Bonython v Commonwealth

[1948] HCA 2
(1948) 75 CLR 589
[1948] 1 ALR 185

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(Judgment by: Latham CJ)

Bonython
v Commonwealth

Court:

Judges:
Latham CJRich J
Starke J
Dixon J
McTiernan J

Hearing date: 23 and 24 October 1947
Judgment date: 31 May 1948

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Judgment by:
Latham CJ

This is a case stated in an action brought by Sir John Lavington Bonython and others who hold £80,400 Commonwealth Inscribed Stock 3.5% maturing 1 January 1945 against the Commonwealth of Australia.

This stock was acquired by the Australian Mutual Provident Society in March 1932, upon the surrender to the Commonwealth of certain Queensland Government debentures. It is agreed between the parties that the stock was issued to the AMP Society "subject to the condition that the same conferred upon the registered holders thereof for the time being rights which conformed in all particulars with the rights conferred by the said Queensland Government Debentures."

The debentures were issued in pursuance of The Government Loan Act of 1894 (Q). That Act authorized the Governor in Council to raise a loan not exceeding £2,000,000. This money was raised in two portions, £1,250,000 in England and £750,000 in Australia. Of the latter amount the AMP Society took up an amount of £250,000. The debentures were all in the following form, except that some debentures were for £500 --

ONE THOUSAND POUNDS

GOVERNMENT -- QUEENSLAND Identical SI.TI

DEBENTURE

No 1 -- Series S 1

£1,000

ISSUED BY THE GOVERNOR in Council, by authority of the PARLIAMENT OF QUEENSLAND under the Act 58 Victoria No 32.

THIS DEBENTURE entitles the HOLDER to the sum of ONE THOUSAND POUNDS STERLING, which, together with interest at the rate of THREE POUNDS TEN SHILLINGS PER CENTUM PER ANNUM is secured upon the CONSOLIDATED REVENUE OF QUEENSLAND.

THE PRINCIPAL SUM will be payable on the First day of January 1945 either in BRISBANE, SYDNEY, MELBOURNE or LONDON at the option of the holder; but notice must be given to the Treasurer of the Colony, on or before the First July 1944 of the place at which it is intended to present this Debenture for payment of such principal.

THE INTEREST WILL commence on the first day of JANUARY 1896 and will be payable on the 1 JANUARY and 1 JULY in each year, at the Treasury in BRISBANE or at the offices of the Agents of the Government in SYDNEY, MELBOURNE or LONDON on presentation of such of the annexed coupons as shall then be due, and not otherwise.

WHEN THIS DEBENTURE is issued the place at which the Purchaser wishes the interest first falling due to be paid, shall be endorsed on the Debenture; any change in the place of payment of interest must be registered at the Treasury in BRISBANE or at the Offices of the Agents of the Government in SYDNEY, MELBOURNE or LONDON six months prior to the date on which such interest shall be payable, and the transfer at the same time endorsed on the Debenture.

Dated at Brisbane this 1 day of November 1895.

Coupons which were in the following form were attached to the debentures --

QUEENSLAND GOVERNMENT DEBENTURE
£1000 -- SERIES S 1 -- £1000

Half year's Dividend at the rate of Three pounds ten shillings per cent per annum, due 1 January 1945.

£17 10s

Under the Financial Agreement Act 1928 and other legislation the Commonwealth took over the public debt of the State of Queensland and assumed the liability of the State under the debentures. The interest on the inscribed stock was paid first at Brisbane and afterwards at Adelaide. In 1944 the plaintiffs, who had become the holders of the stock, were invited to convert the stock into new securities but the invitation was not accepted. On 22 December 1944, and 3 January 1945, the plaintiffs asked that the amount of the stock be paid on maturity in London in sterling. The Deputy Registrar of Inscribed Stock replied stating that the option as to place of payment could be exercised only if notice were given on or before 1 July 1944, that the plaintiffs' notices were out of time, and that they were accordingly precluded from exercising an option for payment in London.

The Commonwealth is prepared to repay the principal monies in Australia by paying A£1000 in the case of each £1000 debenture. The plaintiffs claim that the money should be paid in sterling in London, ie, £1000 sterling, which is equivalent to A£1250 or thereabouts.

