N.Z. CURRENCY.

Auckland Star, Volume LXVI, Issue 302, 21 December 1935, Page 12

N.Z. CURRENCY.

TRANSPORT LOANS.

PAYMENT OF INTEREST BOARD REACHES DECISION. EFFECTIVE IN JANUARY. On the recommendation of the overseas committee the Auckland Transport Board unanimously resolved at a special meeting this morning "That, in view of the opinion submitted by the board's solicitor, steps be taken to obtain an authoritative decision on the question of whether interest payable in London on the 5 per cent and ">.} per cent portion of the Auckland city tramways loan of £1,250,000 is payable in the equivalent value of New Zealand currency and that to this' end future payments of interest in London .be tendered in that equivalent and debenture holders advised that the board will facilitate judicial proceedings in the matter, should debeiiture holders wish it, including appeal to the Privy Council. Further, that the Auckland City Council, ns nominal party to the contract, be requested to tender such payment and advise debenture holders accordingly."

To the original motion two clauses were added, one, proposed l>v Mr. F. E. Lark, that the £7000 difference between pavment in New Zealand currency and payment, in sterling l>e placed in a suspense account until legal action decided to whom it belonged, and another, proposed by Mr. ,T, A. C. Alltim, that the relative" facts be placed before the Minister of Finance, mid tlint he lie lulvised of the board's decision. Messrs. AV. .T. Jordan, M.T*., and T*. *T. Plielan were absent from the meeting.

Moving- the- adoption of the committee's report, the chairman, the Hon. H. G. R. Ma-son, said its effect would be that the payment; of interest due-on January 1 would be made in New Zealand currency, instead of in English currency, as hitherto. "Crying for Relief." Seconding the motion. Mr. .T. Sayegh 'jaid that he had always advocated this course, and he could see no reason for further postponing it, as the bondholders had already received plenty of notice. "The whole Empire has been crying out to them for relief," he declared. "Although other countries have received relief generously, our bondholders seem to have no feeling for their own kith and kin within the Empire, while the Government foived us to. pay in English, money against our will." Former Chairman's Review. Mr. J. A. C. Allum said that when in 1933 the judgment of the English Courts was given in the Broken Hill case, it appeared competent for New Zealand local bodies to pay in New Zealand currency interest due in London. The Southland Electric Power Board, whose loans were raised in London, sought to take advantage of the position, and the Auckland Transport Board acted similarly in regard only to that portion of the original loan domiciled in London. The Transport Bonrrt did not seek to take the advantage with the whole of its London indebtedness because it was felt that where English currency had been received payment of interest and principal should be made in English currency unless the legal position was clear that in regard to loans raised in London payment shp-.ild be made in New Zealand currency. . "The board felt that as regards the original loan the position was not only good in law, but that it also had a clear moral right," said Mr. Allum. "The original tramway loan of £1,250,000 was raised, to pay for the tramway undertaking taken over from the Tramways Company. Debentures were handed to the company in payment for assets which were wholly here in Auckland. I understand that the Tramways Company made representations to the City Council that as a largo number of shareholders were resident in England, the interest and principal of the debentures should be payable in London or-in Auckland, at the option of the holder, and this representation was acceded -to simply to convenience the company. Purchase by City Council. "It should be noted that the ,City Council purchased the tramways undertaking at a time, when the shareholders were faced with serious loss, and the council's' action saved that loss. The City Council is not to be criticised for it?.,action either in taking over the undertaking or for agreeing to the alternative domicile, and at that time no one eoiild have foreseen the subsequent depreciation of New Zealand currency. It is to be noted that raising the exchange to 25 per cent has not created the position, but only accentuated it, because the- same conditions obtained when the exchange was at 10 per cent as the result of normal business. "When- the Southland Electric Power Board and the Transport Board acted the London Stock Exchange- removed certain local bodies' debentures from the Stock Exchange lists. As the result of the position which arose the Government subsequently took legislative action designed to compel local bodies to make payment in London in English currency, but the late Minister of Finance agreed 'that far as the Transport Board's original loan was c6ncerned. the board should not be interfered with. He felt that the conditions of this loan were so srv'cial that we had every right to consideration. I Went to London and met the representatives of the bondholders, and also representatives of the Bank of England and the London Stock Exchange. The bondholders were conciliatory, the representatives of the Biinkof England most helpful, but the representatives of the Stock Exchange would listen to no representation's. When I suggested that there should be a case to test the position, one financial authority told me quite plainly that he was not interested in any decision of the Courts, but wanted English ciirrencv and nothing less." Would Facilitate Action. The board had not attempted, Mr. Allum pointed out, to take advantage of any position to avoid payment in regard to all its loans. Were it to do this in the present circumstances it might expect criticism. The position simply was that so fat as that portion of the original loan now domiciled in London, som6 £I*ooo,ooo, was -concerned the board was advised that < the* legal position was sjj&h.that it .should be tested, and the only way to tesfc it was through the Courts.

The board had indicated its willingness to facilitate any such action, and in the meantime the difference between the amount due in English currency and New Zealand currency was to be placed in a trust account. This was a position which the bond holders would understand and appreciate, and there would be no criticism by any responsible party of them. There would, however, be criticism from certain financial interests, however strong the board's rights may be. i

'■Had the City Council adopted the recommendation of its finance committee I should have felt it my duty to support the proposal, because it is my opinion that any reasonable steps should be taken to ensure the utmost hannoiny between local bodies," added Mr. Alhiin.

"It might be asked wliy T.lie action now taken was not taken previously. The ftnswet' is llmt lute in lfKi'.i an appeal decision wns given in the rj'glish Courts ill regard to the Adelaide electric supply ease, and while this did not dieturb the judgment in the Broken Hill ease, which was not appealed ngainet, yet it disturbed the principle on which that judgment was based, and the board was advised that it should pay in English currency. Subsequent legal actions, however, have thrown further light on the matter, and the board is now advised that its position should be tested." Election Policy. In reply to Mr. P. E. Lark, the ehairmnn said that the legal position was'still very difficult, although''several judgments in Australia had partially cleared it. Pointing out that the present board had sought election on this policy, Mr. Lark said that it could do nothing eise but proceed. As trustees i'or the people, the board would not be justified in paying £7000 which it believed it did not owe. He had never heard anyone say definitely that the board owed it, and the board would not be able to recover the money paid if the Court decided later that it should not have .been paid. As an addition to the chairman's motion he moved that the money be placed meanwhile in a trust fund. Mr. Mason stated that this had already been decided upon in committee. In support of Mr. Lark's suggestion Mr. W. IF. Nagle said that this would assure the bondholders of the board's good faith. There were no grounds for the assertion that the credit of the conn, try or the city would be damaged, as New Zealand was the only country in the world that had paid all its dues to Great Britain.

"The legal position being obscure, il is our duly as trustees to have it cleared up." remarked Mr. R. Ferner. "We will not be able to pet refund if we pay out wrongly. By holding the money in n trust frind we will safeguard the' interests of the bondholders if it is found to be due to them."