DEBENTURE INTEREST

Otago Daily Times, Issue 22064, 21 September 1933, Page 5

DEBENTURE INTEREST

SOUTHLAND POWER LOAN LEGAL AND MORAL ISSUES In a communication which he has addressed to the Southland Times, Mr William Maealister, a leading solicitor in Invercargill, writes as follows: In view of the discussions in the press generally which have followed on the Southland Electric Power Board’s decision to pay its debenture interest in New Zealand currency, and in view of the confusing variety of the blends of law, morality, justice, etc., which have formed the stable of these discussions, it may ■ not be out of place if I try to discriminate, and _so second your efforts to clarify tile position, by stating in succinct form what appears to me to be the truth about the matter. 1. The currencies of Great Britain, Australia, and New Zealand are separate and distinct one from the other, just as separate and distinct as is the currency of Canada from those of Great Britain, Australia, and New Zealand., The unit of the Canadian currency is the dollar, but it so happens that the unit of the British v Australian, and New Zealand currencies, although these currencies are separate and distinct, has the same name, the “ pound,” the same sign, too, being for each unit of each of these currencies'—viz., “ The New Zealand “pound” may be of greater or less value than the British “ pound,” i.e., the pound sterling. 2. When the Power Board raised its loan in 1921, the New Zealand pound and the pound sterling were of equal value, that is, they were at parity, and had been so for many years. It may be assumed for certain that the distinction between the New Zealand pound arid the pound sterling was not. present in the minds of the borrower or the lenders when the loan was raised and the contract entered into. The lenders (debentureholders) believed,' and rightly so, that they paid in pounds sterling, and the borrower (the Power Board) believed, also rightly , so, that it received in New Zealand pounds. The two currencies were at parity. In point of value they were identical. The one was directly transmutable into the other. 3. The loan was a New Zealand loan borrowed by a New Zealand local body, to be spent in New Zealand, and to be secured by a special rate on lands in New Zealand expressed in the debenture at so much in the “ pound.” A sinking fund was established, into which the board, by the terms of its contract, paid annually so many ‘‘pounds.” These payments were so calculated that when the loan matured, the sinking fund would contain a sufficient number of pounds to repay the loan. The interest is payable at the National Bank of New Zealand m London or at any of its branches in New Zealand, . These are some of the factors to be considered in arriving at the true construction of the contract.

4. Now that there is a disparity in the values of the New Zealand pound and the British pound, the question has arisen as to whether the “ pound ’’ mentioned in the contract (the debentures) means a New Zealand pound or a pound sterling. A similar position arose recently in Australia, the question being whether the pound in that case meant an Australian pound or ,a pound sterling. It was decided in the English Court of Appeal that “ pound ” meant the Australian pound and not. sterling. That decision was not taken to the House of Lords, and is now' accepted as sound law. The Power Board is advised both in England and in New Zealand that the principles laid down in the Australian case apply to the board’s loan, and that the interest is payable in New Zealand currency. This seems to be accepted as the legal position, and it is not seriously suggested that in paying its interest, in New Zealand currency, the board is not fully discharging its legal obligations. ~ .. 5. The question as to how.the disparity between the' New' Zetaland currency and sterling was brought about has no bearing bn the contractual relation between the board and the debenture holders, ft ia quite irrelevant. The board was not responsible for the depreciation of the New Zealand currency. The board’s duty under its contract is to pay in New Zealand pounds, and. whether these pounds have been depreciated or appreciated in value'makes, no difference. If the New Zealand currency had appreciated so that .a New Zealand pound would have been worth more than . a pound sterling the board’s obligation would have been_ to pay. in the appreciated currency. The whole question is one pf simple contract. There is ho “moral issue’’ in the sense in which it has been raised, and it is sheer humbug and hypocrisy to say that there is. If it can be said in any sense that there is a moral issue involved that issue ,is the question whether it is the moral'duty of the parties to the contract to respect its sanctity—its moral binding force according to law. . . 6. The real moral issue in connection with the ■ payment of interest on these debentures arose with the unprecedented fall in the prices of primary products after the debentures were issued. Assuming that the board had to pay its interest in wool, was it in accord with the dictates of .morality, or could it be said that it was ever contemplated, that the board should be called upon to ship as payment of interest on, say, each £>j9y, three bales of wool instead of one? The sanctity of its contract, however,_ resquired the board to do so, and, in effect, it did it. , , , j, 7. Have those people who cry loudly against the board for doing its plain duty to' its ratepayers on the one hand, and its equally plain duty to the deben-ture-holders on the other, considered that the said debenture-holders, in being paid in New Zealand currency or its equivalent in sterling, are receiving a larger amount of purchasing power than their contract entitled them to get in 19-1 when the debentures were issued? Let me adapt a statement made by a. competent authority On the Australia, case. It is this: " Even the now debilitated New Zealand pound has greater command over goods than the pound sterling had in 1921. The debenture-holders lent the board less real goods than the board is ready and willing to return, though measured in New Zealand pounds. Pure justice would seem to indicate that a less, not a greater, number of New Zealand pounds' would suffice to pay the debt. But we seldom get unalloyed justice in this world.” Again, have these same people-considered that, owing to the low current rate of interest in London to-day, the debenture-holders are receiving, even on the basis of being paid in New Zealand currency, a higher rate of interest than they could command on a similar loan to-day? If the door_ is to be opened to moral considerations ns between the board and its debenture holders the foregoing are considerations which are entitled to demand admission. These are the real moral issues. It is not. however, as I have said, a question of morality: it is a question of law. But if moral issues are to be raised, then it can. I think, he demonstrated that not only the morality but. the justice of the matter is all in favour of the board.