ABE v Minister of Finance [1994] SBHC 90; [1994] 2 LRC 10 (4 October 1994)

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(1) Constitutional law - Executive powers - Parliamentary control - Public finances - Government borrowing - Requirement of prior parliamentary approval - Payment into Consolidated Fund - Legislation providing for government appropriation of moneys for expenditure - Nature of legislative provisions - Constitution, ss 100, 105(3) - 1994 Appropriation Act 1993, ss 4, 5, Schs 1, 2.

(2) Constitutional law - Executive powers - Parliamentary control - Public finances - Government borrowing - Borrowing by means of issue of treasury bonds and securities - Evidence that borrowing exceeding limit fixed by statute - Whether ultra vires - Whether contrary to Constitution - Constitution, s 105(3) - Government Loans and Securities Act 1979 - 1994 Appropriation Act 1993, ss 4, 5.

(3) Constitutional law - Executive - Ministerial responsibility - Cabinet government - Alleged breach of duty by minister - Whether declaration appropriate.

Government borrowing was limited by s 105(3) of the Constitution to be in accordance with provisions prescribed by Parliament. Moneys borrowed were paid into and formed part of the Consolidated Fund under s 27(2) of the Public Finance and Audit Act 1978. Sections 3 and 4 of the Government Loans and Securities Act 1979 provided for the manner in which government raised loans and issued securities. After the enactment of the 1994 Appropriation Act in December 1993, Parliament authorised the issue from the Consolidated Fund of the sum of $SI298,140,998, of which $204,620,725 was for recurrent and $93,520,273 was for development expenditure, for the year ending 31 December 1994. The plaintiff claimed that there was evidence that the government acted without parliamentary authority, and therefore unlawfully, by exceeding its domestic borrowing requirement for the year ending December 1994. In an action in the High Court he sought declarations, inter alia, that the government contravened the maximum sums prescribed in ss 4 and 5 of the 1994 Appropriation Act 1993, and s 105(3) of the Constitution.

HELD: Declarations granted in respect of borrowings under s 5 of the 1993 Act but refused in respect of those made under s 4 thereof.

(1) The foundation of Parliament's supremacy to appropriate money was s 100 of the Constitution, and such money was issued out of the Consolidated Fund which was the common basket into which 'all revenues or other moneys raised . . . for the purposes of the Government' were paid, and from which money could be drawn not only for the supply of the Heads in the Recurrent and Development Expenditure, specified in Sch 1 to the 1994 Appropriation Act 1993, but also for the purposes of the government. Section 4 of the 1993 Act provided the government with the power to borrow, by way of overdraft and advances at any time not later than 31 December 1994, any sum not exceeding $18m, and s 5 (1) authorised borrowing up to $21 m, and indeed more provided Parliament's approval was obtained fast, for the specific purposes, on a proper construction of Sch 2, of local financing of development projects and deficit. Sections 4 and 5 were clearly designed to meet two separate borrowing purposes. The authority to borrow under s 4 was a general one, subject to the limit fixed at $18m, as it was essential that government was able to incur expenditure by borrowing money without first obtaining parliamentary approval for which no sum had been appropriated or for a purpose for which money had been appropriated but proved to be inadequate (see pp 17-18, 19, post).

(2) Since the transactions covered by s 5(1) of the 1993 Act, as well as the provisions for raising loans in the Government Loans and Securities Act 1979, extended beyond 'borrowing', in the ordinary sense of a mere obligation to repay, to the situation where the government could enter into financial arrangements to raise money by way of loans through the issue of treasury bills, development bonds and treasury bonds, so that the obligation to repay only arose when moneys became payable, and, moreover, it was established that the court was obliged to consider the legal nature and form of the borrowing and not its financial and accounting effect, the total borrowings by government were not properly accounted for merely by adding together all the relevant purchases of those treasury bills and bonds. However, the evidence clearly established that government borrowings by way of securities were in the sum of $31.072m, which exceeded the limit provided for in s 5(1). In respect of borrowings under s 4 the evidence established that the $11.898m borrowed was well below the ceiling fixed by the section. Accordingly, the excessive borrowing under s 5, unauthorised and made without parliamentary approval, had to be declared ultra wires and also contrary to s 105(3) of the Constitution. Declarations would be refused in respect of the borrowings under s 4 or that borrowings overall exceeded $39m, though a further declaration would be granted that any further borrowing pursuant to s 5(1), without prior parliamentary authority, would be ultra vires both the 1993 Act and the Constitution (see pp 22-23, 24-25, post).

(3) Although certain government borrowings were ultra vires under statute and the Constitution, it was not appropriate to grant a declaration that a minister was in breach of duty and had acted unlawfully in procuring the government to exceed its powers. Section 35 of the Constitution provided that the Cabinet 'shall be collectively responsible to Parliament... for all things done by or under the authority of a minister in the execution of his office.' Accordingly, the Cabinet collectively ought to answer for the minister's action in the present case (see p 25, post).

