The Treasurer:

It appears that the officers of the Postmaster-General's Department in New South Wales still carry on the work of the State Government Savings Bank in the country districts, as they used to do before Federation. This is done apparently by arrangement between the Commonwealth and State Governments, to save expense to the States, but it is stated that no agreement has been made as to the terms on which this business is to be carried out for the State by the Commonwealth, and that no definite arrangement seems to have been made with the State as to the conduct of the business pending the settlement of an agreement.

In 1902 a deficiency was discovered in the accounts of A.B.C., Postmaster at Hill End, in connection with Government Savings Bank deposits. The ascertained deficiency amounts to £219. C. was prosecuted for embezzlement and, having pleaded guilty, was convicted.

C. 's fidelity was guaranteed with the Fidelity Guarantee Fund of the State to the extent of £400. He has, since the transfer of the Post and Telegraph Department to the Commonwealth, continued to subscribe to that Fund.

The Treasurer minuted on the papers his opinion that as the money embezzled was State money, the State and not the Commonwealth should make a claim on the Fund. The State Treasurer, however, contests this point, on the ground that 'the Federal Postmaster-General is the agent of this State for the transaction of Savings Bank business in this country, in respect of which he will claim a commission, and this State has no jurisdiction over the officers of the Postmaster-General', and claims that it is for the Postmaster-General to make good to the State any default by his officers of Savings Bank moneys, and reimburse himself by making a claim on the Guarantee Fund.

The Treasurer has submitted the matter to me for advice with the following memorandum:

The position taken by the New South Wales Treasury opens up a very important question. The Post Office carries on the Savings Bank business for the State in country districts to save expense and also at present does the work at the Head Office Sydney and I have advised the Post Office to give this up so far as Sydney is concerned.

No payments have been made by the State for the services of the officials but it is intended to charge an amount which will probably be only sufficient to repay the salaries for the time the officers are engaged.

If the Commonwealth is to be liable for all losses I shall be compelled to advise the Post Office to give up the work altogether. It seems to me that if a loss occurs which is not covered by the Guarantee Fund the State must bear the loss.

I shall be glad of an opinion as to whether the Commonwealth is legally liable in the manner claimed by the Sydney Treasury.

I am unable to agree with the views expressed by the Treasurer of New South Wales.

Apart from the question of guarantee, I am of opinion that, under the circumstances above stated, the Commonwealth is not liable to the State for the defalcations of Federal officers in connection with State Savings Bank business. The Commonwealth therefore can have no claim on the Guarantee Fund.

I fail to see how the fact that the 'State has no jurisdiction over the officers of the Postmaster-General' can affect the power of the State to reimburse itself, out of its own guarantee fund, for its losses.

[Vol. 3, p. 448]