The Controller of the Clearing Office (Enemy Debts) has forwarded for advice a file of papers under cover of the following memorandum:

These papers relate to the fixing of the date up to which interest in favour of Germany shall run in respect of debts due by British nationals in Australia to German nationals in Germany pursuant to the provisions of Article 296 of the Treaty of Versailles.

1. The Australian Clearing Office contends that interest is allowable only up to the date of crediting therein.
2. The German Clearing Office argues that interest is allowable up to the date of crediting in the central British Clearing Office in London.
3. The central British Clearing Office appears from the tenor of the correspondence to agree with the German view, vide e.g.:
1. Viscount Milner's dispatch of 20.11.1920-Exhibit B;
2. Paragraph 8 of Mr Dimsey's precis of 19.9.1921-Exhibit C;
3. Mr Winston Churchill's dispatch of 19.8.1921-Exhibit D.
4. Three points are involved in considering the matter, viz.:
1. The interpretation to be placed on the following clauses in the Annex to Article 296 of the Treaty:

1 Local Clearing Offices may be established for any particular portion of the territories of the High Contracting Parties. Such local Clearing Offices may perform all the functions of a central Clearing Office in their respective districts, except that all transactions with the Clearing Office in the Opposing State must be effected through the central Clearing Office.

22 Interest shall run from the date of commencement of hostilities (or, if the sum of money to be recovered fell due during the war, from the date at which it fell due) until the sum is credited to the Clearing Office of the creditor.

2. The terms of the arrangement made between the British Clearing Office and the Commonwealth Government following on the Secretary of State's cable of 24.3.1920, the features of that arrangement being that:
1. the central Clearing Office was to act as agent for the Commonwealth Clearing Office;
2. the Commonwealth Clearing Office would be technically, towards the German Clearing Office, a local Clearing Office using central British Clearing Office as channel of communication with the German;
3. internally, however, the Commonwealth Clearing Office would perform all the functions of central Clearing Office and would have full power of collecting and paying debts;
4. any balance in favour of the Commonwealth Clearing Office would be retained by it and such share in any German payment actually effected under paragraph 11 of the Annex to Article 296 as arises in respect of debts to and from Dominions would be paid to them;
5. the Commonwealth would have to accept responsibility for debts owing by British nationals resident therein and any amount by which sums collected by them fell short of sums paid by them to persons in their territories;
6. a small charge was to be made towards the administrative cost of the central British Clearing Office.
3. Whether any loss is likely to accrue to the Commonwealth Government if it be decided that the German contention is correct.
5. As regards paragraph (5) (A), it might reasonably be held that for the British Empire there is one great Clearing Office with headquarters in London and branches ('local Clearing Offices') in the Dominions, and that once credit is given in one of those Clearing Offices clause 22 of the Annex as quoted in paragraph (5) (A) is complied with.
6. Further, clause 1 of the Annex to Article 296 provides that local Clearing Offices may perform all the functions-except one-of the central Clearing Office, the exception stipulating that-as is obviously desirable-'all transactions with the Clearing Office in the Opposing State must be effected through the central Clearing Office'.
7. One of the functions of the central Clearing Office is the crediting of interest and it is not clear to me why the local Clearing Office cannot perform this function in terms of clause 22 of the Annex, which does not state by which office-central or local-the crediting is to be effected.
8. In the note of remarks by the Controller of the British Clearing Office at an interview with the German Controller (vide Exhibit D) the following exchange appears:

He (the British Controller) further pointed out that the central Clearing Office was merely the conduit pipe for communications between the Dominion and German Offices and that the Treaty drew a distinction between the Dominions and the non-self-governing Colonies and accorded to the former the right to independent action in certain respects (cf. Art.296 (e) ). The German Controller refused to accept these arguments and contended that the central British Office was the only authority to which he was entitled to look.

9. The view advanced by the British Controller, apart from the fact that it is one favourable to the Commonwealth is, it is submitted, supported by the phraseology of the Treaty, but, if on the other hand the German Controller's view is correct, it may be asked 'What is the meaning of the clause providing for local Clearing Offices and their endowment with all but one of the functions of the central organisation?'
10. As regards paragraph (5) (B): This, when it is all said and done, simply recites the terms of the arrangement made with the British Government for the settlement through the central Clearing Office of debts owing to and by Australia and Germany. It is practically a domestic arrangement within the Empire and cannot bind Germany or affect the interpretation of the clauses already quoted from the Annex. It is considered, however, that items (i), (ii) and (iii) thereof support the view put forward in paragraphs (6) to (10).
11. As regards paragraph (5) (C): The German Clearing Office claims interest up to the date of crediting by the British Clearing Office in London-approximately 6 to 8 weeks after crediting in Melbourne-say two months. Take e.g. a debt for £100 which at the date of crediting in Australia has run exactly 7 years, the position is as

follows:

