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Public Service Association Incorporation v Kingdom of Tonga [2018] TOSC 41; CV 48 of 2014 (17 August 2018)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY


CV 48 of 2014


BETWEEN: PUBLIC SERVICE ASSOCIATION INCORPORATION


- First Plaintiff


AND: SAMUELA ‘AKILISI POHIVA


- Second Plaintiff

AND: THE KINGDOM OF TONGA

- First Defendant

AND: FRIENDLY ISLANDS SATELLITE COMMUNICATIONS


- Second Defendant

To: Dr. R Harrison QC for the plaintiffs
Mr. ‘A Kefu SC for the first defendant
Mr. W Edwards Jr for the second defendant


Date of Hearing: 18-22, 24-25 June 2018.
Date of Ruling: 17 August 2018


JUDGMENT

Introduction

[1] Friendly Islands Satellite Communications Limited (Tongasat) is a privately owned company. Tongasat was appointed the exclusive agent of the Kingdom of Tonga (KOT) to enter into contracts with third parties for the launching or operating of satellites in orbital positions registered with the International Telecommunications Union (ITU). Tongasat and the KOT shared in the revenue generated by the use of the KOT’s orbital positions.

[2] In 2006 it was discovered that a Chinese state agency called China Electronic System Engineering Company (CESEC) had placed a satellite in one of the KOT’s orbital positions. After negotiations involving representatives of Tongasat, the KOT, the People’s Republic of China (PRC) and CESEC, the KOT agreed to concede its priority in the orbital position in favor of the PRC.

[3] Arising out of the negotiations, the PRC agreed that rather than it paying compensation to the KOT for the orbital position it would provide the KOT with grant aid totaling USD$49.9 million. This sum was to be paid in two tranches.

[4] In July 2008 and June 2011 the PRC made payments to the KOT of USD$24,450,000 and USD$25,450,000 respectively (the first and second tranche payments). Upon receipt by the KOT the first and second tranche payments were, almost entirely, paid to Tongasat or applied to satisfaction of Tongasat’s debts owed to the KOT. Tongasat received the benefit of 93% of the first and second tranche payments.

[5] This case is concerned with whether the expenditure of the first and second tranche payments to or for the benefit of Tongasat was lawful.

The plaintiffs’ claims

[6] The plaintiffs plead causes of action in respect of each of the first and second tranche payments.

[7] In each case there is a public law claim alleging that the tranche payments were public money and that their expenditure to or for the benefit of Tongasat was unlawful being in breach of the Public Finance Management Act (PFMA). I refer to these as the public law claims.

[8] In response to the public law claims the KOT and Tongasat raise three defences. They first argue that the plaintiffs’ have no legal standing to bring the claims. Secondly, they say that the first and second tranche payments were not public money but trust money (as defined in the PFMA) paid by the PRC to the KOT specifically for Tongasat and that their expenditure to or for the benefit of Tongasat was therefore lawful. Thirdly, they contend that the payments were Tongasat’s entitlement under its agency agreement or under other agreements reached between Tongasat and the KOT in respect of the disbursement of the first and second tranche payments.

[9] The plaintiffs also advance private law claims challenging the expenditure of the tranche payments to or for the benefit of Tongasat. They allege against Tongasat, inter alia, breach of fiduciary duty and unjust enrichment and seek relief requiring Tongasat to repay the sums which it received and benefitted from (or alternatively damages) to the KOT. I refer to these as the private law claims.

[10] In relation to the private law claims the KOT and Tongasat again argue that the plaintiffs’ have no legal standing. They also deny that any of the causes of action relied upon are made out on the facts.

This judgment

[11] The evidence was wide ranging and covered topics to which I need not refer because I do not consider it relevant to the issues that I must decide. This includes, as examples, evidence concerning Tongasat’s financial position and matters relevant to the pleaded breaches of fiduciary duties owed by Tongasat to the KOT. There was also evidence of a technical nature concerning the process of filing for orbital positions with the ITU which would confuse rather than inform.

[12] I have taken the same approach with Counsels’ legal arguments. For instance, I have not felt it necessary to consider Dr. Harrison’s detailed submissions in relation to each of the private law causes of action because I do not consider that the plaintiffs have standing to advance those claims.

[13] As to the structure of this judgment, I begin below by setting out the relevant facts ([14] to [107]). This is followed by my analysis of the public law claims ([108] to [193]) and then the private law claims ([194] to [206]). I conclude with the result of the case and a statement of the Court’s orders ([207] to [212]).

