Evening Post. FRIDAY, JANUARY 26, 1934. SANCTITY OF CONTRACTS

Evening Post, Volume CXVII, Issue 22, 26 January 1934, Page 6

Evening Post. FRIDAY, JANUARY 26, 1934. SANCTITY OF CONTRACTS

As we remarked at the time, the report supplied by the Press Association on December 18 of one of the most interesting and momentous judgments of the year did not err on the side of generosity. All that it said was:

Thß House of Lords lias given judgment upholding the validity erf the gold clause in the case of the- Societc Intcrcomniunale Be]go d'Electricite bonds, thus reversing the decisions of the' lower Courts. • ■

The column-and-a-half report of "The Times" of December 16, which is now to hand, satisfies curiosity on the points that were left open by that tantalising message. The first of these related to the size and personnel of the Bench. The Lord Chancellor was not sitting, but five of the seven Law Lordsr—Lord Atkin, Lord Warrington of Clyffe, Lord Tomlin, Lord Russell of Killowen, and Lord Wright—certainly made a strong Bench. The presumption from the absence of any mention of dissent from the cabled report that the decision was unanimous proves to be correct. 'Judgment was delivered by Lord Russell of Killowen,' and his colleagues concurred. In view of the unanimity with which the Judges in the lower Courts had arrived at the opposite conclusion it is satisfactory that the Judges who reversed it were also unanimous. It sometimes happens, in these difficult cases, that decision which prevails as that of a majority in the House of Lords really represents the opinion of a minority of all the Judges who have dealt with the case. Here, however, if they had all determined the matter at a joint session on the principle of "one Judge, one vote," the support of Mr. Justice Farwell's original decision by the three Court of Appeal Judges would have left it in a minority of one. It is an interesting coincidence that it wa3 by the same figures of 5 to 4 that the Supreme Court of, the United States arrived at 'its important decision on the emergency relief legislation in the Minnesota case reported on the 10th inst. The first clause of the bond dated September 1, 1928, under which Mr. Feisf sued the Belgian company, followed the established form of the gold clause: 1. Tie company . . . will on September 1, 1963, . . . pay to the bearer the sum of £100 in sterling, in gold coin of the United Kingdom of or equal to the standard of weight and fineness existing on September 1, 1928. The second clause provided for the payment of interest in a similar way. At the date of the bond the Currency and Bank Notes Act, 1928, had received the Royal assent, though it did not come into operation till a few months later. Under this Act the Bank of England, which had been exempted by the Gold Standard Act, 1925, from the obligation to pay its notes in legal coin, was authorised to issue bank-notes for £1 and 10s, which were to be legal tender for any amount. Existing currency notes were converted into bank-notes, the bank becoming liable on them, and it was given wide powers of calling in gold coin or bullion. "The country," as Lord Russell of Killowen said in his judgment, "was on the gold standard, but the notes were inconvertible, and gold.coin was substantially no longer in circulation." On the face of it, thfe plaintiff's case under clauses 1 ; and 2 was unanswerable. He was merely asking for payment in gold of the standard fixed by those clauses in 1928, but many things had happened since then. One of them was indicated by what to the lay mind seems the strongest of the company's arguments. How could it make payment in a coinage which, through no fault of its own, had since ceased to exist? The gist of the decisions in the lower Courts is summarised by the law reporter of "The Times" as follows :-"- Mr. Justice Tarwell held that on the true construction'of the bond the respondents were entitled to satisfy the principal moneys and interest by tendering whatever might at the due date of payment respectively be good legal tender for the nominal amount of the bond or coupon. The Court .of Appeal, affirming the decision of Mr. Justice Farwell, were of opinion that the bond was a contract for the payment of the nominal amount of money by way of principal and interest, and that it was impossible to construe it as a contract for the payment of any other sums of money ascertained by their gold value from time to time. The crucial point in the reasoning which found favour with the House of Lords is indicated by the abovecited reference of Lord Russell to the fact that even at the date of the bond notes were inconvertible and gold coin had virtually ceased to circulate. Those being the circumstances and conditions of the time, it was not, he thought, improper or hazardous to make two surmises: (1) That the gold clause was inserted in clauses 1 and 2 of the

bond in contemplation of the contingency of this country going (as it did in 1931) off the gold standard at some future date; and (2) that neither party to, the bond could have contemplated payment under the bond being actually made in gold coins.

His Lordship then pointed out that even taking clause 1 by itself a literal fulfilment of its requirements wduld be impossible even if a sufficiency of gold were still in circulation, and this conclusion he confirmed by a reference to other clauses. A literal interpretation of clause 1 being therefore out of the question, Lord Russell said that it was necessary either to hold that the clause had no meaning at all, or to find some non-literal meaning for it that would best harmonise with the general scope of the document. Admitting that the "construction strained the words of <the document," Lord Russell of Killowen accordingly construed clause 1 "not as meaning that £100 was to be paid in a certain way, but as meaning that the obligation was to pay a sum which would represent the equivalent of £100 if paid in a particular way." What commercial morality owes to the legal ingenuity which enabled the' House of Lords to arrive at this remarkable decision was stated by "The Times" in grave and weighty language. This decision, which is likely to have important consequences, will bo widely welcomed in the City and elsewhere, not so much because it upholds the creditor's standpoint, as because it safeguards the fundamental principle of the sanctity of contracts which licst at the root of all commercial transactions.: The gold clause, which in some form or other is of very ancient origin, was invented to safeguard tho interest of the. lender against the constantly occurring danger of currency debasement to which throughout, the course of history Governments have- so often arbitrarily resorte.d, and to declare it null and void would undoubtedly have administered one more shock to the already badly shaken credit structure of the world. ... At the present time, when default is stalking naked and unashamed through tho world, it is of the utmost importance that debtors should at least acknowledge their rightful obligations; for it is only on this basis that the delicate-though necessary task of adjusting debts to tho capacity of payment of tho debtor can be undertaken. Once j3 debt is duly acknowledged the equitable measures necessary to redress the- accidental hardships •brought about by changes in the world's price level can safely bo devised, , but unless the sanctity of tho contracts is first upheld all contractual obligations must inevitably lose their meaning; and that is a state of things which no sane person would be willing to contemplate. The bearing of these remarks "lays in the application." Not the least obvious of their applications is to the Government and Parliament of New1 Zealand. ,