I shall refer to the view that a foreign currency obligation must be treated as an obligation to deliver a commodity as 'the commodity theory of foreign obligations'.
20 In my opinion it would be wrong to regard Dixon J's observations as authority for the view that the commodity theory of foreign currency obligations applies generally and without qualification as part of modern Australian law. His Honour's remarks about foreign currency were obiter, since he mentioned the position with respect to foreign currency simply to contrast it with the case before him, which (like the famous Case of Mixed Money; Gilbert v Brett (1604) Davie's (Ireland) 18; 2 State Trials 114; Co Litt 207a and b) involved selection between two forms of legal tender. Even at the time when Dixon J's judgment was delivered, there were cases which for certain purposes treated an obligation to pay foreign currency as a money obligation. Cases such as this were analysed in the first edition of Dr Mann's impressive treatise, The Legal Aspect of Money , which was published in 1938.
21 The process of recognising foreign currency obligations as money obligations for certain purposes has accelerated since the time of Dixon J's judgment, no doubt partly because of the vastly changed economic circumstances created by the floating of sterling and the Australian dollar within recent decades, and the burgeoning of international trade denominated in foreign currencies. Thus, for example, it has been held that the words 'currency, coinage and legal tender' in s 51 (xii) of the Constitution include foreign money: Watson v Lee (1979) 144 CLR 374, 396 per Stephens J. It appears that foreign money is to be regarded as money for the purposes of an action for money had and received: Ehrensperger v Anderson (1848) 3 Exch 148; F. A Mann, The Legal Aspect of Money (5th ed, 1992), p 191-192. The word 'sell' as generally used in English and Australian law of sale of goods includes selling for a price in foreign currency: The Halcyon the Great [1975] 1 WLR 515, 519 per Brandon J; Mann, at 197. A creditor to whom a sum of French francs is due has a 'debt' and is accordingly entitled under English law to vote at a creditors' meeting in bankruptcy proceedings: Re Rickett, ex parte Insecticide Activated Products Ltd v Official Receiver [1949] 1 All ER 737. A claim in foreign currency is capable of being a liquidated amount: Seymour v Serian (NSW CA, unreported, 15 November 1983). A bank keeping a dollar account for a judgment debtor is 'indebted' to him so as to permit a garnishee order to be made: Choice Investments Ltd v Jeromnimon and Midland Bank Ltd [1981] QB 149; Deputy Commissioner of Taxation v Conley (Federal Court of Australia, Full Court, 21 October 1998, unreported).
22 The commodity theory of foreign currency obligations, to which Dixon J subscribed, has received some support in other Courts. Thus, the US Court of Appeals, 2nd Circuit, in Vishipco Line v Chase Manhattan Bank , 754 F.2d 452 (1985), at 458 made the broad statement that in an action 'brought to recover sums expressed in foreign money the obligation - whether characterised as an unpaid debt or a breach of contract - is treated as a promise to deliver a commodity'. (I note that this observation may not reflect US law generally, as Dr Mann refers to the decision as 'unsupportable' (at 195).)
23 In Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007, the English House of Lords held that an English court could only give judgment in sterling, even if the money of account and the money of payment were both a foreign currency, and that the appropriate date for conversion of the foreign currency into sterling was the date of breach (in the normal case, this would be the due date for payment of the foreign currency) rather than the date of judgment or the date of payment. Viscount Simonds based his decision squarely on the commodity theory of foreign currency obligations. He said (at 1043) that actions for damages and to recover a foreign debt could not be distinguished, and that 'an action to recover a foreign debt was upon a sound analysis nothing else than an action for recovery of damages for breach of a contract to deliver foreign currency...'. He quoted with approval the observation by Jones J in Ward v Kidswin (1626) Latch 77, that an action to recover payment of Hamburg money was 'properly brought in detinet alone for Hamburg money which is of no value and as if the action were brought for a piece of plate'.
24 However, the other speeches in that case did not support the commodity theory of foreign obligations. Lord Reid laid emphasis on procedural considerations rather than the theoretical idea that foreign currency must be regarded as a commodity (at 1052). Lord Radcliffe expressly disagreed with the commodity theory (at 1059), and Lord Denning's reasoning was more concerned with procedural limitations than with theory (at 1069,1071).
25 Their Lordships' decision was therefore not a ringing endorsement of the commodity theory of foreign currency obligations, although all of their Lordships agreed that an English court could not give judgment for payment of an amount in a foreign currency, and that a debt expressed in a foreign currency must be converted into sterling at the exchange rate applicable when the debt was payable. This produced the inconvenient result that the creditor would be forced to accept the sterling exchange rate applicable at that date if he sued in England, but if he sued in the jurisdiction of the currency, the sterling value of his claim would be measured at the date of payment.