The questions submitted in the case enquire whether the sum is payable in English currency in London as demanded by the plaintiffs and if not, when and where the monies are due and payable; whether if the principal sums are payable in Australia the plaintiffs are entitled to be paid in Australian currency the equivalent sum in English currency; and whether the plaintiffs are entitled to interest upon the amount of the stock at 3 1/2 per cent per annum since 1 January 1945.

The principal matter to be determined is the substance of the obligation undertaken by the Government of Queensland. That obligation was an obligation to the holder of the debentures and was an obligation to pay "the sum of one thousand pounds sterling". There was a single promise to pay which could be discharged by performance in any one of several places. But the promise was the same wherever it might be performed.

The sum was payable either in Brisbane, Sydney, Melbourne or London at the option of the holder but the right to require payment to be made at any particular one of these places depended on notice being 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. The obligation accordingly was an obligation to pay the principal only on presentation of a debenture by a holder, and to pay in London only if notice requiring payment in London was given on or before 1 July 1944.

In 1895 when the debentures were issued the currency of Queensland was the same as the currency of Great Britain. The English Coinage Act 1870 applied in Queensland and under that Act gold coins were the only legal tender for amounts of more than 40/-. There was no difference in any respect between English and Queensland units of account and currencies in circulation. The pound in England and in Queensland represented the same unit in the same monetary system and an obligation to pay any sum above £2 in either country could be discharged, and could only be discharged, in one and the same way. Further, the currencies exchanged at par or nearly at par

In 1945 when the principal became payable the position was very different both legally and commercially. In the first place, although the same word "pound" was used in Queensland and Great Britain, the control of currency and coinage had been assumed by the Parliament of the Commonwealth. The currency and coinage of Australia were no longer controlled by English legislation. The Federal Coinage Act 1909 prescribed the coins which were to be currency in Australia. The Act authorized the Treasurer to cause silver and bronze coins to be issued. S 5 provided that a tender of payment of money if made in coins which were British coins or Australian coins of current weight should be a legal tender, in the case of gold coins for the payment of any amount and in the case of silver and bronze coins for amounts up to 40/- and 1/- respectively. Gold coins were minted at British mints in Australia as well as in England.

It is by virtue of this legislation and not by virtue of any English legislation that British coins after 1909 were legal tender in Australia.

S 7 of the Act reproduced s 6 of the English Coinage Act. It was in the following terms: -- "Every contract, sale, payment, bill, note, instrument, and security for money and every transaction, dealing, matter, and thing whatever relating to money, or involving the payment of or the liability to pay any money, which is made, executed, or entered into, done or had, shall be made, executed, entered into, done and had according to the coins which are current and are a legal tender in pursuance of this Act, and not otherwise, unless the same be made, executed, entered into, done or had according to the currency of some British possession or some foreign State."

The course of English and Australian legislation with respect to coinage and currency is described by Lord Tomlin in Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd (1934) AC 122, at pp 142-144

After the enactment of the Coinage Act 1909 the coinage and currency of Australia depended upon Australian legislation and not upon English legislation. The legal basis of the two monetary systems had become different. This difference was emphasized when the Australian Notes Act 1910, s 6 made Australian notes legal tender. This provision was later placed in the Commonwealth Bank Act -- see Commonwealth Bank Act 1911-1943, s 60H and Commonwealth Bank Act 1945, s 43. The Commonwealth Bank Act 1932, s 5 made Australian notes no longer convertible into gold. Australian notes have never been legal tender in Great Britain. It is now Australian not English law which determines what is legal tender for the discharge of monetary obligations which are to be performed in Australia.

In the second place, from a commercial and financial point of view the currencies of England and Australia were the same in 1895, but are now different. In 1895 there was no difference in the value of £100 in Australia and £100 in England. In 1945, however, £100 sterling exchanged for £125 Australian.

The terms of the debenture were not altered by any subsequent legislation. The obligation, in 1945 as in 1895, was an obligation to pay £1000 sterling.

