Attorney General v Tito [2007] KICA 14; Civil Appeal 09 of 2007 (30 July 2007)

IN THE KIRIBATI COURT OF APPEAL
CIVIL JURISDICTION
HELD AT BETIO
REPUBLIC OF KIRIBATI

Civil Appeal No. 9 of 2007

BETWEEN

ATTORNEY GENERAL in respect of
THE REPUBLIC
Appellant

AND

TEBURORO TITO
Respondent

Before: Hardie Boys JA
Tompkins JA
Paterson JA

Counsel: David Lambourne, Solicitor-General, for appellant
Karotu Tiba for respondent

Date of Hearing: 26 July 2007
Date of Judgment: 30 July 2007

JUDGMENT OF THE COURT

[1] This appeal from a judgment of the Chief Justice delivered in the High Court on 19 June 2005 raises a question of major constitutional and administrative importance. The issue is whether the Chief Justice was right in law to make the following Declarations:

That the government’s actions in financing the 2006 Recurrent Budget with an interest bearing overdraft facility on its No. 1 Account with the Bank of Kiribati without prior approval of the Maneaba ni Maungatabu through the Appropriation Act 2005 relating to the 2006 Recurrent Budget are unlawful;

That the actions of the Government in paying the interest on the overdraft facility as agreed between the Government and the Bank of Kiribati out of the Consolidated Fund, an expenditure not provided for in the Appropriation Act 2005 relating to the 2006 Recurrent Budget, are unlawful.

The relevant statutory provisions

[2] The Chief Justice’s decision was based on his understanding of the interaction between provisions of three enactments, the Constitution, the Government Borrowing and Guarantee Ordinance 1973 (Cap.39) and the Public Finance (Control and Audit) Ordinance 1976 (Cap.79). We set out the relevant provisions of each.

The Constitution

[3]

s.107(1) There shall be in and for Kiribati a Consolidated Fund into which, subject to the provisions of any law in force in Kiribati, shall be paid all revenues of the Government .......

s.108 (1) No money shall be issued from the Consolidated Fund except upon the authority of a warrant under the hand of the Minister of Finance.

(2) No warrant shall be issued by the Minister of Finance for the purpose of meeting any expenditure unless -

- the expenditure has been authorized for the financial year during which the issue is to take place by an Appropriation Act; or

- the expenditure has been authorized in accordance with the provisions of section 109(4), ------ of this Constitution; or

- it is statutory expenditure.

s.109(1) The Minister of Finance shall cause to be prepared and laid before the Maneaba ni Maungatabu before or not later than sixty days after the commencement of each financial year estimates of the revenues and expenditure of the Government for that year.

The heads of expenditure contained in the estimates (other than statutory expenditure) shall be included in a Bill to be known as an Appropriation Bill which shall be introduced into the Maneaba to provide for the issue from the Consolidated Fund of the sums necessary to supply those heads and the appropriation of those sums for the purposes specified therein.

If in respect of any financial year it is found that the sum appropriated by the Appropriation Act for any purpose is insufficient or that a need has arisen for expenditure for a purpose for which no sum has been appropriated by that law, a supplementary estimate showing the sums required shall be included in a Supplementary Appropriation Bill for appropriation.

Where in respect of any financial year the Minister of Finance is satisfied that an urgent and unforeseen need has arisen to authorize for any purpose advances from the Consolidated Fund for expenditure in excess of the sum appropriated for that purpose by an Appropriation Act, or for a purpose for which no sum has been so appropriated, he may, subject to the provisions of any law in force in that regard, authorize such advances by warrant and shall include such amount in a Supplementary Appropriation Bill for appropriation at the meeting of the Maneaba next following the date on which the warrant was issued.....

s.112 (1) There shall be charged on the Consolidated Fund all debt charges for which the Government is liable.

s.116 (b) "Statutory expenditure" is expenditure charged on the Consolidated Fund by virtue of the provisions of this Constitution or by virtue of any provision of any other law in force in Kiribati.

The Government Borrowing and Guarantee Ordinance

[4]

s.2 Authority to raise loans

Subject to the provisions of this Ordinance the Beretitenti, acting in accordance with the advice of the Cabinet, may raise loans within or outside Kiribati.

s.3. Purposes and application of loans

Money borrowed under section 2 shall be duly applied for such purpose or purposes as may from time to time be approved in relation thereto by the Maneaba ni Maungatabu.