[Editors' note: Section 105(3) of the Constitution is set out at p 13, post. Section 27(2) of the Public Finance and Audit Act 1978 is set out at p 15, post. Sections 3 and 4 of the Government Loans and Securities Act 1979 are set out at pp 15-16, post.

Sections 4 and 5 of the 1994 Appropriation Act 1993 are set out at pp 16-17, post. Section 100 of the Constitution is set out at p 17, post.]

Legislation referred to in judgment
Papua New Guinea
Constitution 1975, s 209(1)

The Solomon Islands
1994 Appropriation Act 1993, ss 4, 5, Schs 1, 2
Appropriation Act 1991
Appropriation Act 1992
Central Bank of Solomon Islands Act 1976, ss 27(1)(d), 30(h)
Constitution 1978, ss 35(2), 100, 103, 105(3)
Government Loans and Securities Act 1979, ss 3, 4, 5, 25
Public Finance and Audit Act 1978, ss 2, 27(2)

Other sources referred to in judgment
8 Halsbury's Laws (4th edn) p 832, para 1368
Chitty on Contracts (26th edn, 1989) vol II, para 3577
Mehta A Commentary on Indian Constitutional Law (2nd edn, 1990) p 373
Quarterly Review of the Central Bank of Solomon Islands (March 1994 issue) p 4
Sanders 'Government Borrowing in Australia' (1989) 17 Melb ULR 187
Thornton Legislative Drafting (3rd edn, 1987) p 218

Action
The applicant, Christopher Columbus Abe, in an action against the respondents, the Minister of Finance and the Attorney General, sought declarations that the government exceeded its domestic financial borrowing limits, as prescribed by the 1994 Appropriation Act 1993 and contrary to s 105 of the Constitution. The facts are set out in the judgment.

MURIA CJ. This case is concerned with the alleged claim by the applicant that the government had borrowed money in excess of the legal limits laid down by ss 4 and 5 of the 1994 Appropriation Act 1993 ('the Appropriation Act'). He consequently sought a number of declarations from the court. These are:

'(1) a declaration that the Government has contravened the provisions of s 5 (3) of the 1994 Appropriation Act 1993 (hereinafter referred to as 'the Act') by borrowing sums in excess of the amounts stipulated in the first column of the Second Schedule to the Act for the purposes specified in the second column of the Second Schedule to the Act, without first obtaining the requisite further authority of Parliament;

(2) consequently upon the grant of the declaration sought in (1) above, a declaration that the Government has contravened s 105(3) of the Constitution by borrowing money or entering into a guarantee involving financial liability in defiance of the provisions prescribed by Parliament in s 5(3) of the Act;

(3) a declaration that upon the proper construction of s 4 of the Act, the Government's borrowing powers pursuant to the provisions thereof is limited thereby (and in the absence of supplementary legislation) to an aggregate sum of Eighteen Million Solomon Island dollars ($18,000,000) for the whole of the 1994 fiscal year;

(4) consequently upon the grant of the declaration sought in (3) above, a declaration that the Government has contravened the provisions of ss 4 and 5 of the Act by borrowing sums in excess of the aggregate amount of Thirty-Nine Million Solomon Island dollars ($39,000,000), which amount represents the ceiling fixed by Parliament for Government borrowing from domestic sources;

(5) consequently upon the grant of the declarations sought in (1), (2), (3) and (4) above, a declaration that any further borrowing by the Government and/or the First Respondent will be ultra vires the Act and s 105(3) of the Constitution;

(6) a declaration that the First Respondent has breached his constitutional and/or statutory and/or fiduciary obligations and has otherwise acted unlawfully by permitting and/or procuring the Government to borrow funds exceeding the prescribed amounts in violation of the Act and the Constitution.'

The brief background to the case is as follows. On 17 December 1993 the National Parliament passed the 1994 Appropriation Act 1993 which appropriated the sum of $298,140,998 to be applied for the service for the year ending 31 December 1994. Of that sum, $204,620,725 is for recurrent expenditure while $93,520,273 is for development expenditure. Parliament has also authorised the government under the Act to borrow money by way of overdraft and advances not exceeding $18m. Further, Parliament has authorised the government to borrow the maximum of $23m for development projects in natural resources, economic infrastructure and human resources and the maximum of $21m for local financing of development projects and deficits, the source of which comes from the sale of development bonds, treasury bills, saving certificate and term loans from domestic financial institutions and NPF.

It is necessary, before I proceed further, to set out the relevant provisions of the law relied on in this case. These are s 105(3) of the Constitution and ss 4 and 5 of the Appropriation Act. Section 105 (3) of the Constitution is in the following terms:

'The Government shall not borrow money or enter into a guarantee involving any financial liability except in accordance with such provisions as may be prescribed by Parliament.'

I shall set out the provisions of ss 4 and 5 of the Appropriation Act a little later in this judgment.

The applicant had taken the court into an examination of the various constitutional and statutory provisions regarding the sources and the extent of the government's power to borrow money. I am grateful to the applicant for doing so. However, the question that the court must answer, at the end of the day, is: has the government exceeded its domestic borrowing limits as provided by law? The applicant says that the government has exceeded the limits set by law while the respondents say they have not.