Where there is a contract to pay money expressed in terms of the currency of another country or to pay any money in a foreign country, it becomes necessary to distinguish between the "money of account" and the "money of payment" -- though they may be the same in a particular case. The "money of account" is that money which is referred to for the purpose of measuring the obligation, ie, of determining the amount to be paid. The "money of payment" is that money which can be used to discharge the obligation. If the obligation is to pay 1,000 United States dollars in London, the money of account is United States dollars. The money of payment, in the absence of agreement to the contrary, will be English currency and the payment of an amount in that currency, determined by the rate of exchange at the appropriate date, will discharge the debt. A clear explanation of the distinction between money of account and money of payment is to be found in the judgment of Fullagar J in Goldsbrough Mort & Co Ltd v Hall (1948) VLR 145, where the authorities on this branch of the law are fully set out. Where the same word, such as "pounds," is used to describe units in different currency systems and the parties have not, in their contract, specified any particular "pound," the money of account may be found to be either what is money as determined by the law of the place of payment (as was held in Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd (1934) AC 122 -- dividends previously paid in London made payable only in Australia and only in pursuance of declarations of dividend made in Australia); or what is money in a monetary system to which the parties have referred for the purpose of defining their obligations (as in De Bueger v J Ballantyne & Co Ltd (1938) AC 452 -- contract made in London in 1932 for services in New Zealand at a salary expressed in pounds sterling).

When the meaning of the obligation in respect of the money of account has been determined in this case the method of discharging it by money of payment presents no difficulty. The plaintiffs say that the obligation is to pay £1000 in English money: the defendant says that the obligation is to pay £1000 in Australian money. If the payment is due in London, the obligation will be satisfied by paying £1000 English currency in London or the equivalent in sterling of A£1000 as the case may be; if the payment is due in Australia, the obligation will be satisfied by paying the equivalent of £1000 sterling in Australian currency or A£1000, as the case may be. The important matter to be decided is that of the character of the substantive obligation.

The construction of a contract is determined according to the proper law of the contract -- ie the law or laws by which the parties intended or may be presumed to have intended the contract to be governed: Hamlyn & Co v Talisker Distillery (1894) AC 202; see Mann on The Legal Aspect of Money, pp 154, 162, 169. The proper law of a contract is the law of the place with which, to use the words of many cases, it has the most real connection -- South African Breweries Ltd v King (1899) 2 Ch 173. That place is usually the place where the contract is made: Peninsular & Oriental Steam Navigation Co v Shand (1865) 3 Moo PCC (NS) 272 (16 ER 103). But if the contract is to be performed in another place, it may be the law of that place -- Chatenay v Brazilian Submarine Telegraph Co Ltd (1891) 1 QB 79. The actual intention of the parties if expressed is prima facie decisive of the question. In all cases it is a question of the intention, actual or presumed, of the parties: Mount Albert Borough Council v Australasian Temperance & General Mutual Life Assurance Society Ltd (1938) AC 224, at p 240

In the present case the contract was made by the Government of Queensland under the authority of a Queensland statute. The fact that a Government is a contracting party is a weighty circumstance in determining what is the proper law of a contract -- R v International Trustee for the Protection of Bondholders Aktiengesellschaft (1937) AC 500, at p 531. In the case of persons subscribing to the loan in Queensland or elsewhere in Australia there could be no doubt that the law of Queensland would be the proper law. The proper law determining the substance of the obligations created by the contract should, in my opinion, be held to be the same in the case of all the debentures. It would be unreasonable to impute to the Government of Queensland and to a person who took up a debenture in some other country in which he happened to be at the time an intention that the law of that country should be the governing law. At least it can be said that, in the case of the present plaintiffs, who are to be regarded as holders of debentures issued in Australia, there is no circumstance which could be relied upon to suggest that any other law than the law of Queensland is the proper law of the contract.

