COUNSEL'S OPINION

Evening Post, Volume CXI, Issue 76, 31 March 1931, Page 12

COUNSEL'S OPINION

The Sydney Stock Exchange sought the opinion of counsel ion the following questions relative to interest on State Government loans: —

(1) Has the Financial Agreement between the Commonwealth and the States I been ratified by the Parliament of New 'South Wales? (2) Can the Federal Legislature validly pass an Act reducing the rate of interest .payable on existing Now South Wales stocks whether issued before of after the Financial Agreement? (3) Can the New South Wales Legislatura validly pass an Act of the same character? (4) If the New South Wales Legislature can and does pass such an Act, is the Commonwealth Government liable to pay the difference in interest to the holders of New South Wales stock?

Counsel's answers were to the following effect:—

(1) Yes. The Financial Agreement has been ratified by the State of New South Wales by the Financial Agreement \Ratification Act, 1928. (2) In my opinion the Federal Legislature cannot validly pass an Act reducing the rate of interest payable on existing New South' Wales loans. This answer does not necessarily apply to loans raised by .corporate bodies and guaranteed by the State. Unless the corporate body is an agent of the State the loan would not come within the terms of the financial agreement. And the answer does not apply to, loans from banks and other bodies for temporary purposes for which no security is issued.

(3) No. If the loan is a State loan the payment of interest to bondholders is guaranteed by the Commonwealth.

(4) In my opinion the Commonwealth Government is liable to .pay the whole of the interest though it may make arrangements with a.State'as to the.manner of paymerit. . ■

Counsel added: In my opinion if a State Government refuses to carry out the obligations of the State the Commonwealth Government may sue the defaulting State and endeavour to enforce its judgment and/or raise by taxation the money necessary to pay bondholders and compensate the States which do not" default, under Section 96 of the Constitution.