BORROWING BY COMMONWEALTHPROPOSED COMMONWEALTH BOND ISSUE: BORROWING BY COMMONWEALTH FOR REDEMPTION OF COMMONWEALTH EXTERNAL LOAN OF 1927 MATURING 1 SEPTEMBER 1957: LEGAL AUTHORITY FOR PROPOSED BOND ISSUE: FINANCIAL AGREEMENT OF 1927: EXECUTIVE POWER OF THE COMMONWEALTH
CONSTITUTION s 105A: COMMONWEALTH INSCRIBED STOCK ACT 1911: FINANCIAL AGREEMENT VALIDATION ACT 1929: LOANS REDEMPTION AND CONVERSION ACT 1921: LOANS SECURITIES ACT 1919
(1) Under a decision of the Loan council, the Commonwealth is to borrow in the United States of America a sum not exceeding thirty-eight million dollars for the purpose of redeeming prior to maturity the Commonwealth of Australia External Loan of 1927 Thirty Year 5 per cent Gold Bonds maturing 1st September, 1957, and for the expenses of borrowing. The Registration Statement filed by the Commonwealth with the Securities and Exchange Commission of the United States contains an undertaking that, as Solicitor-General, I will advise upon the legality of the proposed bond issue.
(2) In addition, the underwriting agreement with Messrs. Morgan, Stanley and Company requires, as a condition of the underwriters’ obligation, the receipt of an opinion, satisfactory to their New York and also to their Australian legal advisers, from the Solicitor-General of the Commonwealth, addressed to the Treasurer, advising under certain specified headings as to the legality of the proposed bond issue.
(3) I have the honour to advise the Treasurer that in my opinion there is complete legal authority for the proposed loan.
(4) In particular, dealing with the matter under the four headings specified by the underwriters, I advise that in my opinion—
(a) bonds issued in accordance with the underwriting agreement will be issued and executed in accordance with the laws of Australia and Orders-in-Council applicable thereto;
(b) the bonds, upon delivery thereof and payment therefor pursuant to the underwriting agreement, will constitute valid, binding and unconditional obligations of the Commonwealth, for the performance of which the full faith and credit of the Commonwealth is pledged;
(c) the underwriting agreement has been duly authorised and executed in accordance with the laws of Australia and Orders-in-Council applicable thereto;
(d) all of the provisions of the underwriting agreement are valid and binding on the Commonwealth.
(5) The chain of authority for the proposed bond issue has four essential links:
First, section 105A of the Constitution gives to the Financial Agreement of 1927, as validated by the Financial Agreement Validation Act 1929, binding effect, notwithstanding anything contained in the Constitution or in the laws of the Commonwealth or of any State.
Second, clause 4(1) of the Financial Agreement requires the Commonwealth, subject to the decisions of the Australian Loan Council, to arrange (inter alia) for all borrowings for and on behalf of the Commonwealth or any State, and for all redemptions of the public debts of the Commonwealth and of the States.
Third, a decision of the Loan Council on 27th May 1947 approved of the Commonwealth arranging for—
(a) the borrowing in the United States of America of a sum not exceeding thirty-eight million dollars for the purpose of redeeming the Commonwealth of Australia bonds mentioned above and for the expenses of borrowing; and
(b) the redemption of these bonds.
Fourth, an Order made on 4th June 1947 by His Excellency the Governor-General of the Commonwealth of Australia, in pursuance of the Loan Council’s decision, authorizes the Treasurer to borrow the necessary amounts in the United States of America, under certain conditions laid down in the Order-in-Council itself. This Order-in-Council is a regular exercise (in pursuance of chapter II of the Constitution) of the executive power of the Commonwealth. It is by means of this Order that the Commonwealth arranges, as clause 4(1) of the Financial Agreement requires, for the borrowing necessary to carry out the Loan Council’s decision.
(6) It is I think plain that the Commonwealth Parliament can, if it thinks fit, provide by statute for such matters as are covered by the Order-in-Council of 4th June, 1947. Indeed, section 105A(3) of the Constitution expressly authorises the Parliament to make laws for the carrying out of the Financial Agreement by the parties thereto. Having regard, however, to the overriding statutory force of the obligations imposed by the Financial Agreement upon the Commonwealth and the States, there is no longer any legal necessity for statutory, as distinct from executive, action for the performance of these obligations.
(7) If, contrary to my opinion, further statutory authority were necessary to permit the Treasurer to borrow on behalf of the Commonwealth in a case such as the present, it could be found in the Loans Redemption and Conversion Act 1921, together with the Loans Securities Act 1919. I think for greater caution, these two Acts are in fact recited in the Order-in-Council. Their combined effect is to enable the Governor-General to authorise the Treasurer to redeem any loan raised by the Commonwealth and, for this purpose and for the expenses of borrowing, to borrow the necessary moneys, either in accordance with the Commonwealth Inscribed Stock Act 1911–1946 or in such other manner as the Governor-General approves. The Governor-General has so authorised the Treasurer by the Order-in-Council of 4th June, 1947. My opinion, as already stated, is that since the Financial Agreement came into effect no other statutory provision is legally necessary to authorise such an Order-in-Council. But in any event the course of action which has been followed in connexion with the proposed bond issue is in full accordance with the two earlier Acts mentioned.
10th June, 1947.
The Right Honourable J. B. Chifley, M.P.,
Treasurer of the Commonwealth of Australia.
I consent to the use of the foregoing Opinion for the purpose of the Registration Statement filed under the Securities Act of 1933 by the Commonwealth of Australia as registrant of the Ten Year 3