26 In Miliangos v George Frank (Textiles) Ltd [1976] AC 443 the House of Lords took the unusual step of reversing its earlier decision in the Havana Railways case. The majority held that English law does not require a contractual foreign currency obligation to be converted into sterling for the purpose of commencing proceedings or entering judgment. A foreign currency creditor is entitled to seek judgment in terms of the foreign currency, and conversion into sterling takes place only at the point of payment (or more precisely, the date when the court authorises enforcement of the judgment) and at the exchange rate prevailing at that time.
27 These principles have subsequently been held to apply where the claim is for damages for breach of contract or tort, or for recovery by way of restitution, and it seems that the principles now apply to an action in an English court whether the contract is governed by English law or foreign law: see Mann, at 352, and the cases there cited, including in particular The Despina R [1979] AC 685. The Miliangos case has been applied in Australia, notwithstanding Jolley v Mainka , subject to the overriding proposition that the duty of the court is to express its judgment in the currency which best expresses the loss of the party who has sued: Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448; Maschinenfabrik Augsburg-Nurenburg Aktiengesellschaft v Altikar Pty Ltd [1984] 3 NSWLR 152; Australia and New Zealand Banking Group Ltd v Cawood [1987] 1 Qd R 131; Swiss Bank Corporation v State of New South Wales (1993) 33 NSWLR 63; see generally G A Weaver and C R Craigie, The Law Relating to Banker and Customer in Australia (1990, looseleaf) paragraphs [3.840] to [3.1030].
28 For present purposes, an important question is whether the Miliangos case holds or implies that a contractual obligation to make payment in a foreign currency is a 'debt' for any statutory or other purpose. This question was touched upon in Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc (1997) 25 ACSR 709. In that case the debtor's contractual obligation was to pay in US dollars and a statutory demand was served on the debtor for a US dollar amount. The debtor sought to set aside the statutory demand on several grounds, one of which was that it was defective because the demand was made in US dollars, but evidently the debtor did not deny that a debt was owed by it to the creditor in US dollars. It was therefore unnecessary for Finkelstein J to reach a firm decision on 'the nature of a cause of action for recovery of foreign currency in the light of modern international commerce' (at 714). In the present case the plaintiff has submitted that its obligation to make payment in a foreign currency is not properly described as a 'debt' for the purposes of s 459E, and not merely that the use of US dollars renders the statutory demand 'defective'. Consequently, the issue which did not need to be determined by Finkelstein J has been laid squarely before me for decision.
29 Finkelstein J referred to Jolley v Mainka as authority for the proposition that an obligation to pay an amount in a foreign currency does not create a debt (at 713). He expressed the view (contrary to the view of Dr Mann) that the majority in the Miliangos case had not decided that an action to recover a judgment in a foreign denomination is an action in debt (at 714). In Finkelstein J's opinion, all that was decided, and all that needed to be decided, was that the court had a procedure available under which orders could be made for payment of foreign currency claims in the foreign currency. He said that a finding that a procedure exists for entering judgment in a foreign sum does not convert the claim from a claim for damages for breach of contract into a claim for debt.
30 I agree with Finkelstein J that the House of Lords in Miliangos decided that in certain cases an English court is entitled to give judgment for payment of an amount of foreign currency. But their Lordships went further. They departed from the 'breach-date rule' which had been asserted in the Havana Railways case, opting instead for the rule that conversion should be at the date when the Court authorises enforcement of the judgment, and they approved a form of claim in which the plaintiff seeks judgment in the foreign currency or the sterling equivalent as at that date (at 467-8 per Lord Wilberforce). Their Lordships' decision on those matters is consistent with the view that a claim for payment of foreign currency is strictly a claim for damages for failure to deliver the currency, but only if one accepts that damages in such a case are to be measured differently from the damages which were available under the law of that time in any other case of breach of contract, and that an order for payment of the very thing promised to be paid is properly regarded as an order for the payment of damages. Lord Wilberforce's emphasis on procedural questions, following to that extent the approach of Lord Reid in the Havana Railways case ([1961] AC at 1051-1052), implies that his Lordship (like Lord Radcliffe in the Havana Railways case, [1961] AC at 1059) did not believe that the solution to the problem before him would emerge from any theoretical classification of foreign currency as a commodity. His Lordship made it clear ([1976] AC at 468) that he was directing his attention to foreign money obligations rather than damages for breach of contract.