With that question in mind, I now turn to consider the provisions of the laws referred to. Section 105(3) of the Constitution, says the applicant, is a constitutional prohibition on government borrowing without authority from Parliament. I agree to that submission as it is clearly supported by the language of the provision which simply reinforces the age-old constitutional principle that Parliament retains the power to authorise the raising and expenditure of public finance: see A - G v Wilts United Dairies Ltd (1921) 37 TLR 884 at 886 where Atkin LJ stated:

'No power to make a change upon the subject for the use of the Crown could arise except by virtue of the prerogative or by statute, and the alleged right under the prerogative was disposed of finally by the Bill of Rights..... Though the attention of our ancestors was directed especially to abuses of the prerogative, there can be no doubt that this statute [the Bill of Rights] declares the law that no money shall be levied for or to the use of the Crown except by grant of Parliament. We know how strictly Parliament has maintained this right - and, in particular, how jealously the House of Commons has asserted its predominance in the power of raising money. An elaborate custom of Parliament had prevailed by which money for the service of the Crown is only granted at the request of the Crown made by a responsible Minister and assented to by a resolution of the House in Committee.'

As such, any borrowing by the government of money for its use must be authorised by Parliament. Expressed in another way, as the learned Attorney General has submitted, it enables Parliament to control government financing.

On the same constitutional principle, reference has been made to s 209(1) of the Constitution of Papua New Guinea and the case of SCR No 1 of 1990 (Re Provincial Government Grants) [1990] PNGLR 532 which concerned that provision. Section 209(1) of the Constitution of Papua New Guinea provides as follows:

'Notwithstanding anything in this Constitution, the raising and expenditure of finance by the National Government, including the imposition of taxation and the raising of loans, is subjected to authorised and control by the Parliament, and shall be regulated by an Act of the Parliament.'

The Supreme Court of Papua New Guinea observed that provision as vesting the control over public finances in Parliament. Kapi DCJ, in his separate judgment, had this to say on the same constitutional provision ([1990] PNGLR 532 at 551):

'The whole of the raising and expenditure of finance "is subject to authorization and control by the Parliament." To put it simply, the National Government cannot raise or spend any money under any law unless it is authorised by Parliament under s 209 (1) of the Constitution.'

The point has also been stated in 8 Halsbury's Laws (4th edn) p 832, para 1368 where it is stated that -

'Parliamentary control over the revenue is threefold. It is exercised in respect if (1) the raising of revenue (by taxation or borrowing); (2) its expenditure; and (3) the audit of public accounts.'

There are numerous other authorities on this point and it is not necessary for me to dwell on them. See Thornton Legislative Drafting (1987) p 218; Sanders 'Government Borrowing in Australia' (1989) 17 Melb ULR 187; and Mehta A Commentary on Indian Constitutional Law (2nd edn, 1990) p 373.

Like other common law countries that follow the British system of government, the Solomon Islands had made certain that the time-honoured principle of parliamentary supremacy is recognised under the Constitution and the words in s 105(3) have clearly done that.

If I may, I should like to mention briefly the other two Acts of Parliament relied on by the applicant. These are the Public Finance and Audit Act 1978 and the Government Loans and Securities Act 1979.

The Public Finance and Audit Act is an Act to provide for, among other things, the control and management of the public finance of the Solomon Islands, the collection, issue and payment of public moneys and the regulation of public debt. For our present purpose s 27 of the Act is relevant. It provides as follows:

'(1) The Government shall not borrow money except in accordance with the provisions of an Act or resolution of Parliament.

(2) Any moneys borrowed under the provisions of subsection (1) shall be paid into and form part of the Consolidated Fund.

(3) Under this section the borrowing of money by way of advance from a bank or overseas agent may be by fluctuating overdraft.'

As had been rightly pointed out by the applicant, that section is simply echoing the constitutional principle of parliamentary control over the government's finances. It will be noted that the section restricts the government's borrowing power which must be 'in accordance with the provisions of an Act or resolution of Parliament.' I do not say that the words 'prescribed by Parliament' include 'resolution of Parliament'. That must await another day. What the Act does is clearly to regulate the exercise of the control as provided by s 105(3) of the Constitution.

As to the Government Loans and Securities Act 1979, that Act is to provide for the raising of loans and issue of securities both locally and overseas by the government and for other incidental matters. For the present proceedings, ss 3 and 4 of that Act are relevant. Section 3 provides:

'(1) The Minister is hereby empowered, subject to the provisions of this Act, to raise internally or externally loans of such sums of money as Parliamentary control over the revenue is threefold. It is exercised in respect of (1) the raising of revenue (by taxation or borrowing); (2) its expenditure; and (3) the audit of public accounts.'

'(1) Loans may be raised under the provisions of this Act in any of the following ways-

(a) by the creation and issue of registered or inscribed stock which shall be known as Solomon Islands stock; (b) by the issue of securities in the form of bonds or savings certificates: (c) by the issue of Treasury Bills; or (d) in such other manner as the Minister may, in consultation with any leader, decide.