Principal 100

Interest 7 years @ 5% 35

________

Credited in Australian books £135

The German claim is:

Principal 100

Interest 7 1/6 years @ 5% 35.16.8

________

Total claimed by Germany £135.16.8

But the Australian Controller has for those two months had the £135 at probably not less than 41% yielding £1 0s 3d interest so that he gains, roughly speaking, as regards interest about Is 3d.

12. This admittedly is taking an optimistic view, and it may be found that spread over the whole of the transactions the Commonwealth will lose. I believe, however, that in proportion to the amount involved, any loss will be insignificant. This aspect of the matter is fully dealt with in Mr Duffy's report of 12.9.1921-Exhibit E.
13. In the general arrangements regarding the establishment of the Clearing Office the British Clearing Office undertook to act as agent for the Australian-vide paragraph (5) (A), whereas the correspondence herein indicates that-apart from the interpretation of the Annex-the British Clearing Office regards itself as a principal and the Australian as an entirely subsidiary body. This, however, as already stated, was merely a domestic arrangement not binding on Germany or affecting the interpretation of the Treaty.
14. On 17.8.1921 the Secretary of State cabled to the Governor-General as follows:

Your telegram 23 March, interest on enemy debts, matter referred to Government of Germany who will not agree to your Minister's contention and propose to bring matter before Mixed Arbitral Tribunal.

Do your Ministers wish to contest case before Tribunal and to instruct solicitors accordingly? Dispatch follows by mail. Attention is also invited to the Secretary of State's dispatch of 19.8.1921-Exhibit D.

15. In my opinion the German claim should be contested before the Mixed Arbitral Tribunal.
16. It is submitted, however, that the Solicitor-General be first asked for his opinion as to whether clauses 1 and 22 of the Annex to Article 296 of the Treaty justify the Commonwealth Government in resisting the German claim.

The Commonwealth Clearing Office is, I think, a local Clearing Office within the meaning of paragraph 1 of the Annex to Article 296 of the Treaty of Peace with Germany, and, in accordance with that paragraph, may, therefore, perform all the functions of a central Clearing Office in its district, namely, the Commonwealth and its Territories, except that all transactions with the German Clearing Office must be effected through the British Clearing Office.

The question whether the Commonwealth Clearing Office can credit the German Clearing Office with admitted debts turns, in my opinion, on the meaning of the words 'transactions with' in paragraph 1 of the Annex to Article 296. If it means any act done which may affect the German Clearing Office then it would, I think, cover the case of crediting admitted debts thereto. The words, however, are 'transactions with' and imply, in my opinion, some communication or dealing with the German Clearing Office. In merely crediting the German Clearing Office with an admitted debt the Commonwealth Clearing Office does not carry out any business with the former office. It is, I think, clearly the intention of the concluding words of paragraph 1 of the Annex that all communications and discussions should, in order, probably, to maintain uniformity and consistency, take place only between central Clearing Offices, but that all formal matters (apart from formal communications) may be dealt with by local Clearing Offices. I am strengthened in this view by the fact that paragraph 6 of the Annex clearly distinguishes between crediting and notifying the credit. They are two distinct transactions. The crediting takes place without notification and it appears to be a proper function of the local Clearing Office, provided the notification is effected through the central Clearing Office. Further, if a local Clearing Office had no power to credit admitted debts it would, I think, lack the principal function of the Clearing Office and would be nothing more than an agency of the central Clearing Office for the purpose of collecting particulars of debts and the debts themselves and forwarding them to the central Clearing Office. Again paragraph 6 provides that when a debt has been admitted the debtor Clearing Office will at once credit the creditor Clearing Office with the amount admitted.

The local Clearing Office is, I think, without doubt, one to which debtors may notify admission of their debts, and as the amount of a debt is to be credited at once it is clearly, in my opinion, the function of the local Clearing Office to credit the amount.

In my opinion, therefore, the Commonwealth Clearing Office has power to credit the German Clearing Office with amounts admitted and that interest on the amounts will cease to run as from the date of so crediting. The answer to paragraph (17) of the above memorandum should, therefore, be in the affirmative.

[Vol. 18, p. 266]