Barcelo v Electro-Lytic Zinc Company of Australia Ltd

48 CLR 391

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(Judgment by: Starke J)

Barcelo
vElectro-Lytic Zinc Company of Australia Ltd

Court:

Judges: Rich J

Starke JDixon J
Evatt J
McTiernan J

Case References:
Ashbury v Ellis - (1893) AC 339
Attorney-General v Cain and Gilhula - (1906) AC 542
Croft v Dunphy - 48 TLR 652
Robtelmes v Brenan - 4 CLR 395
Semple v O'Donovan - (1917) (NZ) LR 273
Ellis v McHenry - LR 6 CP 228
Spiller v Turner - (1897) 1 Ch 911
Pass v British Tobacco Co (Aust ) Ltd - 42 TLR 771
Metropolitan Gas Company v McIlwraith & c Ltd - (1932) ALR 16; (1932) VLR 88
British South Africa Company v De Beers Ltd - (1910) 2 Ch 502
Hamlyn v Talisker Distillery - (1894) AC 202
Hutton v West Cork Company - 23 Ch D 654
Cyclists' Touring Club v Hopkinson - (1910) 1 Ch 179
Evans v Rival Granite Quarries Ltd - (1910) 2 KB 979
Re Florence Land and Public Works Company - 10 Ch D 530
Simultaneous Colour Printing Syndicate v Foweraker - (1901) 1 KB 771
Governments Stock Investment Company v Manila Railway Company - (1897) AC 81
Illingworth v Houldsworth - (1904) AC 355
Bloxam v Favre - (1883) LR 8 P D 101
Niboyet v Niboyet - (1878) LR 4 P D 1
Forster v Forster - (1907) 13 ALR 33
Cope v Doherty - (1858) 4 K & J 367
Delaney v Great Western Milling Co Ltd - (1916) 22 CLR 150; 22 ALR 357
Gibbs v La Societe Industrielle et Commercielle des Metaux - 25 QBD 399
Krzus v Crow's Nest Pass Co Ltd - (1912) AC 590
Maclcod v The Attorney-General for New South Wales - (1891) AC 455
Tomalin v S Pearson and Son Ltd - (1909) 2 KB 61
Bartley v Hodges - 1 B & S 375
Harding v Commissioners of Stamps for Queensland - (1898) AC 769
Cooke v Charles H Vogeler Company - (1901) AC 102
Colquhoun v Heddon - 24 QBD 491
Thomson v Advocate General - (1845) 12 Cl & Fin 1
Wallace v Attorney-General - LR 1 Ch 1
Winans v The Attorney-General - (1910) AC 27
Commissioner of Inland Revenue v Maple and Co (Paris) Ltd - (1908) AC 22
R v Jameson - (1896) 2 QB 425
Huber v Steiner - 2 Bing (NC) 203
Phillips v Eyre - LR 6 QB 1
Potter v Brown - 5 East 124
Gardiner v Houghton - 2 B & S 743

Hearing date: 27-29 September 1932
Judgment date: 21 November 1932

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Judgment by:
Starke J

This is an appeal from a decision of the Supreme Court of Victoria, involving the construction of the Financial Emergency Acts of 1931 (Nos 3961 and 3970), and their application to facts set forth in a Special Case stated for the opinion of that court. By these Acts it is provided -- s 19 -- that every mortgage (with certain exceptions) shall for a period named be construed and take effect as if it were a term of the mortgage that the interest payable under the mortgage should be reduced at a rate equivalent to 4s. 6d. for every £1 of such interest; and -- s 22 -- that every payment of interest made in pursuance of the Act shall be a full discharge of the mortgagor's liability for interest under his mortgage in respect of the period to which such payment relates. The principal questions agitated were whether certain debentures were mortgages within the meaning of the Acts, and whether the provisions of the Acts applied to and operated upon the obligation to pay interest under these debentures in Melbourne and London respectively.