31 Putting all these things together, in my opinion the Miliangos decision has destroyed any theoretical basis for contending that a claim for failure to pay foreign currency is a claim for damages rather than debt. Subsequently the English Court of Appeal in the Choice Investments Ltd case (cited above) treated the Miliangos decision as authority for the proposition that the amount of foreign currency for which judgment could be given is a debt, for the purposes of a garnishee order . I therefore respectfully disagree with Finkelstein J on this point.
32 It may be an overstatement to proclaim that after Miliangos the commodity theory of foreign currency obligations is dead: cf R M Goode, Commercial Law (1982), 938. But Miliangos confirms the trend established by earlier cases, to the effect that the commodity theory cannot be regarded as universally applicable to solve the problems of characterisation of foreign currency obligations. In my opinion the correct modern principle is stated by Dr Mann (at 197):
'The legal nature of the transaction is always to be tested by the question: does the currency function as money, that is to say, as a medium of exchange, or is it the object of commercial intercourse?'
33 Where the foreign currency functions as money, an English or Australian court is likely to regard the legal character of the obligation as being inherently identical with an obligation to pay a sum of domestic money. But if the foreign money is the object of commercial intercourse, as in a typical foreign exchange contract and certain currency futures contracts, it is likely to be treated as a commodity. This approach comes closest to reconciling the case law, while producing sensible commercial results. Applied to the present case, it means that the plaintiff's obligation to pay the bank invoices under the trade finance agreement in US dollars is properly described as a 'debt'.
34 As Dr Mann remarks (at 196), 'in the last resort [correct categorisation] rests on the intention of the parties and is, therefore, a matter of construction'. Where, as in the present case, the Court' s task is to decide whether statutory words encompass foreign currency obligations, the intention is Parliament's intention and the instrument to be construed is the statute. In construing the statute one must bear in mind that Parliament is more likely to have intended a construction which has a sensible practical operation than one which does not. Thus, the Full Federal Court in Deputy Commissioner of Taxation v Conley (cited above) held that a deposit in a foreign currency account is not 'money' which is due to or may become due to the taxpayer for the purposes of s 218 (1) of the Income Tax Assessment Act 1936, largely because the contrary view would create practical difficulties. This section requires the recipient of a notice from the Commissioner to pay so much of the money which the recipient owes the taxpayer as is sufficient to pay the amount due by the taxpayer to the Commissioner, and also creates a charge for that amount as well as a penalty for non-compliance. The Court drew attention to the difficulties which the recipient of the notice would experience in working out the correct exchange rate, especially in a case where money was not immediately due to the taxpayer but may become due.
35 In the case of a statutory demand relating to a contractual obligation to make payment in foreign currency, it seems to me that practical considerations point to permitting the demand to be expressed in foreign currency. Ex hypothesi, the debtor has agreed to make payment in the foreign currency, and can be taken to understand what he has to do. In such a case there is no lack of clarity in the foreign currency demand. Conversely, if it is necessary for the demand to be expressed in Australian currency there is a quandary. The demand could be made solely in Australian currency converted as at the date of the demand, as was done in MEC Import Sales Pty Ltd v Iozzelli (1998) 29 ACSR 229, but the contract may not entitle the creditor to insist upon conversion to Australian dollars at that date. The demand could be made in foreign currency and also in the Australian dollar equivalent calculated as at the date of the demand, as was done in Sturdy Components Pty Ltd v Burositzmobelfabrik Friedrich W Dauphin Gmbh & Co [1999] NSW SC 595. However if this was done, although the creditor may be entitled contractually to waive the benefit of any later favourable movement in the exchange rate, he may not be entitled under the contract to insist on the Australian dollar amount of the demand if the Australian dollar has depreciated against the foreign currency after the date of the demand. These problems would be avoided if a statutory demand based on a contractual obligation to make payment in foreign currency could be expressed solely in the foreign currency concerned.
36 The question before me arises in the context of the insolvency provisions of Part 5 of the Corporations Law. A decision that the word 'debt' in s 459E does not extend to a foreign currency obligation would suggest that the same word is similarly limited in other provisions of Part 5 - for example, ss 588G (insolvent trading) and 553 (debts provable in winding up). While not attempting to resolve questions of interpretation of those other provisions, I note the implausibility and inconvenience of excluding foreign currency obligations from their scope.
37 However, there may be an obstacle to the view that a demand expressed in foreign currency may qualify as a statutory demand under s 459E, even if one accepts that the obligation is properly characterised as a 'debt' for the purposes of that section. Section 459E(2)(e) requires that the demand must be in the prescribed form. Regulation 1.0.03 of the Corporations Regulations prescribes Form 509H for this purpose. The form provides for the creditor to state that the debtor company owes it 'the amount of $(insert amount)'. Does this have the effect of requiring that the demand must be expressed in Australian dollars?