(2) The Minister in respect of any loan may direct that such loan be raised by both the issue of inscribed stock and the issue of bonds.'

'(1) The Government may, in addition to its borrowings under the provisions of section 4, borrow or enter into agreements to borrow on such terms and conditions as it may determine amounts up to such sums of money for such purposes and from such sources as are respectively specified in. the first, second and third columns of the Second Schedule.

(2) No amounts may be borrowed under subsection (1) except in accordance with an agreement under that subsection entered into on or before 31st December 1994.

(3) The Government shall not, without first obtaining further authority of Parliament, borrow for the purposes described thereto any sum or sums in excess of the figure shown in the first column in the Second Schedule.

(4) The Minister shall report to Parliament at the next meeting following such borrowing or agreement any borrowing or the making of any agreement to borrow under sub-s (1).'

'COLUMN 1	COLUMN 2	COLUMN 3
Maximum Borrowings	Use of Funds	Source of Funds
23,000,000	Development projects in natural resources, economic infrastructures.	Asian Development Bank (ADB), foreign multi-lateral and bilateral financing and sources and other foreign financial institutions.
21,000,000	Local financing of development projects deficit.	Development Bonds, Treasury bills, Savings Certificate and term loans from domestic financial institutions and National Provident Fund.'

The validity of the Appropriation Act is not in issue here nor is there any challenge to the form of setting out all the items of the appropriation in a Schedule which has been the practice used in the drafting of appropriation Bills in this country. Equally there is no dispute that for the supply of the Heads specified in Sch 1 (for the Recurrent and Development Expenditures) Parliament had appropriated $298,140,998 which must be issued out of the Consolidated Fund.

What is this Consolidated Fund? Section 2 of the Public Finance and Audit Act 1978 defines 'Consolidated Fund' to mean the Consolidated Fund as established by s 100 of the Constitution. Turning then to the Constitution we see that s 100 provides as follows:

'(1) All revenues or other moneys raised or received by or for the purposes of the Government (not being revenues or other moneys that are payable by or under any law into some other fund established for any specific purpose or that may, by or under any law, be retained by the authority that received them for the purpose of defraying the expenses of that authority) shall be paid into and form one Consolidated Fund.

(2) Parliament may make provision for the establishment of Special Funds, which shall not form part of the Consolidated Fund.'

It can be seen that the Consolidated Fund is the common basket into which 'all revenues or other moneys raised ... for the purposes of the Government' are paid and from which money is to be drawn not only for the supply of the Heads in Sch 1 to the Appropriation Act but also 'for the purposes of the Government,' as provided by s 100 of the Constitution. It is important to note that it is s 100 which is the foundation o£ the supremacy of Parliament to appropriate money which is to be issued out of the Consolidated Fund.

One of the means by which revenue is raised for the purposes of the government is by borrowing. We can see that s 27(2) of the Public Finance and Audit Act 1978 provides that moneys borrowed must be paid into and form part of the Consolidated Fund. This provision is simply reiterating what s 100(1) of the Constitution provides. But it is this power to borrow moneys that the applicant is now challenging and to which I shall now turn.

The applicant's case is not that the government has no power to borrow, for clearly the government has that power. The applicant is here saying that Yes, apart from the moneys appropriated by Parliament, the government has the power to borrow by way of overdraft and advances the total sum of which is $18m - under s 4 and in addition the government can borrow the sum of $21 m for local financing, development projects and deficit under s 5 of the Appropriation Act. But, the applicant says, in this case the government had exceeded those limits without parliamentary sanctions and as such those borrowings were unlawful.

It is worth noting the difference between the two provisions. Section 4 speaks of the government having power to borrow at any time not later than 31 December 1994 by way of overdraft and advances any sum 'not exceeding' $18m. There is no provision under that section which allows the government to borrow in excess of the $18m limit. Whereas s 5(1) authorises the government to borrow 'up to' the sum of $21m and it is permitted to borrow in excess provided the authority of Parliament is first obtained. No purpose has been specified for the borrowing under s 4, whereas the borrowing under s 5 has specific purposes which are 'Local financing of development projects deficit'.

It has been submitted by the applicant that the words 'Local financing of development projects deficit' in Sch 2 do not clearly show whether the use of the funds is intended for local financing of development projects deficit or local financing of development projects 'and' deficit. The applicant submitted that 'deficit' is intended to be a separate item under the 'Use of Funds' in column 2 and as such the word 'and' had been omitted by the draftsman. The $21m, says the applicant, should be for 'Local financing of development projects and deficit.'