The constitutional basis of the Acts is the authority given to the Legislature of the State of Victoria by the "Constitution Act" to make laws "in and for Victoria in all cases whatsoever." It is within its competence to make laws for persons and property within its territory, and it is not without its territorial jurisdiction to make laws in cases of contracts made or to be performed in Victoria -- Ashbury v Ellis, ( 1893) AC 339; and cf. Attorney-General v Cain and Gilhula, ( 1906) AC 542 ; Croft v Dunphy, 48 T.L.R 652 ; Robtelmes v Brenan, 4 CLR 395 ; Semple v O'Donovan, ( 1917) (NZ) LR 273. The extent to which other States or countries will recognise and give effect to such laws is another question, and depends upon the municipal law of those States or countries. In England, for instance, the discharge of a contract generally depends upon the proper law of the contract, that is the law by which the parties intended the contract to be governed -- Ellis v McHenry, LR 6 C.P 228 ; Spiller v Turner, ( 1897) 1 Ch 911 ; Pass v British Tobacco Co (Aust .) Ltd, 42 T.L.R 771. But the principles which govern the determination of the law with reference to which the rights and obligations of the parties are determined have no bearing upon the constitutional validity of legislation. Generally speaking, however, we assume that the Legislature confines its laws to matters within its competence. And it is no doubt also true that, if the meaning of an Act be doubtful, it should be construed so as not to violate the comity of nations; or, possibly, the generally accepted principles of what is described as private international law or the conflict of laws.

The words "every mortgage" in s 19 (which mean any deed, memorandum of mortgage, instrument, or agreement whereby security for payment of money is granted, whether by virture of such deed, etc, or any Act, over any real or personal property or any interest therein -- see s 14) are general, and in themselves suggest no limitation. But there must necessarily be some limitation, or the provision would transcend the constitutional power of the Legislature of the State of Victoria. It therefore becomes necessary, as was said in Macleod's Case, ( 1891) AC 457, to search for limitations. Various limitations have been suggested, all based upon the territorial limitation imposed upon the Legislature of the State of Victoria by its Constitution in the power "to make laws in and for Victoria in all cases whatsoever."

A prior question, however, arises, namely, whether the debentures mentioned in the Special Case are mortgages within the meaning of the Acts. The facts are fully stated in the case, but I take a short summary from the judgment of Cussen, A.-CJ, in the court below.

The Electrolytic Zinc Company is a Company incorporated under the Victorian Companies Acts, with its registered office in Melbourne. Its property is situate in Victoria, and certain other States of the Commonwealth and elsewhere, substantially the whole of its real property being situate in Tasmania. The Company has issued a series of first mortgage debentures, creating a fixed charge over its real property in Tasmania, and a floating charge over the rest of its property. These debentures were, in the first instance, issued in Melbourne to a firm of stockbrokers in Melbourne. The Company has a register of debentures in Melbourne and another in London, and certain of the debentures have been transferred to and are now on the London register. Moneys payable are payable in Melbourne or in London, according as the debenture is registered in Melbourne or in London. I add that the debentures are secured by a trust deed made between the Company and a Company incorporated in England having a registered office in Victoria, and that cl 63 of this deed provides -- "These presents shall be construed according to the law of the State of Victoria." These debentures, it is contended, do not constitute a mortgage, because the security is not given to a specific person, but to a floating body of persons, and the security is given to the trustees under the trust deed. But the meaning given to the word mortgage in the Act (which I have already set out) is very wide. The debentures in the present case expressly charge with payment of principal moneys, and interest mentioned therein, the "undertaking and property" of the Company "in terms of the said trust deed." The debentures therefore carry a charge on the Company's property in terms of the trust deed. A security is thus created for payment of money over real and personal property, and an interest therein within the terms of the Act. Accordingly the debentures issued by the Company are within the term "mortgage" as defined by the Act. So the learned Judges of the Supreme Court held, and the judgment of Cussen, A.-CJ, in the case of the Metropolitan Gas Company v McIlwraith, & c., Ltd, ( 1932) ALR 16; (1932) VLR 88, is to the like effect.

The next question is whether the Financial Emergency Acts apply to and operate upon the obligation to pay interest under these debentures in Melbourne and London respectively. Several constructions of the provisions of the Acts have been suggested, limiting the meaning of the words used --

1.

To instruments whereby security is given for payment of moneys in Victoria over real and personal property in Victoria.

2.

To instruments whereby security is given over real real and personal property, wholly in Victoria, or substantially or in larger part in Victoria.

3.

To instruments which are subject to or governed by the law of Victoria, or in other words, the proper law of the contract.

4.

To instruments of mortgage made or to be performed in Victoria.

The Acts, on any of these constructions, would be within the legislative competence or territorial jurisdiction of Victoria. Cases, however, may be put which would fall within any of the suggested limitations, and others may be put which would fall within one or more of them. An examination of the Acts may suggest a limitation.