The Public Finance (Control and Audit) Ordinance:-

[5]

s.2......."public moneys" include –

all revenue or other moneys raised or received for the purposes of the Government;

any other moneys or funds held, whether temporarily or otherwise, by any public officer in his official capacity either alone or jointly with any other person, whether a public officer or not.....

s.4.... all revenues and other moneys raised or received for the purpose of the Government shall be paid into the Consolidated Fund....

s. 9(1) The provisions of this section take effect for the purposes of section 109(4) of the Constitution.

Upon being satisfied that due to exceptional circumstances which could not have been foreseen an urgent need for expenditure has arisen –

- for which no provision exists or for which the existing provision is insufficient; and -----

- which cannot be deferred without detriment to the public interest;

the Minister may by a Contingencies Warrant under his hand and in anticipation of the grant of an appropriation by the Maneaba ni Maungatabu authorize an advance from the Consolidated Fund to meet that need and shall, forthwith, report his action and the reasons therefore to the Cabinet:

Provided that the total of the sums so authorized to be advanced in anticipation of the grant of an appropriation shall not exceed at any one time an amount of $1,000,000.

Where any advance is made from the Consolidated Fund under the provisions of this section a supplementary estimate of the sum required for the service for which such advance was made shall be presented to the Maneaba ni Maungatabu as its sitting next following the date on which the Contingences Warrant was issued and shall be included in a Supplementary Appropriation bill for appropriation....

s. 22(1) The Republic shall not borrow money except in accordance with the provisions of a written law.

The powers conferred by any general or specific Loans Ordinance or by an Appropriation Ordinance to borrow money by means of advances from a bank or from the Crown Agents may be exercised by means of a fluctuating overdraft or by borrowing on loan account and in any case either upon the security of assets charged or against a guarantee or unsecured.

Except as otherwise provided by or under any other law for the time being in force any money borrowed by the Republic shall be paid into and form part of the Consolidated Fund or such other public fund as the Minister may in each case designate and shall be available in any manner in which the Consolidated Fund or such other public fund, as the case may be, is available.....

Except as otherwise provided by or under any other law for the time being in force the principal money and all interest and other charges on any money borrowed by the Government, ----- shall be charged upon and paid out of the Consolidated Fund or such other public fund of Kiribati as the Minister may in each case designate without further appropriation than this Ordinance.

The relevant facts

[6] The Court was informed that the Government maintains a number of accounts with the local trading bank, relevantly the Number One Account which holds the Consolidated Fund and the Number Four Account which holds the Development Fund. For many years there was an arrangement with the bank that the Number One Account could operate in overdraft to ensure that necessary expenditure would not be impeded by fluctuations in revenue. Interest was offset against interest payable by the bank on the Number Four Account. Until about 2003, the overdraft was relatively small, but in that year there was a change in Government policy and in the arrangement with the bank whereby the overdraft increased greatly but the offset of interest was no longer available, with the result that the Government now had to pay interest on the overdraft, although it now received interest on the full amount in the Number Four Account. This change was introduced without parliamentary approval either for the increased borrowing or for the incurring and payment of interest. The present proceedings are a challenge to the government’s actions.

[7] In his submissions, Mr Tiba referred to certain events that he said demonstrated "self admission" and "a deliberate manoeuvre" on the part of the Government. This submission was quite inappropriate, for the issue in this case is solely one of statutory interpretation and no question of good faith or inconsistent conduct is in any way relevant.

The High Court Judgment

[8] In the High Court, the Solicitor-General, for the Republic, relied on section 2 of the Government Borrowing and Guarantee Ordinance as giving the Government unlimited power to borrow, provided that the money borrowed is used for purposes approved by the Maneaba ni Maungatabu, as required by section 3.

[9] The Chief Justice however took a different view, placing his emphasis on section 22 (1) of the Public Finance Ordinance: "The Republic shall not borrow money except in accordance with the provisions of a written law". He saw a link, "more a union of the two than a mere link" between section 22(1) and section 2 of the Borrowing and Guarantee Ordinance. Noting that the latter was made in 1973 and the former in 1976, the Chief Justice invoked the principle of statutory interpretation "Leges posteriores priores contrarias abrogant" (later laws abrogate earlier contrary laws) he held that the application of this principle meant that to the extent that there is a conflict between the two ordinances, the later in time prevails: "Section 22 (1) of the Public Finance Ordinance at least amends section 2 of the Borrowing and Guarantee Ordinance even if it does not implicitly repeal it altogether." The intention, he said, is to control the power of the Government to borrow.