I am of the view that the use of the $21m as presently provided is ambiguous. The court must therefore construe the words used so as to ascertain what Parliament had intended. But if in so doing the result is an absurdity, as in this case, then the court is justified in going outside the words used by the statute in order to ascertain the intention of Parliament, particularly here where it is plainly obvious that a drafting omission had been made. On this approach of statutory interpretation Lord Scarman had this to say in Stock v Frank Jones (Tipton) Ltd [1978] 1 All ER 948 at 955, 1_.1978]1 WLR 231 at 238:

'If the words used by Parliament are plain, there is no room for the "anomalies" test, unless the consequences are so absurd that, without going outside the statute, one can see that Parliament must have made a drafting mistake. If words "have been inadvertently used", it is legitimate for the court to substitute what is apt to avoid the intention of the legislature being defeated ... This is an acceptable exception to the general rule that plain language excludes a consideration of "anomalies", i.e. mischievous or absurd consequences . . . But mere "manifest absurdity" is not enough: it must be an error (of commission or omission) which in its context defeats the intention of the Act.'

Lord Denning robustly put it this way in London Borough of Camden v Post Office [1977]2 All ER 795 at 799, [1977] 1 WLR 892 at 897 when construing the words used in para 8(1) in Sch 1 to the General Rate Act 1967:

'But that gives rise to such an absurd result that there must be some mistake in drafting. Such mistakes do occur from time to time, and when that occur the courts must do what they can to put things right. I think that the courts should correct these words...'

In the present case I feel the court also must, as a matter of duty, draw the intention of Parliament from the ambiguous words used by having regard to materials that are potentially of use in ascertaining that intention. It would be inexcusable if the court were to ignore such sources which may assist in finding the intention behind the words used.

In this case the court has the benefit of consulting similar provisions in the 1991 and 1992 Appropriation Acts. In both Acts the use of the funds under column 2 was for 'Local financing of development projects and deficit' (my emphasis). In this case I hold that the $21m mentioned in Sch 2 to the 1994 Appropriation Act should be for 'Local financing development projects and deficit.'

It should also be noted that when one considers ss 4 and 5 of the Appropriation Act along with the constitutional provisions dealing with finance, in particular ss 100, 103 and 105 of the Constitution, the two sections of the Appropriation Act are clearly designed to cater for two separate borrowing purposes.

To return to s 4 of the Appropriation Act, it must be accepted that the authority to borrow money under this section is a general one. This general authority, in my view, is essential to enable the government to incur expenditure by borrowing money without the need to wait for parliamentary approval for any purpose for which no sum has been appropriated or for a purpose in respect of which money has been appropriated but has been found to be inadequate. The 5 control, however, which Parliament has put on this general authority to borrow is that it had fixed in advance the limit of such borrowing, being $18m in this case. The constitutional basis for the enactment of a provision such as s 4 of the Appropriation Act can be found in s 103(2) and (3) of the Constitution which authorises the Minister of Finance to incur expenditure for the purposes mentioned. The minister is required to include the amount expended in a Supplementary Appropriation Bill to be presented to Parliament. Section 103(2) and (3) provide as follows:

'(2) Where in respect of any financial year the Minister is satisfied that an urgent and unforeseen need has arisen to authorise for any purpose issues 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 or regulations for the time being in force in that regard, authorise, with the prior approval of the Cabinet, such issues by warrant and shall include such amount in a Supplementary Appropriation Bill for appropriation at the meeting of Parliament next following the date on which the warrant was issued: Provided that if there shall be no further meeting in the same financial year, the Bill may be deferred to any meeting held before the end of the following financial years.

(3) No expenditure shall be authorised or incurred under the preceding subsection unless Parliament has specified in advance of the expenditure the maximum amount of expenditure that may be incurred under that subsection.'

I now turn to consider the question: has the government borrowed money in excess of the amount of $18m under s 4 of the Appropriation Act in this case? This is largely a question of fact. However, a question of law may arise as to whether certain of the government's transactions can be termed as 'borrowing' or 'loan' within the meanings of the various Acts which empower the government to borrow or obtain loans.

The evidence produced by the applicant is contained in his affidavits filed on 18 July 1994 and 12 September 1994 in support of his application. According to the applicant the government had borrowed a total of $51,981,610.42 which, if interest charged by the Central Bank of $1,134,273.33 is excluded, would come to $50,847,337.09 which the applicant says is beyond the limit of $18m fixed by Parliament under s 4 of the Appropriation Act. This amount, says the applicant, can be obtained by simply adding the amounts shown in column 3 of the 'Statement of SIG Overdraft Account 1010003' which is exhibited to his affidavit of 12 September 1994 and marked 'CCA1.'

In addition to the $50,847,337.09 the applicant says that the ANZ Bank had also lent money to the government by way of overdraft in the sum of $838,518.82. This was confirmed by the first respondent in his affidavit of 17 August 1994. The total amount borrowed by the government by way of overdraft is $51,686,855.91 says the applicant. This is $33,685,855.91 more than the $18m limit and this is on overdraft alone.

As to the government's borrowing by way of advances also under s 4, the applicant says that the government has borrowed up to 5 August 1994 the sum of $14,552,052.48. According to the applicant this sum can be obtained by adding the amounts in column 3 of the 'Statement of SIG Advance Account 1010001.' referred to in the applicant's affidavit of 12 September 1994 and marked 'CCA2.'

