Opinion Number. 1564

Subject

CURRENCY: AUSTRALIAN POUND CURRENCY: AUSTRALIAN POUND: LEGAL TENDER: SUGGESTION THAT THERE BE AN AUSTRALIAN UNIT OF ACCOUNT DIFFERENT FROM THE POUND STERLING: SUGGESTION THAT DEBTS ORIGINATING IN AUSTRALIA BE ENTERED INTO AND DISCHARGEABLE IN AUSTRALIAN POUNDS

Key Legislation

COINAGE ACT 1870 (U.K.) (33 & 34 Vict. c. 10) s 6: COINAGE ACT 1909 s 7: BANK OF ENGLAND ACT 1833 (U.K.) (3 & 5 Will. IV c. 98): AUSTRALIAN NOTES ACT 1910: COMMONWEALTH BANK ACT 1920: GOLD STANDARD ACT 1925 (U.K.) (15 & 16 Geo. V c. 29): COMMONWEALTH BANK ACT 1929: GOLD STANDARD (AMENDMENT) ACT 1931 (U.K.) (21 & 22 Geo. V c. 46): COMMONWEALTH BANK ACT 1932

Date
Client
The Secretary to the Treasury

Mr. R.L. Piesse, the author of an article entitled ‘What is the Australian £?’ published in the Victorian Law Institute Journal for July 1934,(1) has suggested to the Assistant Treasurer the following amendments of the law:

  1. Declaration that the pound for which Australian notes are legal tender is the Australian pound and not the pound sterling.
  2. Declaration that debts expressed in pounds sterling, if they originate in transactions in Australia and are payable in Australia, should be dischargeable in the same number of Australian pounds, unless there is clear evidence that the parties intended payment in pounds sterling.
  3. Section 7 of the Coinage Act to be amended to make clear that transactions etc. in money shall be entered into in terms of the pound (instead of in coins current under the Act) or in the ‘money’ or ‘legal money’ (instead of ‘currency’) of some overseas country.
  4. A carefully guarded gold clause to be enacted, in respect of contracts entered into in terms of gold coins when a sovereign was worth one Australian pound instead of two Australian pounds as now.

Prior to 1914, the currency of both England and Australia was based on and stabilised by the sovereign as established by the Imperial Coinage Act 1870. Sovereigns were minted only at the Royal Mint or its branches in Australia, and were legal tender in both countries. Each country, however, had its own note issue, English notes being issued by the Bank of England under the Bank Charter Act 1833, and Australian notes were issued at first by the Treasurer under the Australian Notes Act 1910 and later by the Commonwealth Bank under the Commonwealth Bank Act 1920. Each class of notes was by law convertible into gold according to the same gold coinage, and there was seldom any reason to distinguish one currency from the other. In each currency the unit of account was the same–the pound–and in each currency the measure of value expressed by that unit of account was the same–the gold sovereign.

By 1925, gold had practically gone out of circulation both in England and Australia, but in law the notes were still convertible into gold in both countries.

By the Gold Standard Act 1925, the Bank of England was relieved of its obligation to pay its own notes and Treasury notes (the issue of which had been established during the War) in gold, although it was required to sell bullion in bars of about 400 ounces at a fixed rate.

In Australia, the Commonwealth Bank Act 1929 empowered the Treasurer to require any person to surrender any gold coin or bullion in his possession, in exchange for the nominal equivalent in Australian notes.

Thus was, to all intents and purposes, ended in law what had already become the case in fact, namely, the convertibility of Commonwealth notes.

Finally, the Gold Standard (Amendment) Act 1931 suspended the obligation of the Bank of England to sell gold bullion at a fixed rate, and the Commonwealth Bank Act 1932 abolished the obligation of the Treasurer to redeem the Bank’s notes in gold.

Both countries were now off the gold standard, and the value of the pound, whether English or Australian, depended on the credit of the respective Governments and Banks of issue.

Exchange rates are quoted between England and Australia, and the rate has for some time been approximately £25 per cent in favour of English sterling.