[10] The Chief Justice’s conclusion was therefore that "the Government does not have unlimited power to borrow but may borrow only ‘in accordance with the provisions of a written law’". He did not say what that provision might mean in the context of this case, but instead turned to the last phrase of section 22 (4) of the Public Finance Ordinance "without further appropriation than this Ordinance" which he held to be invalid, as contradictory to section 109 of the Constitution.

[11] His overall conclusion on the case was put in this way:

"There is a contradiction between the Ordinance and the Constitution. The payment of interest is expenditure. Section 22(5) says "without further appropriation than this Ordinance". Section 109 requires inclusion of expenditure in the estimates: it is an unqualified requirement. The contradiction is to be resolved in favour of the Constitution.

The requirement to raise money by way of an overdraft in the coming year may either be anticipated when the annual estimates of revenue of expenditure are being prepared or alternatively may arise during the year.

If the first, the anticipated payment of interest should be included as a head of expenditure pursuant to section 109(1) of the Constitution. If the second alternative it should be included in Supplementary Estimates and Appropriation Bill pursuant to section 109(3) or (4) of the Constitution.

To comply with section 9 of the Public Finance Ordinance which itself is expressed to "take effect for the purposes of section 109(4) of the Constitution" the Government should report to Parliament, by way of the Estimates and Appropriation Acts the overdraft and the interest payable on it. Otherwise it is not following either the spirit or the letter of the Constitution which echoes long standing principles of parliamentary control over government finances".

Decision on points of law not argued

[12] One of Mr Lambourne’s grounds of appeal was that the Chief Justice had reached these conclusions on grounds that had not been raised by counsel on either side at the hearing. He informed the Court that the question of implied repeal had not been argued, nor had it been contended that there was a conflict between s.22 of the Public Finance Ordinance and the Constitution.

[13] It is a well established principle that although a trial judge is not bound to determine the law on the basis put to him by counsel, and so is entitled to apply the law as he determines it to be, he is under an obligation first to inform the parties so that they may address any new issues that may arise: see Pantorno v R [1989] HCA 18; (1989) 166 CLR 466 per Mason CJ and Brennan J at 473. A failure to do this will ordinarily result in a denial of procedural fairness: Seltsam Pty Ltd v Ghaleb (unreported) New South Wales Court of Appeal, 1 September 2005 at 78-9 per Ipp JA with whom Mason J agreed.

[14] As will be seen, it is unnecessary to decide the appeal on this ground. But the problems that can arise if counsel are not informed of the approach the judge intends to take are highlighted here in relation to the first of the two issues upon which this case turns.

The principle of implied repeal

[15] It is not to be readily assumed that Parliament had deliberately or unwittingly contradicted itself. Indeed, there is a very strong presumption that it has not: Butler v Attorney-General for Victoria [1961] HCA 32; (1961) 106 CLR 268 per Fullager at 276.Before coming to the conclusion that there is a repeal by implication the Court must "be satisfied that the two enactments are so inconsistent or repugnant that they cannot stand together": Craies on Statute Law 4th ed., 303, adopted by Barton J in the High Court of Australia in Goodwin v Phillips [1908] HCA 55; (1908) 7 CLR 1 at 10.

[16] The Chief Justice invoked this principle in the belief that the Public Finance Ordinance was a later enactment than the Borrowing and Guarantee Ordinance. But Mr Lambourne drew to our attention the fact that as its long title shows this Ordinance has a history going back to 1971, with later enactments being consolidations and amendments. The section central to this part of the case, s. 22, is to all relevant intents and purposes a re-enactment of s.29 of the Public Finance (Control and Audit) Ordinance 1971 Cap 49, framed of course in the context of the pre-independence administration. There is therefore no basis for invoking or need to resort to the concept of implied repeal.

