THE INTEREST CHARGES ON LOAN INSTALMENTS.

Manawatu Herald, Volume XXXVI, Issue 1214, 28 February 1914, Page 3

THE INTEREST CHARGES ON LOAN INSTALMENTS.

IMPORTANT TO LOCAL BODIES.

BEFORE THE NEW ACT AND AFTER.

INTEREST RATE CAN BE

RAISED

A decision of great importance to local bodies was given by the Chief Justice (Sir Robert Stout) in the Supreme Court at Wellington on February 10th. The case involved the question whether the New Zealand State Guaranteed Advances Amendment Act, 1912, is, or is not, retrospective regarding interest charges on loans to local bodies. The action is a test case to ascertain the position of local bodies who were actually receiving loans from the State Advances Department on the instalment system when the amending Act came into force. Is the rate of interest now subject to alteration ?

The action was taken by the Whangarei Borough Council against the Superintendent of the New Zealand State Guaranteed Advances Office. The borough asked for a declaratory decree (a) that Section 2 of the Act of r9i2 does not entitle the Department to increase the rate of interest on the third instalment of a loan from 3)4 per cent, per annum to 4 per cent, per annum ; (b) that the Whangarei borough is entitled to have the remaining instalments of its loan advanced at the rate of Interest agreed upon when the loan was granted, namely, per centum per annum.

The parties had agreed to a special case, and the hearing took place on December 17th. far C. P. Skerrett and Mr Fell appeared for the Whangarei Corporationand Mr J. W. Salmond, Solicitor, General, for the State Advances Department. Til® ORIOINAT, ROAN TERMS. In the course of his judgment, His Honour said the question really was ; rt Have the Whaugarel Borough Council the right to get the loan they applied for, and which the Board and the Commissioner sanctioned, on the terms agreed to, or have the statutes provided that the Government must repudiate an agreement made and grant a loan on new or other terms different from those formerly agreed to?” The loan was applied for on February and, 191 x, and granted on February 15th. The terms and conditions agreed to were: —

(a) The amount of the loan to be ,£19,200. (b) The term of the loan to be years. (c) The race of interest to be 3d per centum per annum. "(d) The loan to be secured by a special rate of twenty-five; thirtieths of a penny in the pound over the whole of the borough of Whangarei. (e) All statutory and other proceedings necessary for raising the loan to be duly taken, WHAT IS THE POSITION NOW ? Only two instalments on the loan had been paid when the 19 12 Act passed. After quoting the 1912 amendment, His Honour said that no doubt the Court ought not to assume that the Legislature would seek to vary an existing contract, or repudiate an existing agreement. If a wong had been done it was for the Legislature to grant a remedy; the Court was powerless to do so. He was forced to the conclusion that the words of the statute varied the existing contract. “And,” he continued, “as if conscious that a wrong had been done to a local body, which, if it had been between citizens, would have led to an action for damages for breach of contract, the Legislature has passed Sub-section 2 of Section 3, which is as follows :

A local authority shall have no right of action against the Suberintendent for breach of contract or otherwise in respect of the failure of the Superintendent to advance to that local authority any moneys at the rate of interest at which the application for such moneys was finally granted by the Board.

“The legislature, in fact, says” (His Honour continued) “it it has provided that the Superintendent shall repudiate a loan on the terms granted, and thus a breach of contract has been committed, nevertheless a local authority shall have no right of action against the Commissioner. Since this action was commenced there has been passed a further statute dealing with advances. It came into force only on December 4th, 1913 —the Local Bodies Loans Act, 1913, No. 30. It has made a further change in the law.” Here his Honour quoted Sectipn 68 of the 1913 Act, which is :

“The rate of interest charged

shall be 4! per centum per annum, or one-eighth per centum per annum more than the rate at which the money was raised (whichever is the greater). In calculating the last-mentioned rate ot fees, com-

missions, discounts, and other charges connected with the raising shall be included. This paragraph shall apply to all loans, or to any part thereof, paid to a local authority on or after the commencement of this Act whether the application for such loan was finally granted before or after that date. Nothing in this paragraph shall affect the rate of interest payable on any loan or part of a loan paid to a local a uthority after the passing of the New Zealand State Guaranteed Ad-

vances Amendment Act, 1912, and before the passing of this Act.”

WHANGAREI COUNCIL HAS NO legal redress.

The words—“this paragraph shall apply to all loans, or to any part thereof, paid to a local authority on or after the commencement of this Act, whether the application for such loan was finally granted before or after that date”—did not seem to His Honour to leave any doubt as to what was meant. “I am of opinion,,’ he concluded, “that the Whangarei Borough Council is without legal redress agaiust the Superintendent. No doubt the Borough Council is not, however, without remedy if it has suffered any injury, as it can apply to the legislature, which has altered the arrangement made between the plaintiff corporation and the Advances Office, and the Legislature has ample power to grant redress. It is not necessary lor me to consider the matter from the point of view urged by the SolicitorGeneral, namely, that the giving of loans to local bodies is a benefaction, and consequently no local body can claim any relief from a refusal to lend as the loan is a mere gift. That the legislature will 110 doubt consider if the plaintiff seeks relict from it.”