Barcelo v Electro-Lytic Zinc Company of Australia Ltd

48 CLR 391

---

(Judgment by: Evatt J)

Barcelo
vElectro-Lytic Zinc Company of Australia Ltd

Court:

Judges: Rich J
Starke J
Dixon J

Evatt JMcTiernan J

Case References:
Ashbury v Ellis - (1893) AC 339
Attorney-General v Cain and Gilhula - (1906) AC 542
Croft v Dunphy - 48 TLR 652
Robtelmes v Brenan - 4 CLR 395
Semple v O'Donovan - (1917) (NZ) LR 273
Ellis v McHenry - LR 6 CP 228
Spiller v Turner - (1897) 1 Ch 911
Pass v British Tobacco Co (Aust ) Ltd - 42 TLR 771
Metropolitan Gas Company v McIlwraith & c Ltd - (1932) ALR 16; (1932) VLR 88
British South Africa Company v De Beers Ltd - (1910) 2 Ch 502
Hamlyn v Talisker Distillery - (1894) AC 202
Hutton v West Cork Company - 23 Ch D 654
Cyclists' Touring Club v Hopkinson - (1910) 1 Ch 179
Evans v Rival Granite Quarries Ltd - (1910) 2 KB 979
Re Florence Land and Public Works Company - 10 Ch D 530
Simultaneous Colour Printing Syndicate v Foweraker - (1901) 1 KB 771
Governments Stock Investment Company v Manila Railway Company - (1897) AC 81
Illingworth v Houldsworth - (1904) AC 355
Bloxam v Favre - (1883) LR 8 P D 101
Niboyet v Niboyet - (1878) LR 4 P D 1
Forster v Forster - (1907) 13 ALR 33
Cope v Doherty - (1858) 4 K & J 367
Delaney v Great Western Milling Co Ltd - (1916) 22 CLR 150; 22 ALR 357
Gibbs v La Societe Industrielle et Commercielle des Metaux - 25 QBD 399
Krzus v Crow's Nest Pass Co Ltd - (1912) AC 590
Maclcod v The Attorney-General for New South Wales - (1891) AC 455
Tomalin v S Pearson and Son Ltd - (1909) 2 KB 61
Bartley v Hodges - 1 B & S 375
Harding v Commissioners of Stamps for Queensland - (1898) AC 769
Cooke v Charles H Vogeler Company - (1901) AC 102
Colquhoun v Heddon - 24 QBD 491
Thomson v Advocate General - (1845) 12 Cl & Fin 1
Wallace v Attorney-General - LR 1 Ch 1
Winans v The Attorney-General - (1910) AC 27
Commissioner of Inland Revenue v Maple and Co (Paris) Ltd - (1908) AC 22
R v Jameson - (1896) 2 QB 425
Huber v Steiner - 2 Bing (NC) 203
Phillips v Eyre - LR 6 QB 1
Potter v Brown - 5 East 124
Gardiner v Houghton - 2 B & S 743

Hearing date: 27-29 September 1932
Judgment date: 21 November 1932

---

Judgment by:
Evatt J

This is an appeal from the Supreme Court of Victoria, and this court has necessarily to regard from the viewpoint of a Victorian court the controversy which has arisen.

From para 13 of the Special Case it appears that, on 16th November, 1931, the plaintiff Company paid to the debenture-holders in Melbourne and London an amount of interest calculated, not at the full rate of 8 per cent. provided in the deed of trust, but at a rate of 8 per cent. reduced by 221/2 per cent. of 8 per cent., in accordance with the provisions of the Vic torian "Financial Emergency Act 1931."

The general scheme of the Statute mentioned is to alter the rights and obligations of the parties to mortgages, firstly by adding a new term to the mortgages reducing the rate of interest payable thereunder; and secondly by providing for a full discharge of the mortgagor's liability in the event of his payment of interest at the reduced rate -- ss 19 (1) and 22 (1). The Statute applies to mortgages in actual existence at its coming into operation -- s 17 (1) (a).

The first three questions in the Special Case (as amended by the Supreme Court of Victoria) are as follows: --

(a)

Are the said debentures or any and which of them mortgages within the meaning of the word "mortgage" in Part III. of the "Financial Emergency Act 1931"?

(b)

Do the provisions of Part III. of the said Act apply to and operate upon -- (1) The said debentures on the Melbourne register? (2) The said debentures on the London register?