The reduction of interest is part of a plan "involving a common sacrifice," to quote the euphemistic language of the preamble. Interest must be reduced for the purpose of re-establishing financial stability anad restoring prosperity. This suggests, it is said, relief from obligations for the benefit of persons or corporations in Victoria. Again, ss 19 (5) and 28 (6) require that certain applications, if made to a court of Petty Sessions, shall be made to the court of Petty Sessions held nearest to the location of the property which is the subject of the mortgage. These sections indicate, it is argued, that the Act is limited to mortgages and property in Victoria. But they prescribe the venue of an application to a court of Petty Sessions, and possibly indicate that such a court has no jurisdiction in the case of property beyond Victoria. The privilege or right given or granted by these sections would not fail if the court of Petty Sessions lacked jurisdiction, for other Courts have jurisdiction -- see s 14, "court."

A

more useful indication is the use throughout the Act of the words "mortgages given as security" -- see s 14, "mortgage," & c -- ss (1) (a) (c), ss (4), ss 15, 16, 17, 18 (4), 21, 24, 25, 26, 27, 31. In my opinion these provisions, having regard to the territorial limitation upon the authority of the Legislature of Victoria and to their context, point to mortgages given in Victoria. I say "to their context," because they refer to mortgages given by public or local authorities and to mortgages given to banks, building societies and pastoral companies. Perhaps the provisions of s 37 emphasise this view, for it exempts from the Act mortgages given as security for moneys raised by any public or local authority by way of loan outside Australia.

As I have already observed, there are no words of restriction in s 19, and it is clear that in the use of the words "every mortgage" (with certain express exceptions) the net is spread wide, and Parliament seeks to include all that is within its power. If mortgages given in Victoria are indicated by the sections already mentioned, then it is manifest that the provisions of ss 19 and 22 also cover and apply to them. But I see no reason for concluding that ss 19 and 22 apply only to mortgages given in Victoria. Many mortgages exist over property in Victoria which may have been given in the other States, or perhaps abroad. And mortgages, perhaps, exist which have been given in other States or abroad over property elsewhere than in Victoria, but which stipulate for the performance in Victoria of the obligations of the mortgage. In my opinion all such cases fall within the constitutional competence of the State of Victoria, and the term "every mortgage" in s 19 and the provisions of s 22. In most cases other countries will recognise the law because "the proper law of the contract" will be that of Victoria; but if and so far as they do not recognise it, still in Victoria the validity of the law and its full operation cannot be denied.

The limitations upon the construction of the Act suggested in argument can now be dealt with. The first is important, because it is that adopted by the learned Judges of the Supreme Court. I agree that upon this construction the Acts are within the competence of the Legislature of Victoria, but I think it unduly confines the words "every mortgage." No principle of international law, public or private, suggests such a construction. Nor, in my opinion, does any provision of the Acts themselves indicate it. It also has the manifest drawback in the present case -- and no doubt in others too -- of creating inequalities between debenture-holders, and leaving it to the accident of registration to determine whether the reduction provided can be made.

The second suggestion is based upon the view that all questions in relation to real property should be decided by the law of the country in which the real property is situate. If real property, as Mr Foote, in his work on Private International Law ( 5th ed ), p 223, observes,

could always ... be freed from its many complicated relations with the contracts, acts and capacities of persons, no conflict of law would ever arise with regard to it; but these necessary relations have brought about considerable modification in the primary principle

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cf . British South Africa Company v De Beers Ltd., ( 1910) 2 Ch 502. Again, the choice of the law regulating the capacities, contracts and acts of persons in relation to real property, does not govern the constitutional authority of the Legislature of Victoria. There is no doubt that this authority extends to real property within its territory, but it is not restricted to property within its territory; it has also authority, as already pointed out, over the acts of persons within its territory in making contracts or giving mortgages. Consequently, in my opinion, the second suggestion restricts too narrowly the constitutional authority of the State and the construction of the Acts.

The third suggestion is that the Acts should be so limited that their construction coincides with the law which governs the obligation of the contract or of the instrument of mortgage. But the law which governs the nature or obligation of a contract -- the proper law of the contract -- depends largely upon the intention of the parties to it -- Hamlyn v Talisker Distillery, ( 1894) AC 202 -- and to apply such a principle in the interpretation of the Financial Emergency Acts would lead, I think, to amazing diversities in their operation. Thus a mortgage given in Victoria over property in Victoria, but in which it was stipulated that payment of principal and interest should be made in England or elsewhere, and that the law of England or of such other place should be the proper law of the contract, would not, if effect were given to the stipulation, be within the meaning of the words "every mortgage" in s 19. In my opinion the constitutional authority of Victoria, however, extends to such a case, whether other countries would or would not recognise the law, and the phrase "every mortgage," in s 19, is amply sufficient, as a matter of language and of construction, to cover it. The body of law, whether that of Victoria or of another country, by reference to which the rights of parties in a given transaction must be ascertained, does not determine the limits of the legislative authority of the State or the extent to which that authority has been exercised, though it may in cases of ambiguity assist as a matter of construction.

