An Important Case.

Taihape Daily Times, 3 October 1918, Page 4

An Important Case.

UNDER LOCAL BODIES’ LOANS ACT. ACTION AGAINST EX-TAIHAPB BOROUGH COUNCIL. 1 ■ The Full Court at had before it on Tuesday the case of Robert Joseph Collins, of Wellington, Comptroller and Auditor-General, against Arnold Louis Arrowsmith, Mayor of Taihape, solicitor, and seven, others. On the Bench were His Honour the Chief Justice (Sir Robert Stout), His Honour Mr. Justice Cooper, His Honour Mr. Justice Chapman, and Hie Honour Mr. Justice Sim. Sir John Salmond, K.C., SolicitorGeneral, appeared for the AuditorGeneral, and Mr. C. P. Skerrett, K.C., with him Mr. O. 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 special loan of £3500 for the purpose of procuring and supplying a supplementary plant for the water and electric lighting works of the Borough. The Council borrowed from the Bank of New Zealand the sum of £3373 5s 10d., repaying to the Bank the amount of an overdraft granted by the bank to one Robert Loughnan, such expenditure being for a purpose other than the purpose for which the moneys were so borrowed, wherefore the plaintiff, in pursuance of Section 53 of the Local Bodies’ Loans Act, 1913, claimed a penalty of £IOO against each of the defendants severally, with costs and such other relief as the Court may think fit.

For the defence the expenditu-M of: £3373 5s lOd w r as admitted, but the defendants alleged that such expenditure was illegal, or was for the purpose 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 the Municipal Corporations Act, 1908, w y as ever given to the defendants or any of them, nor was ■ the action commenced within six; months after the act or thing com--plained of was alleged to have beerv.o done, . . ■ i? o CASE FOR THE PLAINTIFF; n.I Sir John Salmond, in opering, said' ' that this was an action brought by the Comptroller and Auditor - General against the individuals of the Taihape . Borough Council, in which penalties are claimed under Section 53 of the Local Bodies’ Loans Act. Tbcrevwnano dispute as to the facts. ASir'Johif Salmond was about to refer to the objection raised by the defence as; to the . action not having been commenced within six months, but Mr. Skerrett intimated that he abandoned that line of defence . •’ ■ : ‘ <. -t; Sir John Salmond, continuing, said.-,, that the members of the local body ; . had given the Audit Office every infer-- - mation ,and all the cards were , placed .-, on the table, but notwithstanding this r it was contended by the Audit Officethat this w T as a deliberate attempt s to evade the Local Bodies’ Loans Act.. He quoted the case of the Napier Borough Council v. the Australian Mutual Provident Society, when the Court held that the local botiy must obtain its authority to raise a loan before it makes itself liable. A local body cannot construct public w r orks and then borrow r money to pay for the works, otherwise the control of the 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.

I Sir John Salmond: A local body cannot borrow mo a- y except for prospective public works; it cannot borrow for 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 the construction of the buildings, etc. It was an ingenious effort at camouflage. ARGUMENT FOR THE DEFENDANT 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, the council having the right of purchase. The whole question was •whether the 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 5s 10d„ and Mr. Loughnan had paiff thecheque to the Bank of New Zealand in payment of the overdraft, would it be contended that there was anything' improper? The money was paid to the Bank of New Zealand as Loughnan’s agent. There could be no question as to the liability of tT»* contract ors and also of the guarantors. IPwas urged as something peculiar that Loughnan was content with bank interest instead of, say, 8 per Cent. Loughnan intended the contract b&

beneficial to the borough, but in any case the matter was one entirely for Loughnan, The matter was irrelevant, for the question involved was whether a l6an authorised for one purpose had been expended on another purpose. The contract between the council and (Longhnan was a very plain one. was required to erect and plant on the freehold property of such buildings and plant to remain the property of Loughnan until purchased by the council, the latter in the meanwhile to hire the same. The contract beA tween the parties constituted the boilings and plant as chattels. It was no use saying that this was not a genuine bargain because Loughnan was getting nothing out of it. He intended it to be a beneficial contract for the borough. What was this loan money paid for? It was paid by the Bank of New Zealand to the corporation on the hypothecation of debentures and paid by the council to the Bank of New Zealand, as agent for Loughnan, for the plant and buildings. The Court reserved its decision.