It was argued that where a debenture-holder duly exercised an option to be paid in London, the debenture became a contract to pay in London (see Auckland Corporation v Alliance Assurance Co Ltd (1937) AC 587, at p 597) and that English law became the proper law of the contract. But the proper law of the contract is a law which is ascertainable when the contract is made -- it does not change from time to time if performance of the contract takes place from time to time in different countries -- though the laws of those countries may be relevant as the laws of the place of performance in determining what is due performance. But even if English law were held to be the governing law in the present case it would not affect the rights and duties of the parties, because there is no difference between the English law and the law of Queensland with respect to the interpretation of contracts.

What then was the meaning according to Queensland law in 1895 of a promise to pay "sterling"? At that time what was "sterling" was determined by English law which was in force in Queensland. The result is that "sterling" in a contract governed by the law of Queensland then meant sterling as determined by English law. "Sterling" in relation to currency, means, according to the Standard Dictionary "having a standard of value or fineness established by the British Government; said of British money of account." See definition of "sterling" in Webster's Dictionary -- "Lawful money of England or later of Great Britain or of those British Possessions having no separate coinage" -- ie sterling means lawful English currency as distinct from a Dominion or Colonial currency which is established independently of English law. This was held to be the meaning of "sterling" in De Bueger v J Ballantyne & Co Ltd (1938) AC, at p 461, this meaning being said to have obtained from the seventeenth and eighteenth centuries.

The meaning of "sterling" has not changed since 1895. The money now current in Queensland as "pounds" is not pounds sterling. It is a different money both in respect of the law which makes it money (which is now Australian law) and in respect of its exchange value. Accordingly, in my opinion, the substance of the obligation under each of the £1000 debentures is, according to the law of Queensland, to pay £1000 in English currency. That is what is owed. Payment of what is owed may be made in legal tender in the place of payment. If payment is made in Australia the money of payment may be Australian and in that case the equivalent in Australian currency of £1000 sterling must be paid.

But it is argued for the defendant that the law of the place where payment is due determines not merely the currency in which payment may be made, but, in this case, determines also what amount is to be paid. As already stated that law determines what is legal tender in that place, and, unless the parties have agreed to the contrary, determines the currency by means of which the obligation is to be performed -- "In determining what currency is intended, the general rule prima facie applies that the law of the place of performance is to govern" -- Adelaide Electric Supply Co Ltd v Prudential Assurance Co Ltd (1934) AC 122, at pp 145, 151, 156; Ottoman Bank of Nicosia v Chakarian (1938) AC 260, at p 271. But the measure of the obligation -- the determination of the amount of indebtedness, as distinct from the mode of payment of the debt -- is fixed by the proper law of the contract. The application of the law of the place of performance for the purpose of determining the mode of performance cannot properly be "extended so as to change the substantive or essential conditions of the contract" -- Auckland Corporation v Alliance Assurance Co Ltd (1937) AC 587, at p 606. The present case is a case in which the parties have expressly stipulated that the obligation is to be measured in "sterling" and the obligation remains the same wherever it is to be, or is in fact, performed.

The Commonwealth contends that, as the option to require payment in a particular place was not exercised on or before 1 July 1944, the holders of the debentures lost the right to require payment in London. The plaintiffs argue that notice could effectively be given at any time, as long as six months' notice was given. But the debenture says nothing about six months' notice. It requires notice on or before 1 July 1944 if the holder desires to receive payment at any particular one of the places mentioned. When a question arises as to whether a failure to comply with a provision as to time entitles the other party to a contract to be discharged from the obligations of the contract, it must be determined whether "time is of the essence" of the contract. But no such question arises in this case. The right to be paid in one particular place, eg London, was expressly made conditional on the due giving of the notice, and the notice was not so given. The words of the debentures are clear -- "but notice must be given . . . on or before 1 July 1944." The result, in my opinion, is that there is no provision in the contract which, in the case of the plaintiffs, effectively specifies a place of payment, which must therefore be determined upon the general rules of the relevant law.