The fourth suggestion is founded upon the decision in Ashbury v Ellis (above) . The legislative authority of Victoria extends, I agree, to the case stated, but it is not exhaustive of that authority. Nor do I think that the words "every mortgage," in s 19, should be restricted to that case. Cases may be put in which neither is the mortgage given in Victoria nor is the property mortgaged situate in Victoria, and yet the proper law of the contract might be the law of Victoria. The legislative authority would extend to such cases, and the words "every mortgage" in the Financial Emergency Acts are sufficient to cover them.

In my opinion, therefore, the meaning and scope of the words "every mortgage" in the Financial Emergency Acts are only limited by the constitutional authority of the State of Victoria. It is not necessary in this case to consider the utmost limit of that authority. But I think it extends to, and has been exercised in the Financial Emergency Acts (subject to express exceptions contained in the Acts , eg, in s 18) in respect of, every mortgage of property in Victoria, and every mortgage given or to be performed in Victoria, and every mortgage of which the proper law of the contract is that of Victoria.

It follows, in my opinion, that the judgment of the Supreme Court should be varied, and the questions (a), (b) and (c) stated in the Special Case answered as follows : -- (a) Yes . (b) Yes . (c) Yes.

The final question stated in the case is: Has the plaintiff Company, or have its directors, notwithstanding the provisions of the Financial Emergency Acts 1931, power to pay to the holders of the said debentures, or any and which of them, the whole of the interest covenanted to be paid to the said debenture-holders under the debentures held by them respectively or any amount by way of interest addition to such reduced amount?

The Special Case does not state the facts necessary to enable the court to decide this question. But, as I gather, the parties before the Supreme Court desired to ascertain whether the Financial Emergency Acts prohibited such payments, and if not whether it is within the power of the Company and its directors, for the purpose of preserving the credit of the Company, to make what may well be described, in view of the provisions of the Acts, as gratuitous payments of interest. I entirely agree with the learned Judges of the Supreme Court that the Acts do not prohibit such payments, or make them illegal, and the question really turns upon the powers of the Company and its directors in the circumstances as they arise.

The objects of the Company are wide, and it is authorised to carry on metallurgical operations and allied businesses, to raise or borrow moneys on such security (if any) as the Company shall think fit, and to do all things incidental and conducive to the attainment of any of these objects. The articles of the Company -- cl 105 (5) -- empower the directors to adopt all such measures and do all such acts as they may consider advisable for the proper and efficient carrying on of the business of the Company, or likely in any respect to be advantageous to the Company. Under such a constitution the Company and its directors have authority to make payments, even though they be gratuitous, if "conducive to the objects and the interests of the Company."

The test must be what is reasonably incidental to, and within the reasonable scope of carrying on, the business of the Company ... They are not to keep their pockets buttoned up and defy the world unless they are liable in a way which could be enforced at law or in equity. Most businesses require liberal dealings. The test there again is not whether it is boná fide, but whether, as well as being done boná fide, it is done within the ordinary scope of the Company's business, and whether it is reasonably incidental to the carrying on of the Company's business for the Company's benefit

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Taunton v Royal Insurance Company, 2 II. & M. 135 ; Hutton v West Cork Company, 23 Ch D 654 ; Cyclists' Touring Club v Hopkinson, ( 1910) 1 Ch 179. The power must not be exercised in an arbitrary and capricious way, but reasonably and honestly in the interests of the Company. The directors are in a fiduciary position, and must only exercise their powers for the benefit of the Company and its shareholders. If a Company is able to pay interest that it contracted to pay, and desires to do so to support its credit and reputation, in the face of legislation such as the Financial Emergency Acts, there is no reason in law preventing it from so doing. The matter is remitted by law to the business judgment of the directors of the Company, exercised honestly and reasonably in the interests of the Company and its shareholders.

I

agree in substance with the answer of the learned Judges of the Supreme Court to this question, and have merely added the foregoing observations to indicate the sense in which I understand the answer.