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Beru LGC v Government Auditor [1974] KIHC 1; 1974 KILR 120 (14 March 1974)

[1979] KILR 120

HIGH COURT OF THE WESTERN PACIFIC

High Court Civil Appeal No 1 of 1974

IN THE MATTER OF AN AUDIT SURCHARGE AGAINST
MEMBERS OF THE BERU LOCAL GOVERNMENT COUNCIL

BERU L.G.C.

v

THE GOVERNMENT AUDITOR HIGH

(Bodilly C.J.)

Bairiki: 14th March 1974

Civil appeal - over expenditure by local Council - surcharged by Government Auditor - appeal against surcharge - discretion of Councillors - discretion to be reasonably exercised - liability of Councillors to refund money improperly spent - Local Government Ordinance 1966 (now Cap 19) section 69(1)(a) - no bad faith - standard of reasonableness is local standard - over-expenditure contrary to law and recoverable - "item of expenditure" - "item expendable" - whole sum or only part may be recovered - amount calculated on "quantum meruit" - only Councillors who voted in favour of over-expenditure to be surcharged - appeal dismissed.

The facts are clearly set out in the Judgment.

HELD: That Local Councils have a discretion in the expenditure of public funds under their control, but that the discretion must be reasonably exercised. That they are liable to be surcharged under section 69 of Cap 19 for expenditure of monies contrary to law. That, even applying the standard which would be reasonable for a local Gilbertese Councillor, the Councillors acted with gross stupidity and quite unreasonably and the over-expenditure of $1675.20 was contrary to law. That any unreasonable and unnecessary expenditure of whatever amount is contrary to law and recoverable. That the amount surcharged was a generous quantum meruit and very reasonable. That only the Councillors who voted in favour of the over-expenditure ought to be surcharged with it.

Authorities referred to:-

Local Government Ordinance Cap 19 Section 69(1) (a)

Local Government Act (U.K.) 1933

Roberts v Hopwood (1925) A.E.R. 24

Davis v Cauperthwaite (1938) A.E.R. 685

Mr Ian Richardson, for the Appellants
Mr John Hobbs, Attorney General, for the Government Auditor.

BODILLY C.J.:- This is an appeal by the members of the Beru Local Government Council against a surcharge imposed upon them jointly and presumably severally by the Government Auditor under section 69(1) (a) of the Local Government Ordinance, 1966 (No. 5 of 1966). Section 69 of the Ordinance is taken from the corresponding provision of the English Local Government Act 1933. This Court has therefore the benefit of English decisions concerning the true construction of the various provisions contained in the section.

2. The law is clear. Roberts v Hopwood (1925 AER 24) is perhaps the leading case upon the liability of Councillors to refund money improperly spent. Local Councils have a discretion in the expenditure of public funds under their control. But that discretion must be reasonably exercised. If they disburse public funds unreasonably and unnecessarily then they are exceeding the limits of that discretion and become liable to reimburse the money so spent for such expenditure in contrary to law. Bad faith is not a necessary element. The public purse is entitled to protection against the ravages of honest stupidity and unpractical idealism as much as against deliberate peculation. Section 69 of the Ordinance provides one of the methods of recovering money misspent, namely by summary surcharge of the amount in question against the persons at fault.

3. In the present case the Attorney General does not suggest that there was any question of bad faith. But what he does say is that on the face of it the Councillors who voted at the end of the debate in favour of paying the bill without any enquiry as to its accuracy were acting unreasonably in the circumstances because it must have been obvious to the meanest intelligence that the bill was inaccurate and unreasonable. As a matter of law, there having been no agreement for the hire of the tractor in the first place the amount to be paid was a question of quantum meruit. Therefore it was proper and prudent for the Council to have opened negotiations with the hirer. As I have already pointed out this was a matter which the Council actually debated. On the other hand Mr Richardson appearing for the Councillors says that it is all very well to talk about English law and the standard to be applied in similar cases occurring in England. He says that here Councillors have not the personal experience nor the facilities such as qualified executive, engineering and legal staffs to advise them as have their counterparts in England. And therefore, if I understand him correctly, he says that in the absence of established bad faith they should not be held liable. I have given careful thought to this matter and I agree with Mr Richardson that it would be improper to judge a local case upon the basis of what would be reasonable on the part of a local councillor in England. I think that the standard to be applied is what would be reasonable on the part of a local Gilbertese Councillor; and in considering this point that is the standard which I have applied. Nevertheless, as I think I have already indicated, it seems clear to me that, if these councillors in fact acted bona fide and without improper ulterior motive such as benefiting their local Cooperative Society, then they acted with gross stupidity and quite unreasonably in the interests of the public purse which it was their duty to protect.

4. Therefore, I find that the over-expenditure, whatever it might have been in this case, was contrary to law. Mr Richardson, however, has raised a further point of a more technical nature. He says that the meaning of the words "item of expenditure" as used in section 69(1) (a) of the Ordinance must be read as synonymous with "item expendable". He says the Auditor must either surcharge the whole amount of $3000 as being the amount at the Council's discretion under the relevant head or none at all. I cannot accept that argument. The purpose of the section is the recovery of money improperly expended and it matters not whether it is the whole of the sum within the council's power to spend or only part of it. Any unreasonable and unnecessary expenditure of whatever amount is contrary to law and recoverable.