Another borrowing by the government under s 4 is the loan from the National Provident Fund ('the NPF') in the sum of $9.87m for the repurchase of the former State House. It is argued by the applicant that this loan is not for the purpose of 'Local financing of development projects and deficit' and cannot be a borrowing under s 5(1) of the Act.

The total loan, says the applicant, obtained by the government in the period from 1 January 1994 to 5 August 1994 is therefore $75,269,389.57 which is more than three times that which the government is lawfully authorised to borrow under s 4 of the Appropriation Act.

The first respondent agrees that the NPF loan is a loan obtained under s 4, although the amount of that loan is said to be $8.9 million. Mr Leslie Teama, who is the general manager of the NPF, deposed that the loan obtained by the government on 19 May 1994 to re-purchase the former State House is $9.87m.

It is therefore obvious that the $8.9 million is the balance remaining of that loan after the government had made some repayments. But the loan is determined at the time the money is advanced and not by the balance outstanding. There can be no doubt that in this case the government has borrowed $9.87m from NPF on 19 May 1994 by way of advance for the repurchase of the former State House. This is a borrowing authorised by s 4 of the Appropriation Act.

The first respondent strongly disputes that the total loan under 'SIG Advance Account 1010001' amounts to $14,552,052.48. He further disputes the correctness of the applicant's argument relating to the $50,847,337.09 which the applicant says is the total loan as shown in the 'Statement of SIG Overdraft Account 1010003.' The first respondent argued that it would be wrong to simply add up all the amounts in column 3 of both SIG advance and SIG overdraft accounts and say that they constitute the loan obtained by the government.

The bank managers of NBSI, Westpac and ANZ and the NPF general manager have each filed affidavits in this action and each has set out their financial dealings with the government. The Governor of the Central Bank of Solomon Islands ('the CBSI') has also filed an affidavit which I consider extremely helpful in setting out the government's financial situation not only with the CBSI but with the other commercial banks and financial institutions as well.

The argument by the applicant is that each of the transactions recorded in the two accounts is a borrowing and as such the court must look at the legal nature of the liability created by each of those borrowings. However, this really depends on the question whether or not each of those transactions is a 'borrowing' for the purpose of s 4 of the Appropriation Act. The burden of establishing that rests with the applicant.

In the present case the applicant simply argued that each of the transactions in the two accounts is a borrowing and asks the court to accept that the sum total of all those transactions constituted the total borrowings by the government both by way of advances and overdrafts. I do not think this court should simply do that.

On the other hand, the Governor of the CBSI has clearly outlined the government's position with regard to its borrowing both by way of advances and overdraft. In his affidavit of 25 August 1994 the Governor deposed that the government's Gross Domestic Debt from January 1994 to 3 August 1994 is $42.2 m which comprises as follows:

Central Bank of Solomon Islands	$1.5 m
Commercial Banks	22.8 m
National Provident Fund & Financial Institution	13.7 m
Public	4.2 m
	$42.2 m

When one turns to Exhibit 'RNHI' and 'RNHII' of the Governor's affidavit, it can be clearly seen how the amount $42.2m is arrived at. Of that amount, $10.9m represents loans and advances while $31.3m represents the amount raised or borrowed through the issue of Treasury Bills, Development Bonds and Treasury Bonds. It will be noted that the $42.2m is expressed as the 'Gross Domestic Debt' from the beginning of the year to 3 August 1994.

The annexure 'AN1' exhibited to the first respondent's affidavit is a letter dated 25 August 1994 from the Governor of the Central Bank to the first respondent confirming the 'SIG Domestic Borrowing.' This letter set out the 'total new borrowings by SIG from January 1, 1994 to August 3, 1994.' It shows that the government's 'new borrowings' by way of loans and advances is $10.9m and new borrowings' through the issue of Treasury Bills, Development Bonds and Treasury Bonds in the sum of $31.072m, bringing the 'total new borrowings' to $41.972m. These balances have been reconfirmed with the respective banks today', added the Governor.

On the evidence before the court the government has clearly borrowed money by way of overdraft and advances pursuant to s 4 of the Appropriation Act. I accept the figures put by the first respondent and supported by the Governor of the CBSI except for the figure representing the term loan from NPF. That loan is for $9.87m which is the amount of the loan obtained by the government on 19 May 1994. The total borrowing by the government under s 4 must therefore be $11.898m which is made up as follows:

CBSI Advances & Overdraft	$1.528 m
ANZ Bank Advances & Overdraft	500 m
National Provident Fund	9.870 m
	$11.898 m

As to the borrowing under s 5(1) of the Appropriation Act, the evidence produced by the Governor of the CBSI is clearly one that must be accepted. If, for any reason, the CBSI is by virtue of s 27(1) (d) of the Central Bank of Solomon Islands Act 1976 'a banker to the Government' and is authorised by s 30(h) of that Act 'to undertake for the Government, the issue, placement and service of any Government securities and act as registrar of such issues of Government securities' (see also s 25 of the Government Loans and Securities Act 1979 which empowers the CBSI to repay the principal moneys represented by the Treasury Bills issued on behalf of the government) the CBSI plays a considerable role in the way the government raised moneys through the issue of government securities and as such its records in this regard must be of great weight.