(c)

Did the payment to the holders of the debentures of the reduced amount of interest mentioned in para 13 hereof discharge the plaintiff's liability under the said debentures in respect of such interest to the holders of -- (I) The debentures on the Melbourne register? (II) The debentures on the London register?

Perhaps the form of the questions, particularly Question (b), has suggested that the answer to the only real question which is in issue between the parties -- that stated in (c) -- is to be discovered by ascertaining whether the Statute, entirely of its own force, operated directly upon the transactions entered into by the plaintiff Company and the debenture-holders. At any rate, the Supreme Court adopted this method of approach, and concluded that the "Financial Emergency Act" applied only to those mortgage instruments by which security for payment of money in Victoria was granted over any real or personal property situate in Victoria. And so it was adjudged that the obligation of the plaintiff Company to pay interest to the debenture-holders was or was not discharged by payment of the rate reduced in the terms of the Statute, according as the payments were made in Melbourne or London respectively.

There is nothing startling about this result once it is appreciated that the Victorian Legislature must have intended to draw some hard and fast line between those transactions with which it did, and those with which it did not, wish to be concerned. But the result is very startling if attention is paid to the express terms of the contract between the parties.

All the debentures issued by the plaintiff were part of a series of "first mortgage debentures," and were issued subject to the conditions of the trust deed, which was deemed to be part of each debenture. The debenture-holders were expressed to be entitled , pari passu, to the benefit of the deed, and Condition I., indorsed upon each debenture, also affirmed equality of benefit as between all the debenture-holders.

But this is not all. In the year 1922, when the deed of trust was executed, it was apparent that some of the debenture transactions, at least, would present a "foreign" or non-Victorian element. It was contemplated that from time to time new debentures would be issued in London by the Company, and that registration of such debentures would be made at the register situated at the London office. Further, most of the assets of the Company were situated, not in Victoria, but in the State of Tasmania.

The parties desired to anticipate any difficulties as to the proper territorial system to be applied in relation to their mutual rights and obligations under the debentures. Clause 63 of the trust deed therefore provided that "these presents shall be construed according to the law of Victoria." By cl 29 the possible application of one section of a Victorian "Conveyancing Act" was excluded. Clause 56 regarded the Victorian "Trust Act 1915," "or any statutory modification thereof," as applicable to the deed.

Nowadays clauses resembling cl 63 are by no means uncommon in dealings where "foreign" elements are present -- Salmond and Winfield , Law of Contracts, p 531. But what does cl 63 mean? It occurs to one immediately that the parties wanted to do two things. They wanted the Victorian system of law to be used in order to measure the obligation, its interpretation, and any question as to its discharge, and they also wanted to exclude any competing system such as that (say) of Tasmania or England. If so, why cannot their express agreement be given effect to?

But it is contended that a construction of the Victorian "Financial Emergency Act" must still be attempted so as to see whether its territorial sweep is sufficiently wide to include the present mortgage debentures, and that, if the Statute does not, of itself and by itself, "operate upon" any of these instruments, they must continue to remain quite unaffected by its terms.

In my opinion this contention is quite fallacious. I have found part of the present problem discussed most convincingly in Salmond and Winfield's book on Contracts. Within certain limits, not material to the present question,

the parties to a contract have a right when making that contract to select by mutual agreement the lex by which it is governed, and the territorial system so selected by them, ought in justice to the parties and for the fulfilment of their real agreement, to be applied by every court in which the contract comes up for interpretation and enforcement. The law so contemplated and selected by the parties as that by which their contract is to be governed may be termed the conventional law of the contract (lex conventionalis)

-- p 530.

Later the learned authors say --

It is now to be observed that the general principle so formulated, while it imposes a stringent limit on the right of the parties to exclude the application of English law by choosing instead some system of foreign law as the lex propria of the contract, imposes no similar limit to select English law itself for that purpose, even in a case to which it would not otherwise be applicable. If the parties to a contract made abroad or otherwise containing a foreign element choose expressly or by implication to agree that the contract shall be governed in all or any respects by English law, there is commonly no reason why, in an English court, they should not be taken at their word, and why the validity and effect of the contract should not be determined by English law accordingly. In such a case the distinction between the peremptory and the merely provisional portions of English law is irrelevant, for the parties are not attempting by private agreement to exclude English law which would otherwise be applicable, but are agreeing to the extension of English law to a case which would not otherwise be within its scope. If two Englishmen in Paris make a contract, and agree that it shall be construed and shall operate as an English contract, there is no reason why the whole of the English law of contracts should not apply to it for all purposes, just as if it had been made in London. The result may even be that the contract is invalidated by some English rule which is unknown to the law of France

-- ibid., p 540-541.