5. In the result I find that the Councillors are liable to refund any unreasonable over-expenditure in this case.

6. Before considering the application of section 69 it is necessary to consider the facts out of which the surcharge has arisen. There is extremely little evidence before this court as to what exactly did happen but I shall do my best to set out the facts as I can see them.

7. The Beru Local Government Council is a Council constituted under the Local Government Ordinance 1966 and by its warrant one of its duties was the maintenance and repair of a certain causeway, known as the Lady Field causeway. In 1973 that causeway was in need of repair. It would appear that the repairs required were quite substantial. The Civil Engineer to the Gilbert and Ellice Island Development Authority has given evidence before this Court that a gang of twelve men and a tractor working twenty four hours round the clock, he reckons, would have taken about fourteen days to complete the work. So the work required was considerable. In the estimates for the year 1973, to meet the cost of the work, the Central Government allocated to the Beru Local Government Council a grant of $3000. What did the Council do? One is tempted to say that they did what one would expect. They got on with the work in an extremely dilatory manner. They started the work some time in January and finished it with a remarkable burst of last-minute energy on the 15th June just in time for the Queens Birthday celebrations of that year. Apparently it was convenient locally that the work should be completed by them. It is important to note in justice to the Councillors that they seem to have given some thought to the limitations of the public purse in that they arranged that the local people should donate their labour free to the carrying out of the project. That was admirable. However, they then needed a tractor. So they acquired one. It was the tractor belonging to the Beru Cooperative Society. Here the troubles began. There is no evidence whatever as to what arrangement if any they made with the Cooperative Society for its use. The Attorney General suggests that none was made. It appears that they just used the tractor as and when they wanted it without a thought to what it might cost them. Certain it is that neither the then Island Executive Officer, whose primary duty of course it was, nor anyone else, made any effort to keep a record of when the tractor was on hire and when it was not. So matters continued until the work was finished when the day of reckoning came. The Cooperative Society sent in their bill claiming the sum of exactly $3000 for tractor hire worked out on an hourly basis. It is to be noted that the sum claimed is exactly the amount of the grant given by Central Government for the whole work - neither a cent more nor a cent less. It must have been perfectly clear that the bill was a fabricated bill. It could only be by a chance in a million that the calculation of hours hire after about 5 months work should precisely equal the amount of money allocated for the work. It is also clear that there was no suggestion of a lump sum agreement being entered into initially because the bill is expressed in days and hours worked per month. It is clear that the number of days and hours worked bears no relation to what use was actually made of the tractor. The bill had been made up with the sole purpose of relieving the Council of the total amount budgeted. Faced with that situation what did the Council do? They discussed the matter in Council. There is evidence that one of the members at least strongly objected to meeting the bill without further enquiry as to its accuracy. It is clear therefore that the issue did not go by default. The attention of all of the Councillors was directed to it. There is evidence that the Island Executive Officer offered his advice to the same effect. But nevertheless the majority of the Council approved the payment and so the Cooperative Society succeeded in getting away with the money.

8. In due course the accounts of the Council were audited by the Government Auditor and the matter was looked into. It was clear to the Auditor that the bill was incorrect and so he made the best enquiry he could in the circumstances and came to the conclusion that the Council had unreasonably and unnecessarily disbursed the sum of $1675.20. He surcharged the members of the Council jointly with that amount. That figure is largely a matter of guesswork but I shall deal with that later in this judgment.

9. That brings me to the amount which the Auditor has surcharged against the Councillors, namely $1675.20. There has been no objection raised as to that figure. It is based upon a calculation of the number of days charged by the Cooperative Society based upon a 12 hours day as opposed to a 24 hours day. The evidence as to what would be a proper figure for the hire is of the thinnest. The Gilbert and Ellice Island Development Authority civil engineer, Mr Moorby, has said that the work could be done on a 24 hour basis in about fourteen days. That would amount to 336 hours tractor hire, or $537.60. On the other hard he says that there are only two hiring rates in the Colony namely an hourly rate and a monthly rate. The monthly rate he says is $207 per month. If this tractor had had been hired by the month for the whole of the six months January to June inclusive the sum would amount to $1242. If it was hired, as the Society has charged, at an hourly rate, then says the engineer the working day is taken as a 12 hours day. Allowing for a 12 hour hiring on all of the days charged by the Society (which seems open to question) that figure comes out at 838 hours (not 828 as the engineer calculated) or $1340. The evidence makes it clear that although for a few days in June work continued during the night, for the rest of the time the working day was very short. The men were working free of charge and they came on duty and left as time suited them. In the absence of any better evidence as to the actual time when the tractor was on hire it seems to me that 838 hours is a remarkably generous figure and certainly a generous quantum meruit. I do not find that the Auditor has been unreasonable in the amount surcharged. He might well have surcharged considerably more.

10. That brings me to the last point. The Auditor has surcharged all of the Councillors jointly with the sum of $1675.20. Mr Richardson points out, and rightly, that only those councillors who voted in favour of the over expenditure ought to be surcharged with it. I accept that proposition. (Davis v Cauperthwaite) (1938 AER 685). I am told that those who voted for or against the motion can be ascertained.

11. For the above reasons the appeal is dismissed subject to the direction that the sum of $1660.00 shall be surcharged jointly and severally against only those members of the Beru Local Council who voted in favour of the expenditure.