that therefore if payable in Australia it must be discharged there by payment either in English legal tender of the amount expressed in the English money of account or in Australian legal tender of such an amount expressed in the money of account of Australia as will buy in London the amount in English legal tender of the obligation expressed in the English money of account." The Lords Warrington of Clyffe and Russell of Killowen agree, as I read their judgments, in this view.
The fact that the obligation is expressed in pounds sterling and not in pounds makes no difference in principle for the money of account whether expressed in pounds or in pounds sterling is the same both in England and Australia. Before fluctuations in exchange occurred in the value of the currencies of England and Australia it was not unusual in commercial documents operating within Australia, eg cheques, to find the obligation expressed in pounds sterling, for that was the unit of account in Australia, but the obligation was discharged in currency which was legal tender according to Australian law. But that no doubt was a matter of construction.
The case of Auckland Corporation v Alliance Assurance Co Ltd (1937) AC 587 accords with the Adelaide Case (1934) AC 122 though some of the reasoning of Lord Wright is not easy to follow (cf the Auckland Case (1937) AC, at pp 604, 605, 606). Payne v Deputy Federal Commissioner of Taxation (1936) AC 497 "throws no light upon the matters at issue here" (See the Auckland Case (1937) AC, at p 609). It was decided upon the construction of the Australian Income Tax Acts. In De Bueger v J Ballantyne & Co Ltd (1938) AC 452 the parties stipulated in an English contract for the payment of pounds sterling in New Zealand. In the agreement there in question it was said that the word "sterling" was an express term intended to exclude and in part excluding the prima-facie rule according to which New Zealand pounds would be meant as being the currency of the place of payment. That construction is conclusive of that case, but the observations upon the Adelaide Case (1934) AC 122 do not, I think, quite accord with the views of the Lords Warrington of Clyffe, Tomlin and Russell of Killowen with respect to money of account and money whereby debts are discharged. Stock issued by the Government of Australia, I would add, is not a common form of business document and it seems improbable that the Australian Government by the use of the word "sterling" meant English currency or its value and nothing else.
It appears to me that the debentures issued by the Queensland Government and the stock issued by the Commonwealth were referring to the money of account common to both England and Australia and not to the money whereby debts are discharged or the money of payment.
Both England and Australia are now off the gold standard. And exchange has been pegged so that in effect £100 in English currency is equivalent to £125 in Australian currency in case of telegraphic transfer. But if and when England and Australia return to the gold standard the position will be precisely the same as that described by Lord Tomlin in the Adelaide Case (1934) AC 122
The English currency is now regulated by the Coinage Acts of 1870, 1891 and 1920, the Currency and Bank Notes Act of 1928 and the Gold Standard Acts of 1925, 1931, and any subsequent amendments. The Australian currency is regulated by the Coinage Acts of 1909, 1947, the Commonwealth Bank Act 1945 and the Banking Act 1945. But the gold content and the standard fineness of the metallic currency remains the same. The English Coinage Acts, however, provide for various denominations of silver and bronze coins that are not mentioned in the Australian Acts.
It follows, if I am right, that the Commonwealth can only discharge the indebtedness, in respect of the stock in question here, which the holders elected to be paid in London, by payment in English currency without deduction on account of the exchange value of the pound in Australia, and in respect of payments which the holders elected to be paid in Brisbane, Sydney or Melbourne, by payment in Australian currency without conversion into the equivalent amount in English currency at the due date of payment.
The Commonwealth contended that the holders had not exercised their option for payment in London in due time; that they had not given the notice required by the debentures before 1 July 1944. But the contention is, I think, untenable, for the debentures were surrendered and converted into stock and the notice required by the debentures necessarily lapsed. The holders of the stock were doubtless bound to exercise their option before they could insist upon payment at any particular place. They did so exercise that option on 22 December 1944 and required payment in London and that, I think, was a due exercise of the option in the circumstances of the case.
The stock holders are not entitled to interest upon the amount of the stock held by them at 31/2 per cent per annum since the 1 January 1945: see London, Chatham and Dover Railway Co v South Eastern Railway Co (1893) AC 429. But I should think that they might claim for damages for breach of contract in not paying moneys owing to them on the appointed day of 1 January 1945. And the damages might be measured by the interest payable on the stock (Cook v Fowler (1874) LR 7 HL 27; In re Roberts; Goodchap v Roberts (1880) 14 Ch D 49 Mellersh v Brown (1890) 45 Ch D 225, at pp 228-229).
The questions stated should be answered -- (a) Yes on 1 January 1945. (b) Unnecessary to answer. (c) No. (d) No, but to damages for detention of the debt.