[17] Therefore, reading the enactments in proper sequence of time, we see that the Public Finance Ordinance requires (s.22 (1)) that the Republic may not borrow except in accordance with a written law, and that the Borrowing and Guarantee Ordinance, being a written law, provides the necessary authority by virtue of s.2: the Beretitenti, acting in accordance with Cabinet advice, may raise loans within or outside Kiribati. This is not an untrammeled authority, for there is cabinet control, and the money borrowed may be used only for purposes "approved in relation thereto" by the Maneaba ni Maungatabu: s.3. We agree with Mr Lambourne’s submission that this enables borrowed money to be applied to any purposes approved in the annual Appropriation Act, it not being necessary to identify which of those purposes are being funded from revenue and which from overdraft.. Indeed, with a fluctuating overdraft, and irregular revenue, that would not be possible.

[18] Subsection (2) of s. 22 of the Public Finance Ordinance does not itself confer the power to borrow, but once a general or specific Loans Ordinance or an Appropriation Ordinance confers the power to borrow by means of advances from a bank, that power may be exercised by means of a fluctuating overdraft. Section 2 of the Borrowing and Guarantee Ordinance is a general Loans Ordinance, and so s.22 of the Public Finance Ordinance authorises the kind of arrangement that is the subject of dispute in this case.

Inconsistency with the Constitution

[19] As already noted, the Chief Justice saw a conflict between s.109(1) of the Constitution, which requires estimates of revenues and expenditure to be laid before the Maneaba ni Maungatabu (and of course the payment of interest on borrowings is an expenditure) and s. 22(5) of the Public Finance Ordinance which relevantly declares that interest on borrowings, as well as the repayment of principal, may be charged upon and paid out of the Consolidated Fund "without further appropriation than this Ordinance." Mr Lambourne submitted that in coming to this conclusion, the Chief Justice failed to appreciate the difference between budget estimates and an appropriation act.

[20] The distinction becomes significant when it is appreciated that the payment of interest on a properly authorised loan may be "statutory expenditure." That expression is defined in s. 116 (b) of the Constitution as "expenditure charged on the Consolidated Fund by virtue of any of the provisions of this Constitution or by virtue of any provision of any other law in force in Kiribati." S. 112 (1)declares that all debt charges for which the Government is liable shall be charged on the Consolidated Fund, while subs. (2) of that section defines "debt charges" to include interest on and the repayment of debt secured on the revenue of the Government or the Consolidated Fund. In addition, subs (5) of s. 22 states that borrowed money and the interest thereon "shall be charged upon and paid out of the Consolidated Fund." It goes on to speak of any other public fund of Kiribati, but whatever the position may be in such a case, the interest on the bank loan in the present case is clearly statutory expenditure.

[21] This leads to two consequences. First, the Minister of Finance may issue a warrant for the payment of interest on the overdraft under S.108 (2) (c) of the Constitution. The payment does not require authorization by an Appropriation Act under S.108 (2) (a). Secondly, while interest to be incurred in the coming year must be included in the estimates to be laid before the Maneaba ni Maungatabu under s. 109 (1), being statutory expenditure it is expressly excluded by s. 109 (2) from the requirement that subsection otherwise makes for the heads of expenditure contained in the estimates to be included in the Appropriation Bill.

[22] It is common practice for certain kinds of expenditure to be excluded from the necessity of an annual appropriation. Examples are to be found in sections 104 (pensions) and 113 (principal officers of state) of the Constitution. The reason is obvious. There are certain commitments the state or a Government undertakes which should not be open to the possibility of political interference in the normal process of the consideration of an appropriation act. As Government borrowing creates a contractual obligation on the state these same considerations apply to it.
Conclusions

[23] To summarise: the Government, acting for the Republic, is entitled to borrow in accordance with a written law: Public Finance Ordinance s.22 (1); s. 2 of the Borrowing and Guarantee Ordinance is such a written law; borrowing by way of overdraft arrangement with the bank is authorised by s. 22(2) of the Public Finance Ordinance; borrowed moneys must be paid into the Consolidated Fund: Public Finance Ordinance s.4; interest and principal repayments are statutory expenditure and as such must be brought into the annual estimates but are not to be included in the Appropriation Bill: Constitution ss 108 (c) and 109 (1) and (2); the payment of principal and interest is authorised by s. 22(5) of the Public Finance Ordinance.

[24] It follows that the challenge to the legality of the Governments actions cannot be sustained. The appeal is therefore allowed. The declarations made in the High Court are set aside. Quite properly, Mr Lambourne did not ask for costs, this being a matter of public importance.

Hardie Boys JA
Tompkins JA
Paterson JA