LOANS INTEREST.

Auckland Star, Volume LXIV, Issue 155, 5 July 1933, Page 12

LOANS INTEREST.

PAYMENT IN LONDON.

MR. COATES' EXPLANATION.

Z.OCAL BODIES' INITIATIVE,

(By Telegrapli.—Press Association.)

WELLINGTON", Tuesday.

Interviewed in regard to recent cablegrams from London dealing with the decision of the Auckland Transport Board to pay interest on July 1 on the tramway loan in New Zealand currency, the Minister of Finance, tho Kt. Hon. J. G. Coates, stated that there seemed to he much misapprehension, particularly at this end, in regard to the position, and it seemed to bo inferred in some quarters that the difficulty which had arisen was dictated by the recent interest reduction legislation passed in New Zealand. This, however, was not the case, and tho present decision of the Transport Board had nothing whatever to do with that legislation. .

"The instructions sent to London by tho Auckland Transport Board," stated Mr. Coates, "centre around a recent decision in the British Courts in what has come to bo known as the Broken Hill v. Latham case. Without going into too many details in regard to this case, the position is that the Broken Hill Proprietary Company, Limited, was incorporated under the Companies Act, 1804 (Victoria). It had its head office in Melbourne, a registered office in London, and a London as well as an Australian register of debenture holders. The company made' an issue of 15,000 second mortgage debentures of £100 each, secured by a trust deed, and one of the conditions was that the moneys would be paid as to principal at any office of the Commonwealth Bank in Sydney, Melbourne, Adelaide or London at the registered holders' option.

"Some of the debenture-holders resident in Australia and on the Melbourne register claimed that they were entitled to have the debentures redeemed in London without any allowance for conversion from Australian money. The Court of Appeal by a majority of two to one held that the redemption should, if the option to require payment in London were exercised, be by payment in Australian currency converted to sterling at the rate of exchange current in London on the due date.

"The chairman of the Auckland Transport Board, which, after the purchase of the traniway system by the. Auckland City Council, became responsible for tramway loans, is advised by counsel that the payment recently made in London should be made in New Zealand currency. The Auckland Transport Board's case is probably a unique one.

Payment in Sterling. "The Auckland City Council and the Auckland Transport * Board in cases where loans have been raised in London subject to a London prospectus, have paid in sterling, and will continue to pay in sterling, subject, cf course, to the decision to be given in the case being taken by the Southland Electric Power Board in the London Courts.

"I do not wish to question the correctness in law of this position," continued Mr. Coates. "That there is some doubt as to whether the rule laid down in the Broken Hill case applies to all New Zealand local body securities is evident from the decision of the Southland Electric Power Board to take a test case in London. Local bodies, of course, act on the advice of their own counsel in such (natters. It has already been stated that the Government disclaims responsibility for actions of local authorities in this respect. The Government is not connected with the case to he taken by the Southland board.

"I may say the matter of payment of local authorities' loans in London in cases where the lender has the option to be repaid either in New Zealand or in London has been under consideration by the Controller and Auditor-General. The matter is primarily one for the Audit Office, which is charged with the responsibility of certifying the correctness of the accounts of local authorities in the Dominion, and I am advised by the Controller and Auditor-General that where loan debentures are issued in London in consideration of moneys received in London pursuant to the terms of a London prospectus issued by the authority of a local body, the Audit Office will not raise ar.y objection to repayment of the loan and _ interest in London being made in sterling.

"There is, of course," stated Mr. Coates, "the question to be considered as to the position concerning loans raised in New Zealand where the relative debentures are forwarded or subsequently transferred to London and holders have exercised their option to be paid in London. In these cases, the Audit Office has expressed the opinion that the decision of the English Court of Appeal in the Broken Hill ease applies, and payments in connection with debentures of such a loan can only lawfully be made in New Zealand currency."

"Sterling" Debentures. , Mr.' Coates remarked that the question was an extremely complicated one, and he then made reference to the fact that in quite a number of instances debentures in connection with loans raised either in London or New Zealand were what he might call "sterling" debentures. In other words, the word "sterling" was shown on the debentures. "This point has also been considered by the Audit Office," stated Mr. Coates, "and the position taken up by the Controller and Auditor-General is that the term 'sterling* in a New Zealand contract of several years' standing would probably be deemed to mean New Zealand currency, but, as the point is arguable, the Audit Office will not surcharge members of local bodies if the interest meantime is paid on the basis that 'sterling' means English currency."

Mr. Coates explained further that the question of payment in sterling or New Zealand, currency arose at this juncture only in connection with securities having London or New Zealand as an optional place of payment. "It is my considered opinion," concluded Mr. Coates, "that there is an obligation on every local body which has issued debentures in London in consideration of moneys received in London, pursuant to the terms of a London prospectus, to meet its obligations in London in sterling, and I can assure you that if there is any question of members of local bodies being personally liable in a case of law for paying in sterling, in such circumstances the Government would not hesitate to introduce legislation to validate such payments. If necessary, the Government would also validate by legislation payments in sterling where past practice has clearly indicated the right of the holder to be paid and the intention on the part of local bodies to r/£y in sterling in London."