The facts

Formation of Tongasat

[14] The ITU is the international agency charged with allocating the global radio spectrum and satellite positions. It was common ground that only recognised sovereign nations can make filings to the ITU for frequency assignments in orbital positions.

[15] Tongasat was incorporated in 1988. It was the brainchild of an American, Dr. Matt Nilson, who interested HRH Princess Salote Pilolevu Tuita (HRH) and Mr. Kelepi Tupou (who has passed away) in the potential for the KOT to file for frequency assignments with the ITU and earn revenue from their use.

[16] On 8 April 1988 Dr. Nilson obtained a letter from the then Acting Prime Minister, Baron Tuita, that he was to establish a Tongan company to be the exclusive agent of the KOT for dealing with and making arrangements for government entities of other countries to operate satellites in orbital positions to be registered on behalf of the KOT. That company was Tongasat. The KOT was not to contribute any funds to the endeavor but was to receive 50% of the net income earned over 15 years. After 15 years Tongasat’s exclusive rights would be reviewed.

[17] At all relevant times HRH owned 80% of the shares in Tongasat and 20% of the shares were held by Dr. Nilson but they were subject to an arrangement with HRH to acquire them. The directors of Tongasat were HRH (Chairperson), Mr. Seimisi Panuve (Managing Director) and Ms. Lucy ‘Ilaiu.

The Agency Agreement

[18] It was not until 30 June 1994 that the KOT and Tongasat entered into a formal agency agreement (the Agency Agreement).

[19] The recitals of the Agency Agreement refer to the KOT’s involvement in the registration of orbital positions and that Tongasat would continue to have the exclusive right to deal with and make arrangements for one or more private or governmental entities to launch satellites into, and to operate satellites in, the orbital positions. The KOT and Tongasat were to share the gross revenue (a change from the

earlier agreed net income) generated by ‘Tongasat’s operations’. The final recital states that it was the intent of the parties to establish a normal principal and agent relationship.

[20] Pursuant to clauses 2.1-2.2, the effective term of the Agency Agreement was from 8 April 1988 to 8 April 2038. However, it is convenient to note here that in 2009 the parties agreed to terminate the Agency Agreement with effect from 5 September 2008.

[21] Clauses 1.1–1.7 set out Tongasat’s role and conferred on it authorisation, subject to the KOT’s approval, to enter into contracts for the launching or operating of satellites in the orbital positions and also other related activities as the KOT directed.

[22] Under clause 1.5, Tongasat was to negotiate contracts with third parties so as to secure a reasonable amount of gross revenue for the KOT and Tongasat.

[23] The revenue sharing provisions of the Agency Agreement were contained in clauses 3.1–3.5. Clause 3.1 required ‘All revenues realized, directly or indirectly, from the licensing, lease, use or other grant or benefit associated with the satellite orbital positions being registered in the name of the Kingdom of Tonga, now or in the future’ to be deposited by Tongasat in a separate bank account upon receipt.

[24] Clause 3.3 required Tongasat to pay the KOT each year an agreed percentage of its gross revenue, in United States dollars, as recorded in its audited books of account. The percentage varied according to the amount of gross revenue that was earned by Tongasat. The percentages of gross revenue were able to be varied by agreement and were subsequently varied on three occasions.

[25] Clause 3.5 provided that Tongasat would pay the KOT income tax on its net income after deducting the annual payments to the KOT for its share of revenue.

[26] Because the KOT was to receive a percentage share of the gross revenue earned by Tongasat, the Agency Agreement effectively required Tongasat to pay the entire costs of its operations out of its percentage share of gross revenue. Consistent with this, clause 4.1 provided that the KOT had no obligation to contribute money to Tongasat ‘for any purpose’.

[27] Clauses 6.1 – 6.3 addressed performance review and termination for cause.

[28] Clause 6.3 emphasised the parties’ principal/agent relationship, providing:

The above provisions are in no way intended to restrict the rights of the government of TONGA, as principal, or TONGASAT as agent, as these rights would normally be recognized under TONGA laws of principal-agency relations.

[29] Clause 9.1 imposed confidentiality obligations on the parties in relation to the negotiation, execution or operation of the Agency Agreement.

[30] Clause 11.2 provided that the Agency Agreement was to be subject to, governed by, and construed in accordance with the laws of Tonga, with each party submitting to the exclusive jurisdiction of the Courts of Tonga.

[31] Clause 11.4 was an entire agreement clause and stated that the Agency Agreement represented the ‘sole intention of the parties and SUPERSEDES any other agreement oral or written.’

