The Secretary to the Prime Minister's Department has forwarded the following memorandum asking for advice:

1 am forwarding herewith copy of a submission to the Prime Minister setting out the financial position of the Expropriation Board, Territory of New Guinea.

In paragraphs 11 to 14 of the submission it is recommended that the expenditure incurred in the maintenance and realisation of ex-enemy properties both in Australia and New Guinea should be charged against the proceeds received from the liquidation of these properties.

The Prime Minister approves of this course being followed if legally possible, and I am directed to ask that advice be furnished as to whether there is any provision in the Treaty of Peace which precludes such a course.

The position may perhaps be best illustrated by the following hypothetical case:

1. A non-bearing plantation property is expropriated at 10 January 1920, and sold on 30 June 1922, realising £50,000;
2. In the interval between expropriation and sale expenditure in maintaining the plantation has been incurred to the extent of £10,000;
3. Under the method of adjustment proposed the amount to be credited to Germany would be £40,000.

This would appear to be a fair and equitable method of adjustment, and the word 'liquidate' in section (b) of Article 297 of the Treaty of Peace would appear to imply the usual powers conferred on a liquidator, including the maintenance of the asset pending realisation. If, however, it is held that the full proceeds of the sale without deduction for maintenance, are to be credited to Germany, the Commonwealth would in this transaction be involved in a loss of £10,000, while the German Government or national would correspondingly benefit through the enhanced value of the property which had been improved at Commonwealth expense.

The total amount involved in maintaining all these non-bearing plantations pending their final disposal will, it is estimated, approach £1,000,000 and if the Commonwealth cannot recoup itself for this amount from the proceeds of the properties, the position will be a serious one.

It has been ascertained from the Custodian of Enemy Property for the Western Pacific, who is at present visiting Melbourne, that he has followed the practice of deducting all expenditure on the maintenance of enemy properties from the gross proceeds, crediting only the balance through the Clearing Office. This procedure has been in force for over two years and has never been questioned and it would appear to be the only equitable method of dealing with the matter.

In view of the large expenditure being incurred monthly by the Expropriation Board in maintaining the New Guinea properties, I am directed to ask that the matter be treated as very urgent, and that your opinion be furnished as early as possible.

It has since been ascertained from Mr Bajpai, Custodian of Enemy Property for one of the Indian provinces, that the practice followed in India is in accordance with the suggestion now made.

Paragraph (b) of Article 297 of the Treaty of Versailles provides, inter alia, that:

Subject to any contrary stipulations which may be provided for in the present Treaty, the Allied and Associated Powers reserve the right to retain and liquidate all property, rights and interests belonging at the date of the coming into force of the present Treaty to German nationals, or companies controlled by them, within their territories, colonies, possessions and protectorates, including territories ceded to them by the present Treaty.

The liquidation shall be carried out in accordance with the laws of the Allied or Associated State concerned, and the German owner shall not be able to dispose of such property, rights or interests nor to subject them to any charge without the consent of that State.

In my opinion the power to liquidate includes the power to meet all expenditure necessary for the maintenance of the property pending its disposal.

That this was contemplated, is evidenced by paragraph 4 of the Annex to Section IV of Part X of the Treaty, which permits all property, rights and interests of German nationals within the Territory, and the net proceeds of their sale, liquidation, or other dealing therewith to be charged in the manner indicated in that paragraph. By regulation 20 of the Treaty of Peace Regulations (Statutory Rules 1920 No. 25) the property of German nationals within the Commonwealth is so charged and by regulation 36 (Statutory Rules 1921 No. 78) the property of German nationals within the Territories of Papua and New Guinea is so charged.

In my opinion, therefore, the expenditure incurred in the maintenance and realisation of ex-enemy properties both in Australia and New Guinea may be charged against the proceeds received from the liquidation of the properties.

[Vol. 18,p.440]