The subject of cl 63 is, by agreement, to treat the rights and obligations of the contracting parties upon the same footing as if all of the material and relevant parts of the transaction were taking place, and to take place, within the State of Victoria. And the real question is whether, upon such footing, the "Financial Emergency Act" would apply. Of course it would not apply if debentures can never, under any circumstances, be governed by the Act, and it will be necessary to refer to that question later. But if Victorian debentures are governed by it, and the present debentures should be regarded as purely Victorian in character, then the plaintiff Company discharged its obligation to all debenture-holders when it paid the rate reduced as provided in the Statute. For it is indisputable that the "Financial Emergency Act" does affect all mortgages which are entirely Victorian in character , eg, instruments where (1) all the property charged is situated in Victoria; and (2) all the parties are both domiciled and resident in Victoria; and (3) all the moneys secured by the mortgage are advanced in Victoria; and (4) both the principal and interest are payable in Victoria alone; and (5) the mortgage has been entered into in Victoria. Mortgages displaying all such features are , ex hypothesi, devoid of any "foreign" or non-Victorian element, and such mortgages, at the very least, the Victorian Parliament sought to and did regulate.

Therefore, if the construction placed on the Statute by the Supreme Court is correct, and the reduced rate of interest obtains only where the payment of interest takes place in Victoria, and some of the property secured is there situate, the present debentures must yield to the Statute, because the place of payment of interest and the residence of all the debenture-holders are, so to speak, deemed to take place in Victoria for the purpose of attracting the whole body of Victorian law applicable to analogous debenture transactions. I am still assuming, of course, that debentures come within the general scope of the "mortgages" regulated by the Act.

If a mortgage is entered into in New Zealand and relates solely to acts and things in New Zealand, but expressly provides that the law of Victoria shall be the " lex conventionalis, " I fail to see why a Victorian court, having seisin of the relevant litigation, should refuse to apply the Victorian system of law relating to mortgages merely because that system is not "intended" to govern transactions which are purely of a New Zealand character. It is true that the Victorian system of mortgages is part of a legal system in and for its own territory, but that is true of all, or nearly all, systems of civil law. The parties themselves, not the Victorian Legislature, "intended" their rights and liabilities to be ascertained and enforced by reference to the Victorian law of mortgages, and, for this purpose, their agreement is meaningless unless it implies that the general law of Victoria is to be applied to the transaction, without paying regard to the limited territorial application, which is a characteristic and inevitable feature of all Victorian laws.

The very purpose of clauses like cl 63 is to prevent actual or threatened recourse to all non-Victorian systems of law by agreeing, as it were, to regard all non-Victorian features of the transaction as not existing. It may very well be that the Courts of some other countries would refuse to give full or any effect to such a clause , eg, the court of New Zealand in the case I have supposed, would not refrain from applying a New Zealand Statute otherwise applicable to the transaction, because the New Zealand parties had agreed that it should not apply. Further a Victorian court itself might refuse to give effect to any part of the agreement, if it offended against some "peremptory rule" of Victorian law.

In the present case, however, there is no possible reason for the Victorian court's refusing to give full effect to cl 63, as introducing Victorian law for the purpose of measuring the obligations and regulating the discharge of the agreement. "Victorian law" must mean, if it means anything, the system of law which applies in Victoria to local transactions of the same general character as those represented by the present debentures.

But the question remains, as I have already pointed out, whether the "Financial Emergency Act" would apply to debentures such as the present, if they were entirely devoid of "foreign" or non-Victorian elements. In my opinion, the Act would apply, because such debentures and deeds as those before us are correctly described as "instruments whereby security for payment of money is granted over real or personal property" -- "Financial Emergency Act 1931," s 14. On this part of the case I concur with the opinion of Cussen, A.-CJ, who points out that

the language in the definition is extremely wide, and it is the constant usage of lawyers to speak of floating debentures as security, as indeed the debentures themselves in question do, and moreover it is beyond doubt that such a debenture creates an equitable charge on the assets for the time being which is capable of being put in force by an injunction if the mortgagor seeks to use the assets subject to the charge otherwise than in the ordinary course of business or contrary to the terms of the debenture.

