FULL COURT

Dominion, Volume 12, Issue 6, 2 October 1918, Page 3

FULL COURT

LOCAL BODIES' LOANS ACT IMPORTANT CASE

The Full Court, had before it yesterday the case of Robert Joseph Collins, of Welliuton, Comptroller and Auditor-Gene'-al, against Arnold Louis .Arrowsmith, Mnyor of Taihape, solicitor, and sewn others. On tho Bench were Jlia Honour the Chief Justice (Sir Robert Stout), His Honour Sir. Justice! Cooper, His Honour Mr. Justice Chapman, and His Honour Mr. Justice Sim. Sir John Salmond, K.C., SolicitorGeneral, appeared for tho AuditorGeneral, and Mr. C. V. Skerrett, K.C, with liini Mr. U. Beere, for Arrowsmith and others. The statement of claim set out that on March 2, 1916, the Taihape Borough Council obtained the authority of the ratepayers to raise a 'peeial loan of £3500' for the purpose of "procuring and supplying a, supplementary plant lor the water and electric lighting works of the borough. The council borrowed from the Bank- of New- Zealand tho sum of £3373 os. Hid., repaying to the bank the amount of an overdraft granted by the bank to one Robert John LoughuMi, Mich expenditure being for o. purposo other than tho purpose for which tho moneys were so borrowed, wherefore tho plaintiff, in pursuance of Section 53 of the Local Bodies' Loans Act, 1913, claimed a penalty of £100 against each of the defendants severally, with costs and such other relief as tho Court may think fit. For the defence tho expenditure of £3373 ss. lOd. was admitted, but tho defendants denied that such expenditure was illegal, or was for a purposo other than the purpose for which the moneys were borrowed, and for a further defence the defendants contended that no notice as required by Section 343 of tho MunieiparCorporations Act, IPOS, was ever given to tho defendants or any of 'them, nor was the action commenced within six months after the sua or thing complained of was alleged to have been done.

Case for tho Plaintiff. •Sir John Salmond. in opening, raid that this was an actiou brought by the Comptroller and Auditor-General against the individuals of the Taihape Borough. Council, in which penalties are claimed under b'cetkm 53 . of tho Local Bodies' Loans Act. There ivas iio dispute ns to the facts. Sir John Salmond was about to refer to the objection raised by the defence as to file action not having been commenced within six months, but Mr. Skerrett intimated that he abandoned that lino of defence.

Sir John Salmond, continuing, said that the members of tho local body had given the Audit Office every information, and all the cards were placed on tho table, but notwithstanding this it was contended by the Audit Office that this was a deliberate attempt to evade the . Local Bodies' Loans Act. fle quoted the case of tho Napier Borough Council v. tho Austraiiau Mutual. Provident Society, when tho Court held that the local body must obtain its authority to raise a loan before it/makes itself liable. _ A local body- cannot construct public works and then borrow money to pay for the works, otherwise the. control of tho ratepayers'would be vitiated. The local body could, not go to the ratepayers to obtain authority for a loan to pay off an overdraft; Mr. Skerrett: This loan was secured for the purpose of purchasing plant, Sir John Salmond: A local body cannot borrow money except for prospective public works; 'it'cannot borrow fcr works already constructed. , 'Counsel then dealt with the facts, and said that the sale of the plant -was a sale of chattels,, and they tried to ■cover this up under a.contract for tho construction of the buildings, etc. It was an ingenious effort at camouflage. Argument for the D&fendant. Mr. C. P. Skerrett. said the action was without merit. It became imperative that additional electric power should be provided before the summer, and certain public-spirited men _ undertook to supply this by way of hire, tho council having tho right of purchase. The whole question was whether tho loan was expended in paying the overdraft owing by Loughnan to the Bank of New Zealand. If the council, having decided to purchase the plant, had paid to Mr. Loughnan a cheque for £3373 ss. 10d., aifd Mr.' Loughnan had paid the cheque to the Bank of New Zealand in payment of the overdraft, would it be contended that there was anything impropei? The money was paid to tho Bank of New Zealand as Loughnan's agent. There could be r.o question as to the liability of the contractors and also of tho guarantors. It was urged as something peculiar that Loughnan was content with bank interest instead of, say, 8 per cent, Loughnan intended the contract to be beiwiicial to the borough, but in any case the matter was one entirely a matter for Loughnan. The matter was irrelevant, for the question involved was'-whether a loan authorised for one purpose had been expended on another purpose. The contract between the council and Loughnan was a very plain one. Loughnan was required to erect buildings and plant on (the freehold property of the council, such buildings and plant to remain the,property of Loughnan until purchased by the council, ithe latter, in the meanwhile to hire the! same. Tho contract between tho parties constituted the buildings and plant as chattels. It was no use &ay 4 iug that this was not a genuine bargain because Loughnan was getting nothing out of it. Loughnan did hot intend to mako anything out of it. Lie intended it to be a beneficial contract lor the borough. AVhat was this loan money paid for r* It was-paid by tho Bank of New Zealand to the corporation on the hypothecation of debentures and' paid by the council to tho Bank of Ivew Zealand, as agent for Lougluiau, for the plant and buildings. Tho Court reserved its decision.