LOAN INTEREST

Evening Post, Volume CXXIII, Issue 51, 2 March 1937, Page 4

LOAN INTEREST

PAYMENT IN LONDON

PRIVY COUNCIL'S RULING

ENGLISH CURRENCY

.{From "The Post's" Representative.) ; LONDON, January 27.

Interest on the debenture bonds and coupons of the Auckland City Tramway loan of £1,250,000, together with the principal, is payable in London in English and not New Zealand currency. This is the decision of the Judicial Committee of the Privy Council, and it upholds that of the New Zealand Court of Appeal. , It is contained in a judgment delivered yesterday by Lord Wright (Master of the Rolls) upon the dispute. between : the Mayor, councillors, and citizens of the city of Auckland and others versus the Alliance Assurance Company Limited.

The dispute was centred on a deben.ture bond for £100, and coupons still outstanding under it, held by the company. The debenture was issued in 1920 by the Auckland City Council. It stipulated that, on presentation either at the Bank of New Zealand, Auckland, or at the Bank of New Zealand, London, on the option of the holder, on July 1, 1940, £100 would be. paid. Interest would also be paid yearly, on January 1 and July 1, on the presentation of the coupons, either in Auckland or London, when, the bearer would be entitled to £2 12s 6d for each coupon.

Upon the depreciation of the New Zealand currency, the company claimed that they were entitled to be/ paid in sterling.. They claimed 13s Id on each coupon, the difference between £2 12s 6d, the sum due upon it, and £1 19s sd, the sum-tendered to them on presentation in. London.- .The 13s I'd represents the difference in value between sterling and New Zealand currency as applied to £2 12s 6d.

When.the case was tried.in the New Zealand Court of Appear there was a,difference, of opinion. Justices Ostler, Blair, and Kennedy were of the opinion that the company's claim should be upheld. Justice Reed dissented, and heldthat the Court should decide in favour of the Auckland Corporation. The judgment of the Privy Council said: "Their Lordships are of opinion that the appeal fails, and that the coupons are payable in English currency without any: allowance for exchange and so also is the debenture when it falls, due, always provided that the bearer exercises the option to be paid in London.. They are also of the opinion, that the claim of the respondents to be paid 13s Id succeeds. The judgment of the Court of Appeal in New Zealand will accordingly be upheld and the appeal dismissed. Their. Lordships will humbly to advise his Majesty." . .. THE WORD "POUND." In giving the reasons for .their de-. cision their Lordships said: "In 1913, i when the Local Bodies Loans Act { which contains a code regulating the conditions and the procedure under which a local authority is-entitled to borrow money for public purposes) was passed, the gold sovereign' was ■ legal tender'1 both in England and : New Zealand. Tb.e various notes current lh. both countries were in gold. In both countries the unit of account, the pound, .was the same. The word, 'pound' accordingly/at that time, whether : used in'an'instrument made in New Zealand, or in an instrument, made in England, had, in the full; sense of the term, the same connotation; it meant the -same unit of account, and the measure of value in currency, which' it connoted .was the same, namely, the gold sovereign, minted^ by the Royal Mint, whether at the English Mint or at its Aus-, tralian branch or branches.

. . "In 1934 ■ the Reserve Bank of-New Zealand Act, 1933,. came into- operation, under which the Reserve Bank of-New, Zealand was empowered to issue bank-notes and -the authority of the various trading banks to issue or reissue bank-notes in ■'. New Zealand was determined. Thereupon the:banknotes of these banks practically went out of,circulation.. The bank-notes of the ...Reseirve, Bank, which, are . now practically the only notes in ■ .circulation in New Zealand, are in form, a promise to pay. so many pounds,, and contain no reference to sterlina,; unlike the, notes previously issued: by the trading banks. ..,''. : . .

"From' 1914 until-1934 the redeem-, ability of' the note currency in gold was suspended, and in 1934 the note currency was finally and. definitely made irredeemable in gold." Their Lordships also referred, to the departure of England from, the gold standard in 1931, and said: "These respective changes in the legal tender or-currency of the two countries have had a reflection in the rate of exchange and in'the .relative values inter se of the two countries. ... It was in consequence of the marked difference in ■value between the two currencies that the present-difficulty, has arisen. Until that occurred the debenture coupons in cases where the London option was exercised were paid in English currency without question. But the appellents in. and after 1934 contended they were only bound to pay. in New Zealand currency." . .. ■ , THE "ADELAIDE'? CASE. When the case was tried in. New Zealand the majority of the Court were of the opinion that in principle it was governed by the decision of the House of Lords in the rase of the Adelaide Electric Supply Co., Ltd., v. Prudential Assurance Co., Ltd. The Privy' Council declared itself to be,in substantial agreement with the. conclusions of that majority, and said that, up to a point, the present'dispute was precisely governed by the opinions of the House of Lords in the Adelaide case. There was no difference in substance between the divergence which occurred in the currency values between England'and Australia or between England and New Zealand.

"There are two dates which in a; case of this sort may have to be considered as material dates," said their liordships. "One is the date when the contract is made, and the other is the i date at which the contract- requires' payment to be effected. It is as at the latter- date that.the measure of value expressed by the word 'pound' in the contract will have to be ascertained, and that will depend on the precise state of, the' relevant currency at the particular date. - But it is as at the date of the. contract that it must be decided what currency is meant by the contract as the currency or measure of value in which the contract obligation is to be discharged. The latter question can only be settled by determining as a matter of construction what, in all the circumstances of the case, is the meaning of the word 'pound' used in the conh-act. This problem only arises where the contract uses a common unit of account, like the pound, ,as the denomination in which the obligations are, expressed." . . .■.!.' THE ACT OF 1913. Referring to the contention on behalf of the appellants that the Act of 1913 took the case out of the ruling of the Adelaide case, their Lordships said: "It is said that the effect1 of the Act was to render it ultra .vires of the corporation to borrow in any" other