It may be further urged that cl 63 should not be interpreted as allowing to impinge upon the obligation of the debenture and its discharge, Statutes passed by the Victorian Legislature after the execution of the trust deed and the issue of the debentures. On this point, however, the opinion of Isaacs, J, in Delaney v Great Western Milling Co Ltd ., ( 1916) 22 CLR 150 , 22 ALR 357, should be followed. He said that the judgment of Lord Esher, M.R , in Gibbs v La Societe Industrielle et Commercielle des Metaux, 25 QBD. 399, impliedly recognised that

in submitting to the law of a country, the contractors, wherever the contract is made, do not merely tacitly incorporate, so to speak, the existing laws of that country as terms of their contract, but tacitly submit to the system of law of that country in relation to the contract. And if that system includes power of subsequent legislation, that is part of the matter submitted to. It is the 'system of law' which is submitted to

-- p 169, 22 ALR at p 363.

It may be conceded that the parties did not anticipate that, during the currency of their agreement, there would be passed in Victoria legislation which would indirectly effect a discharge of the plaintiff Company's obligation to pay the agreed rate of interest by payment of a lower rate; but they clearly agreed to accept the Victorian legal system with all faults (if any) as well as with all virtues (if any). And their agreement must control.

The observations of Isaacs, J, in Delancy's Case, which I have quoted, were applied by him to the incorporation of ex post facto legislation passed in the country, the law of which was the "proper law" of the contract. On this part of the case I have felt most difficulty by reason of the temporary or "emergency" character of the Victorian legislation. But I have come to the conclusion that a Victorian court cannot, on that account, exclude it from consideration in enforcing the agreement, but it is bound to treat it as part of the relevant body of law and as securing the discharge pro tanto of the obligations originally created.

The view I have come to is that the plaintiff Company's obligation to pay interest at the agreed rate became discharged, not by the direct force of the "Financial Emergency Act" (which may or may not apply to some or all of the debentures or some or all of the payments for which they call), but by the direct force of the agreement introducing the Victorian system of law. I feel greatly strengthened in my opinion by the remarks of Lord Russell of Killowen, in Re Annesley, ( 1926) Ch 692 at 708-709, where he suggested that the circulus inextricabilis could, and perhaps should, be avoided, even in the administration of the personal estate of a British subject domiciled in a foreign country. "Speaking for myself," he said,

I should like to reach the same conclusion by a much more direct route along which no question of renvoi need be encountered at all. When the law of England requires that the personal estate of a British subject who dies domiciled, according to the requirements of English law, in a foreign country, shall be administered in accordance with the law of that country, why should this not mean in accordance with the law which that country would apply, not to the propositus, but to its own nationals legally domiciled there? In other words, when we say that French law applies to the administration of the personal estate of an Englishman who dies domiciled in France, we mean that French municipal law which France applies in the case of Frenchmen. This appears to me a simple and rational solution which avoids altogether that endless oscillation which otherwise would result from the law of the country of nationality invoking the law of the country of domicil, while the law of the country of domicil in turn invokes the law of the country of nationality, and I am glad to find that this simple solution has in fact been adopted by the Surrogates' court of New York.

The judgment I have quoted from has become the subject of the keenest interest and discussion in relation to the supposed recognition by British Courts of the doctrine of the renvoi -- see Law Quarterly Review, Vol XLVII., p 271; Vol XLVI., p 485, by John D. Falconbridge, K.C.; and cf. G. O Schreiber, jun., 31 Harvard LR 523.

It will not escape observation that the aspect of the doctrine of the renvoi discussed in the passage I have quoted from in Re Annesley bears a close analogy to the problem at present before the court. It is an &\ a fortiori case, where the parties to a contract have expressly agreed to refer its obligation and discharge to "the law of country A, " the Courts of which are asked, as here, merely to give effect to the agreement. These Courts, at all events, should hold that there is introduced by such reference the whole of the general law in force in country A with respect to its own territorial contracts.

In my opinion Question (c) alone need be answered, and it should be answered -- (c) ( i), Yes ; (c) ( ii), Yes. As to Question (d), which concerns the powers of the plaintiff Company, or its directors, to pay the whole of the interest originally agreed upon, I do not think it should be answered. There is no evidence of any suggestion or proposal to pay such sum, and no facts are before the court which enable a satisfactory answer to be given.

The order appealed from should be varied, and Question (c) answered -- (i), Yes; (ii), Yes, No other question should be answered.