The Secretary to the Treasury asks for advice on the questions raised in the following memorandum:

In July 1917, 88 War Savings Certificates of the face value of £924 and two Treasury Bonds of the face value of £20 were forwarded to Rabaul by the Commonwealth Bank on the s.s. Matunga. Some of the War Savings Certificates were enclosed in registered letters addressed to persons who had purchased them. The balance of the Certificates and the two Treasury Bonds were enclosed in registered letters addressed to the Manager of the Commonwealth Bank, Rabaul. The documents forwarded to the Manager of the Commonwealth Bank were intended for issue by him as agent for the Commonwealth Government, whilst those sent in the letters addressed to private persons had been dated and signed by the issuing officers of the Commonwealth Bank, Sydney, acting as agent for the Commonwealth Government.

2. The Matunga was captured by a German raider, and the registered letters containing the Certificates and Bonds were not delivered to the addressees.
3. In accordance with the advice given in your memorandum of 27 September 1920⁽¹⁾, the Acting Comptroller-General and Public Trustee was asked to take steps for the recovery from the German Government of the documents referred to, or their face value. The Acting Comptroller-General and Public Trustee sent copies of all the documents to the High Commissioner, with a view to the inclusion of the Certificates and Bonds in the Commonwealth claim on the German Government.
4. One of these Certificates has been paid by the Commonwealth Bank, acting as agent for the Treasury. This Certificate was negotiated by the Commonwealth Bank for the National City Bank, New York. Another Certificate was presented to the Commonwealth Bank in London by the British and Northern European Bank. Acting on directions from the Commonwealth Treasury, payment of this Certificate was refused.
5. All the Australian banks have now been asked to stop payment of the Certificates and Bonds, and have been asked to inform any claimants that, the documents having been stolen, the presenter cannot have a good title to them.
6. Advice is desired as to whether the Commonwealth is under any liability to redeem these Certificates or Bonds-
1. if they are presented by a holder who can prove he gave value for them in good faith; or
2. if they are presented by a holder who cannot prove he gave value for them in good faith.
7. It will be seen from the above that two classes of documents have been lost, namely:
1. Certificates and Bonds in transit from one branch of the Commonwealth Bank to another branch. These Certificates had never been 'issued' by the Bank, which acts as agent for the Commonwealth in these matters; and
2. Certificates which had been issued by the Commonwealth Bank, and were in transit to the purchasers.

It might be stated whether the liability of the Commonwealth is the same in regard to each of these two classes of documents.

8. A War Savings Certificate is a form of Treasury Bond. All Treasury Bonds are

issued under the authority of the Commonwealth Inscribed Stock Acts, are transferable by delivery and are payable to bearer.

Until issue, I do not think that a Certificate is a completed contract and no rights of third parties under the Certificate as a negotiable instrument can arise.

As regards the Bond which had been issued I think the general principle of the law relating to the question of declining to honour a negotiable instrument as laid down by the House of Lords in the case of Jones v. Gordon (1877) 2 App. Cas. 616 applies. In this case Lord Blackburn said:

I take it that in order to make such a defence ... it is necessary to show that the person who gave value for the bill, whether the value given be great or small, was affected with notice that there was something wrong about it when he took it.

In England it has been the practice of the Government since 1842 to pay bona fide holders of forged Treasury Bills. See Grant's Law of Banking, 6th edn, p. 143 [note (h)].

I am therefore of opinion that the Commonwealth is entitled to decline payment of these Bonds only in cases where it can prove that the holder had, at the time the Bond came into his possession, notice of the previous theft of the Bond from the Matunga.

I assume that, before acting on this advice, the Secretary to the Treasury will consider the question of the effect of the Commonwealth declining to honour Bonds which may have got into the hands of bona fide holders for value without notice.

[Vol. 18, p. 131]

(1)Opinion not found.