Variations of the revenue share

[32] On 18 July 1995, 28 February 1996 and 24 May 1996 the KOT and Tongasat entered into memoranda of understanding which varied the allocation between them of gross revenue from Tongasat’s operations.

[33] The final memorandum of understanding of 24 May 1996 provided that for the period of 1 July 1997 to 30 June 2002 Tongasat would pay the KOT 60% of its annual gross revenue over USD$15 million. It follows that Tongasat’s share of gross revenue over that figure was 40% from which it was required to pay all the costs of its operations.

[34] No further memoranda or reviews of the revenue shares were entered into. The evidence of Ms. ‘Ilaiu and Mr. Panuve was that the parties continued to apply the revenue sharing formula set out in the final memorandum of understanding after 30 June 2002.


130° East

[35] Tongasat had, on behalf of the KOT, filed for and secured rights to use the orbital slot 130° East. There is no dispute that the rights belonged to the KOT and not Tongasat or that in respect of 130° East the KOT had priority rights over filings by other countries to use that orbital position.

[36] In early 2006 Tongasat discovered that CESEC had placed a satellite at 130° East. CESEC is an agency of the PRC. Tongasat notified CESEC and the PRC of the KOT’s priority claim. Protracted negotiations commenced focused on the technical and commercial aspects of CESEC leasing or the PRC acquiring priority rights to 130° East on terms acceptable to the KOT. The negotiations were carried on during the years 2006 to 2011.

[37] Tongasat bore all the costs of the negotiations, which included overseas travel, accommodation and living expenses of representatives of Tongasat and the KOT who were in China for weeks at a time. There was no attempt by Tongasat to quantify these costs in this action.

[38] The negotiations were long, difficult, frustrating and, I accept, expensive. Tongasat bore these costs to advance its financial interests and both it and the KOT expected that Tongasat would share in the proceeds of any negotiated settlement.

[39] Tongasat emphasised in the negotiations the economic difficulties faced by the KOT, the benefits that the conclusion of an agreement over 130° East would have for the economy of the KOT and for relations between the KOT and the PRC.

[40] On 3 July 2006 Ms. ‘Ilaiu sent an email to the PRC Ministry of Foreign Affairs recording proposals that had been tabled at an earlier meeting. These included a proposal for the PRC to acquire rights to 130° East and other orbital slots. Ms. ‘Ilaiu characterised this proposal as ‘a proper commercial deal between the two Nations’. She also noted that due to the contract between Tongasat and the KOT more than 50% of the money paid to acquire rights to the orbital slots would go to the KOT and that it would support Tonga’s economic reforms and strengthen its ties to China.

[41] In the months of October 2006 to December 2006 negotiations were conducted in Beijing between representatives of CESEC and Tongasat. These and later negotiations were also attended by Lady Dowager Fusitu’a, who was then Chief Secretary and Secretary to Cabinet, as the representative of the KOT. Arising from these negotiations a document dated 20 October 2006 recorded that there were to be three phases to the negotiation namely technical, coordination/contract and a final phase being ‘price of orbital slot’. Six steps were identified, the performance of which was conditional upon ‘the closing of the joint cooperation commercial contract’.

[42] In an email of 2 November 2006 Ms. ‘Ilaiu wrote to the PRC Ministry of Foreign Affairs recording CESEC’s preference for negotiation of a proposal involving payment of USD$75 million in return for which the KOT would give up its priority rights to 130° East. CESEC had apparently indicated that if the USD$75 million was ‘substantially decreased’ a deal could be done quickly. Ms. ‘Ilaiu was eager to conclude a deal and expressed dissatisfaction that the time frame for negotiations was open ended.

[43] On 20 December 2006 Mr. Semisi Panuve wrote to the then Prime Minister, Dr. Feleti Sevele (I will refer to him as Lord Sevele), informing him that a letter had been received from the PRC Ministry of Foreign Affairs confirming the PRC’s participation in ‘the project’. He was referring to the negotiation over 130° East. He described this as being of ‘paramount importance’ as it was confirmation that the PRC was committed to making a deal.

[44] In her capacity as the Chief Secretary and Secretary to Cabinet Lady Dowager Fusitu’a prepared a confidential briefing paper dated 29 December 2006 concerning the negotiations that had taken place in Beijing. She recorded that the KOT would not lease 130° East to China but would surrender its priority thus giving China ‘permanent ownership’ of the orbital position. Lady Dowager Fusitu’a also noted that CESEC ‘will fund any deal with Tonga’, that the Tongan delegation had stressed that what was being sought was a political/economic project and not an aid programme and that the USD$75 million proposed for 130° East was non-negotiable.