I do not. accept the argument raised by the applicant that the total borrowings by the government through the issue of Government Securities is $295,960,545 which can be accounted for by adding all the new purchases of Treasury Bills, Development Bonds and Treasury Bonds. It is an argument which is, in my view, unsound. The transactions covered by s 5(1) extend beyond 'borrowing' in the ordinary sense of that word to a situation where the government is authorised to 'enter into agreements to borrow on such terms and. Conditions' as the government may determine. It is pursuant to this provision that the government has entered into financial arrangements to raise money by way of loans through the issue of Treasury Bills, Development Bonds and Treasury Bonds. In legal term such transaction can be described as a transaction for a consideration which consists in the issue of Government Securities. The money is payable from time to time in accordance with the arrangements between. The CBSI (on behalf of the government) and the holders of the securities. It would therefore not be correct to say that the government has borrowed a total of $295,960,545 when what is being done here is really to 'enter into agreements to borrow' which is creating a contractual relationship between the government and purchasers of those securities. This applies equally to 'roll-overs.'

The language of s 5(1) also, in my view, reflects a distinction between 'borrowing' and 'issuing of securities' for the purpose of borrowing. The former connotes cash consideration which is to be repaid on demand or at a fixed time while the latter is a transaction in consideration of the issue of securities: see London & Country Commercial Property Investments Ltd v A-G [1953] 1 All ER 436, [1953] 1 WLR 312.

The obligation to repay is the very essence of borrowing and in the latter situation, that is where securities are issued for the purposes of borrowing, that obligation only arises when moneys become payable. Only then can 'borrowing' be said to have been made through the issue of securities.

I agree that the court must look at the legal nature and form of the borrowing and not its financial accounting or economic effect. It is the form of the transaction which shows its legal nature: see Chitty on Contracts (26th edn, 1989) vol II, para 3577 where it is stated that 'it must be stressed that what matters is the real legal nature of the transaction and not its economic nature' (emphasis in original).

In the present case the legal nature of the transactions is that which I have already described and one which is envisaged in the language of s 5(1) of the Appropriation Act as well as the provisions of the Government Loans and Securities Act 1979 dealing with the issue of Government Securities to raise loans. The construction of those provisions do not favour the contention relied on by the applicant regarding the mere adding of all purchases of Treasury Bills, Development Bonds and Treasury Bonds to show the total borrowings by government.

Having said that I return to the evidence which I had earlier accepted from the Governor of CBSI. His evidence as confirmed by 'AN1' exhibited to the first respondent's affidavit of 25 August 1994 shows beyond argument that the government has borrowed money by way of securities in the sum of $31.072m.The Governor's evidence in this case is, in a way, reflective of the Central Bank's concern expressed at p 4 of the Quarterly Review of the Central Bank of Solomon Islands, issued in March 1994, that 'the Government exceeded its budgeted ceiling, $21.6 million, for overall domestic borrowing by mid April this year'. It has been argued by the first respondent that $13.7m representing Treasury Bonds should be discounted as they relate to loans obtained by the Solomon Islands government up to the end of 1993 and now transferred by CBSI to the private sector. While this may have the effect of reducing the government's level of borrowings from CBSI, the liability arising out of that $13.7m still remains with the government despite the transfer and one that falls to be discharged out of moneys to be provided by Parliament. As it is at the present, those Treasury Bonds remain very much securities still enabling the government to raise money creating indebtedness on the part of the government to be met out of public money.

The evidence has clearly established that the government has borrowed moneys by way of securities in the sum of $31.072m. This is a borrowing made pursuant to s 5(1) of the Appropriation Act and one which has been done in excess of the limit specified under that section.

I have already stated that ss 4 and 5 of the Appropriation Act refer to two entirely separate borrowings and with separate purposes. Hence it would be wrong simply to say that the government has exceeded its total borrowing limit under the two sections combined. To do so would be to deprive the government of its legal power to raise money under a provision which has not yet been exhausted.

The evidence has shown that the government has borrowed $11.898m under s 4 of the Appropriation Act. This is well below the ceiling fixed by Parliament under that section. In the light of what I have just said earlier, it would be wrong for this court to say that the government has exceeded its borrowing power under this section on the basis that the total borrowings when combined with s 5(1) exceeds the total limit of $39m.

What is the effect of the court's finding that the s 5(1) borrowing has been exceeded? There are copious authorities in England, Australia and the USA which have shown that restrictions on borrowing power must be strictly observed particularly where such restriction is constitutionally imposed: see State v Medbery (1857) 7 Ohio St 522; State, ex rel Kitchen v Christman (1972) 285 NE 2d 36k Turnpike Authority of Kentucky v Wall (1960) 336 SW 2d 551; People, ex rel Greening v Green (1943) 47 NE 2d 465 and Edwards v Lewis and Clark County (1917) 165 P 297, 299; 53 Mont 359.