The legal position, in view of the abovementioned laws, was summarised by Maugham J. (as he then was) in Broken Hill Proprietary Ltd v. Latham 1933 Ch. 373, at p. 391 as follows:

I have thought it necessary to examine the Australian legislation relating to currency, coinage and legal tender in order to ascertain whether there was in October 1920 … any coin or other measure of value which could with legal correctness be described as an Australian pound. If the answer had been in the affirmative, it might well have been possible to contend that the pounds referred to in the debentures were Australian pounds, just as a similar debenture, if issued in Canada, might well be a contract to pay Canadian dollars, but I am unable to find that in 1920 there was any such a standard of value in Australia, whether it consisted of metallic or paper money, as an Australian pound. There were British sovereigns, minted in Australia by branches of the Bank of England. There were Australian bank notes, which were, however, legal tender only in Australia. There was a power in the Australian Commonwealth to mint gold coins in Australia; but the Australian Statute provided that they were to be of precisely the same gold content as a British sovereign; and, in fact, no such coins have been issued.

This judgment was reversed by the Court of Appeal, but the House of Lords in Adelaide Electric Supply Co. Ltd v. Prudential Assurance Co. Ltd 1934 A.C. 122 overruled the decision of the Court of Appeal, and approved of the judgment of Maugham J.

Section 7 of the Coinage Act 1909, which reproduced section 6 of the Imperial Coinage Act 1870, reads as follows:

Every contract, sale, payment, bill, note, instrument, and security for money, and every transaction, dealing, matter, and thing whatever relating to money, or involving the payment of, or the liability to pay any money, which is made, executed, or entered into, done or had, shall be made, executed, entered into, done or had according to the coins which are current and are a legal tender in pursuance of this Act, and not otherwise, unless the same be made, executed, entered into, done or had according to the currency of some British possession or some foreign State.

Lord Tomlin at p. 144 of the last mentioned case said—

I confess that I find difficulty in assigning any meaning of precision to this obscure section. Whatever it means, however, it does not seem to contain anything inconsistent with the pound remaining the common money of account of the United Kingdom, and of Australia.

It is, however, I think clear, as I pointed out in my opinion No. 69 of 1933,(2) that the section provides, in effect, that all documents and transactions relating to money shall be expressed or entered into, according to the coins which are current and are legal tender in pursuance of that Act, (i.e., in terms of pounds, shillings and pence, or of other coins which are current and are legal tender) or according to the currency of some British possession or foreign State.

The important word in this section is the word ‘coin’. Contracts must be entered into under this section in terms of coins, i.e., in terms of the sovereign or pound, and its fractions.

The legislatures of the United Kingdom and of the Commonwealth have, however, provided that contracts so entered into may be discharged by payment, not of the coins but of notes which are made by statute legal tender. It is the difference in value of the notes which are legal tender in the United Kingdom and Australia, which has created the difference in value between the obligation to pay a pound in the Commonwealth and a pound in the United Kingdom.

To give effect to the first suggestion of Mr. Piesse, it would be necessary to provide by legislation that there shall be an Australian unit of account different from the pound which has hitherto been the unit of account, not only in Australia but in England. It would probably be necessary to give to such a unit of account a name other than the name ‘pound’.

The Coinage Act might then be amended–on the lines of the third suggestion by Mr Piesse–to provide that transactions relating to money shall be entered into in terms of that unit of account or its fractions, or in terms of some other unit of account.

With respect to the second suggestion of Mr Piesse, it appears that this would involve an interference by statute with contracts which have already been entered into, and may well be thought undesirable on this account. It is difficult also to see what clearer evidence there can be that the parties intended payment in pounds sterling than the use of that very expression.

Mr. Piesse’s fourth suggestion again appears to involve an interference with the terms of private contracts.

There is no legal objection to carrying out any of Mr. Piesse’s suggestions, but the matter is essentially one of policy, and, in arriving at any conclusion in the matter, the Government will, no doubt, be guided by its financial and economic advisers.

[Vol. 27, p. 458]

(1) (1934) 8 Law Institute Journal 110.

(2) Opinion [Vol. 26, p. 224] not published.