The obligation is to pay only the holders of debentures, on presentation of debentures. The identity of the holders of debentures at maturity cannot be known to the Government until debentures are actually presented for payment. Thus the ordinary rule that the debtor must seek out his creditor in order to pay a debt if the creditor is within the realm cannot be applied in the present case. Until a debenture is presented there is no obligation to pay on that debenture. The Government of Queensland was bound to have representatives in London for the purpose, but only for the purpose, of payment to holders of debentures who duly exercised their option to be paid in London. In respect of other holders, the position is that they must, in order to obtain payment, present their debentures to the Government of Queensland (now to the Government of the Commonwealth) where that Government is -- namely, in Australia. Thus if the rights of the debenture holders as to prescribing a particular place for payment are regarded as having been transferred to the plaintiffs in this action, those rights, owing to the delay in the giving of the notice, do not entitle the plaintiff to require payment elsewhere than in Australia.

But the debentures have in fact been exchanged for certain Commonwealth inscribed stock. If, therefore, the plaintiffs are to be treated as having agreed to substitute for their rights with respect to place of payment under the debentures the rights which they acquire as owners of such inscribed stock, then, in respect of place of payment, they are in the same position as other owners of that stock. No argument has been addressed to the Court to show that owners of that stock are entitled to be paid in London.

Accordingly, whether the plaintiffs are treated as being holders of the debentures or as being owners of inscribed stock, they can, in my opinion, claim payment of principal only in Australia. But this circumstance does not alter the substance of the obligation to pay sterling. "Sterling" is an express term which it is impossible to ignore and the use of which excludes the prima-facie rule that the obligation is an obligation to pay in "pounds" in legal tender in the place of payment (De Bueger v J Ballantyne & Co Ltd (1938) AC, at p 461).

In Maudsley v Colonial Mutual Life Assurance Society Ltd (1945) VLR 161 it was held by O'Bryan J that a life insurance policy for "one thousand pounds sterling" issued in 1890 imposed an obligation to pay only in Australian pounds. His Honour relied on various circumstances, such as the facts that the policy was issued by an American company, and that the proposal (which was accepted by the issue of the policy) was for a policy assuring a sum in Australian pounds, but particularly based his conclusion on his opinion that sterling did not mean "lawful money of England." I have given my reasons for taking a different view of the meaning of "sterling."

Thus I am of opinion that the obligation under the debentures is an obligation to pay in Australia on 1 January 1945 the specified sum in sterling, ie in English money, and that it may be paid in Australian money calculated by reference to a proper rate of exchange.

A question arises as to what is the proper rate of exchange. The debentures became due on 1 January 1945. The plaintiffs, if they had presented the debentures in Australia, were then entitled to payment of the Australian equivalent of the amount of the debentures in English money at the then current rate of exchange. I can see no reason for holding that the amount of Australian currency payable should be increased or decreased by reason of subsequent variations (if any) in the rate of exchange.

The plaintiffs claim interest on the whole of the principal monies from either 1 January 1945 or from six months after they gave notice requiring payment in London. Interest is not payable under the contract between the parties after 1 January 1945. Interest as damages for non-payment of the monies due cannot be claimed at common law -- London, Chatham & Dover Railway Co v South Eastern Railway Co (1893) AC 429. The plaintiffs claim interest under Lord Tenterden's Act (3 & 4 Will IV, c 23, s 28) which, it is argued, applies either as Queensland law, the proper law of the contract, or as Victorian law -- the law of the place where the Court is now exercising Federal jurisdiction -- Judiciary Act 1903- 1947, s 79. Lord Tenderden's Act in Queensland is The Common Law Practice Act of 1867, s 72 and in Victoria is the Supreme Court Act 1928, s 78. No notice in writing claiming interest has been given, but the principal sum claimed is a sum certain, payable by virtue of a written instrument and at a date or time certain. In such a case the Court "may if it thinks fit" allow interest.

The plaintiffs required payment of sterling. The Commonwealth offered only payment of Australian money. The Commonwealth was in my opinion wrong on this point. But the plaintiffs did not present or offer to present the debentures for payment in Australia. They insisted on payment in London. The Commonwealth was entitled to refuse to pay in London and was, in my opinion, right on this point. The Commonwealth therefore was not in default. Interest under Lord Tenterden's Act is given only by way of damages for default. In my opinion no interest should be allowed.

I would therefore answer the questions in the case as follows -- (a) No. (b) On 1 January 1945 in Australia. (c) Yes. (d) No.