In Auckland Harbour Board v R [1924] AC 318 the Privy Council stressed the constitutional principle of parliamentary control over public finance. The court stated ([1924] AC 318 at 326-327):

'For it has been a principle of the British Constitution now for more than two centuries, a principle which their Lordships understand to have been inherited in the Constitution of New Zealand with the same stringency, that no money can be taken out of the consolidated Fund into which the revenues of the State have been paid, excepting under a distinct authorization from Parliament itself. The days are long gone by in which the Crown, or its servants, apart from Parliament, could give such an authorization or ratify an improper payment. Any payment out of the consolidated fund made without Parliamentary authority is simply illegal and ultra vires . . .'

In A-G, ex rel Dodd v Mayor of Ararat [1911] ArgusLawRp 80; [1911] VLR 489 the court held that the authority to borrow money in excess of the prescribed amount must be obtained before borrowing. See the various authorities on the restrictions on the power of company directors to borrow without authority: Baroness Wenlock v River Dee Co (1885) 10 App Cas 354; A.-G v West Ham Corp [1910] UKLawRpCh 104; [1910] 2 Ch 560; In re Companies Acts, ex p Watson [1888] UKLawRpKQB 134; (1888) 21 QBD 301 and Ashbury Railway Carriage and Iron Co (Ltd) v Riche (1.875) [1875] UKLawRpHL 13; LR 7 HL 653. These authorities reaffirmed the principle that borrowing in excess of prescribed limit without authorisation is ultra vires.

I return to s 105(3) of the Constitution which prohibits the government from borrowing money involving any financial liability except in accordance with such provisions as may be prescribed by Parliament. The words 'except in accordance with' are a directive by Parliament to the government to follow distinctly that course which the legislature has prescribed. Such course is that which is provided by s 5(3) of the Appropriation Act which prohibits excessive borrowing by government without 'first obtaining' Parliament's authority.

In the present case the government has clearly borrowed in excess of the limit fixed by law under s 5 (1) of the Appropriation Act without first obtaining further authority from Parliament. Such excessive borrowing is unauthorised bylaw and must be declared ultra vires. That excessive borrowing has also been made contrary to s 105(3) of the Constitution and a declaration to that effect must also be made.

As to the borrowing under s 4 of the Appropriation Act, I have found that the government has not exceeded its borrowing power under that provision. I must therefore refuse the declaration sought in this regard. For the reasons which I have already stated in this judgment, I cannot make the declaration regarding the excessive total borrowing of $39m.

It must, however, be made certain that any further borrowing by the government under s 5(1) of the Appropriation Act without first obtaining parliamentary authority will be ultra vires both the Act and the Constitution. A declaration to this effect must also be granted.

The applicant sought a declaration that the first respondent has breached his constitutional, statutory and fiduciary duties and has acted unlawfully in this case to procure the government to borrow in excess of the limit allowed by law. I do not think I should grant this declaration. It is the Cabinet who 'shall be collectively responsible to Parliament . . . for all things done by or under the authority of any Minister in the execution of his office'. This is clearly provided for under s 35(2) of the Constitution. It is the Cabinet who must collectively answer for the minister's action in this case.

(1) A declaration is hereby granted that the government has contravened the provisions of s 5(3) of the 1994 Appropriation Act 1993 by borrowing the sum of $31.072m, which sum is in excess of the $21m stipulated in the first column of Sch 2 to the Act without first obtaining further authority from Parliament.

(2) A declaration is hereby granted that the government has contravened s 105(3) of the Constitution by borrowing money or entering into a guarantee involving financial liability in defiance of the provisions prescribed by Parliament in s 5(3) of the Act.

(3) It has not been disputed by the respondents that the government's borrowing power under s 4 of the Act is limited to $18m in total for the whole of the 1994 fiscal year. It is therefore not necessary that the court should make the declaration sought under this paragraph. I decline to make the declaration sought.

(4) A declaration that government has contravened the provisions of ss 4 and 5 of the Act by borrowing in excess of the aggregate amount of $391 fixed by Parliament is hereby refused as the government has not yet exceeded its borrowing limit under s 4.

(5) A declaration is hereby granted that any further borrowing under s 5(1) of the Act by the government; will be ultra vires the Act and s 105(3) of the Constitution.

(6) A declaration that the first respondent has breached his constitutional and/ or statutory and/or fiduciary obligations and that he has acted unlawfully by permitting and/or procuring the government to borrow funds exceeding the prescribed amounts in violation of the Act and the Constitution is hereby refused.

Had the lawful course of obtaining parliamentary authority as provided for under s 5(3) been followed, this action might well have not arisen. The applicant has to come to this court to show that the government has violated the constitutional and statutory powers and duties conferred on it by law. In those circumstances the applicant must have his costs in this action.

High Court of Solomon Islands

ABE v Minister of Finance [1994] SBHC 90; [1994] 2 LRC 10 (4 October 1994)