38 An analogous problem arose in Re Ikin; ex parte Lambourghini Tractors of Australia Pty Ltd (1985) 4 FCR 582, though the case concerned a bankruptcy notice rather than a statutory demand. The Court set aside a bankruptcy notice which simply required payment in a foreign currency. The bankruptcy legislation required that a bankruptcy notice be in accordance with the prescribed form, and the prescribed form had a space for the insertion of an amount after the dollar sign. It was held that the dollar sign was a reference to Australian currency, and consequently that the statute required the bankruptcy notice to state an amount in Australian dollars. The Court rejected a contention that the bankruptcy notice substantially complied with the prescribed form and was therefore sufficient, having regard to a 'substantial compliance' rule which was said to be applicable. It did so for two reasons. First, when the Bankruptcy Act was passed Parliament could not have contemplated that the law with respect to foreign currency judgments, then represented by the Havana Railways case and similar Australian authorities, would be reversed by the House of Lords in the Miliangos case. Since the amount to be stated in the bankruptcy notice was the amount of a judgment, Parliament must therefore have intended that the amount be stated in Australian dollars. Secondly, in the Court's view the debtor could not be assumed to know that he could comply with the notice by paying the Australian dollar equivalent at the time of payment, and consequently the notice failed clearly to state what the debtor was required to do in order to avoid committing an act of bankruptcy.
39 In my view Re Ikin is distinguishable from the present case. Section 459E of the Corporations Law was enacted after the Miliangos case was decided, and after that case had been applied by Australian courts. Parliament must be taken to have been aware of the possibility that a foreign currency judgment may be entered in an Australian court. Furthermore, in my view a debtor presented with a statutory demand for payment of a foreign currency amount in circumstances such as the present, where the demand relates to an agreement which entitles the creditor to be paid in foreign currency, would have no doubt that in order to comply with the demand, it must pay the amount of foreign currency or seek the creditor's acceptance of an equivalent amount in another currency, calculated using the exchange rate applicable at the time of payment.
40 In the Vehicle Wash case, Finkelstein J followed Re Ikin and held that Form 509H assumes that the debt will be specified in Australian currency. He distinguished the earlier statutory notice case of International Factors (Singapore) Pty Ltd v Speedy Tyres Pty Ltd (1991) 5 ACSR 250 on the ground that under the Companies Code in force at the time of that case, there was no prescribed form and the text of the Code did not expressly or impliedly require that the amount of the debt be stated in Australian currency. It followed, in the view of Finkelstein J, that there was a deficiency in the statutory demand. But under s 459J(1)(a) and (2), a statutory demand may not be set aside because of a defect unless the Court is satisfied that substantial injustice will be caused. He held that no such injustice would arise because there was no obligation upon the debtor to convert the foreign currency into Australian dollars before payment, and therefore no lack of clarity as to the amount to be paid.
41 I agree with Finkelstein J's reasoning on the question whether substantial injustice would arise through expressing the demand in foreign currency, and I regard it as directly applicable to the present case. Indeed, it is likely that the same conclusion would be reached whenever the debtor has agreed to make payment in a foreign currency. But it seems to me unfortunate to be forced by the wording of the prescribed form to conclude that the most practically sensible expression of the demand, namely a demand in the foreign currency, is necessarily defective. I note that according to s 109U of the Corporations Law, strict compliance with a prescribed form is not required and substantial compliance is sufficient. If one accepts that a contractual obligation to make payment in a foreign currency is a 'debt' the purposes of s 459E, it is plausible to say that the prescribed form has been substantially complied with by a demand expressed in the foreign currency (compare Liu v Minister for Immigration and Multicultural Affairs (1997) 72 FCR 345; Anscorp Pty Ltd v GRS Nominees Pty Ltd (Federal Court of Australia, Olney J, unreported, 11 March 1994); Help Desk Institute Pty Ltd v Adams (Supreme Court of New South Wales, Young J, unreported, 18 November 1998).
42 On that basis, I conclude that the demand in the present case is a statutory demand for the purposes of s 459E because it is a demand for the amount of a debt, and it is not defective because it substantially complies with the prescribed form. But even if it were defective because it is a demand for payment of foreign currency, no substantial injustice would be caused if it were not set aside. Consequently the plaintiff's challenges to the statutory demand on grounds relating to the fact that it requires payment in a foreign currency are unsuccessful.