[45] On 25 January 2007 HRH wrote to the PRC Assistant Minister of Foreign Affairs seeking a letter of comfort as to the progress of negotiations between Tongasat and CESEC. HRH noted the effects of the recent 16 November 2006 riots and stated that Chinese support to conclude a deal on 130° East was ‘crucial at this stage to support rebuilding the homeland, maintain social stability and improve the people’s welfare’.

[46] Another example of Tongasat highlighting the KOT’s economic needs are minutes of a lunch meeting between Ms. ‘Ilaiu, Mr. Panuve and Lady Dowager Fusitu’a with representatives of the PRC Ministry of Foreign Affairs on 2 August 2007 where it was recorded that the ‘proceeds from this deal’ would greatly assist Tonga to rebuild and get it out of its economic difficulties.

Closing the deal

[47] By July 2008 it appeared likely that an agreement would be concluded with the PRC whereby the KOT would concede its priority to 130° East in favour of the PRC and the PRC would pay USD$49.9 million to the KOT in two tranches. However, at a late stage of the negotiations the PRC insisted that the payments be made as grant aid from the PRC to the KOT.

[48] Mr. Panuve prepared a letter to Lord Sevele dated 4 July 2008 in anticipation of the successful conclusion of the negotiations ‘in the coming week’. Mr. Panuve’s letter contained a proposal for sharing the expected USD$49.9 million and requested that the deal with China/CESEC be treated as a special one-off revenue split between Tongasat and the KOT. The letter assumed a 50/50 split between Tongasat and the KOT of the first tranche payment but noted that Tongasat owed the KOT outstanding revenue share of USD$7,460,667.43 and a further USD$1.3million (plus interest) was owed to the Tonga Trust Fund. He requested that ‘these amounts owing are offset against the Government’s share of the 50/50 split on the first payment to be received from China’. Mr. Panuve suggested that Tongasat and the KOT could sign a memorandum of understanding prior to closing the China/CESEC deal. He also requested a total review of the Agency Agreement.

[49] Mr. Panuve’s letter was sent as an attachment to an email from Ms. ‘Ilaiu to Lord Sevele on 4 July 2008, along with a draft memorandum of understanding. The draft memorandum of understanding has been lost.

[50] On 9 July 2008 Ms. ‘Ilaiu resent the email and attachment to Lord Sevele. In this email she suggested that rather than sign a memorandum of understanding an exchange of correspondence addressing the revenue share ‘of the Grant from China that Tongasat brokered on behalf of the Government’ would suffice. A letter was also attached to the email from HRH. A hard copy of that letter was later delivered to Lord Sevele and was dated 11 July 2008.

[51] The letter of 11 July 2008 purported to record the KOT’s preparedness to pay 50% of ‘this Grant’ to Tongasat and in principle agreement that the outstanding payment of revenue share owed by Tongasat to the KOT would be waived. A letter in response was requested at the earliest opportunity.

[52] The reference to the payment from the PRC being a ‘Grant’ was contrary to Tongasat’s earlier expectation that it was negotiating for a joint commercial project between the PRC and the KOT.

[53] In an email to the PRC Ministry of Foreign Affairs of 9 July 2008 Ms. ‘Ilaiu attached draft agreements on satellite frequency cooperation between CESEC and Tongasat and on economic and technical aid between the PRC and the KOT. The draft frequency cooperation agreement dealt with technical matters concerning the use of 130º East with the objective that CESEC would obtain undisputed priority over its use. The draft agreement on economic and technical aid was prepared by the PRC and was the instrument by which it was proposed that the PRC would make payment of the first tranche of grant aid to the KOT.

[54] In relation to the grant aid Ms. ‘Ilaiu wrote in her email:

....it is my understanding that the enclosed text Agreement between the two Governments is the instrument for the Grant and it is for the payment of USD$24,451,000 Mill. Following the signing of the documents between the Operators and the signing between the two Government[s], it is our understanding that Ambassador Hu will write to the Prime Minister of Tonga confirming the commitment of the payment of the 2nd Phase which is USD$25,440.000Mil. on or about the 31st December, 2010.

[55] On 12 July 2008 Lord Sevele responded to Ms. ‘Ilaiu’s email of 9 July 2008. He advised that ‘Sharing 50/50% of the first payment between the Government of Tonga and Tongasat is acceptable’ and that as regards Tongasat’s existing indebtedness to the KOT ‘from Government’s 50% share, we would clear Tongasat’s outstanding debts’. In relation to the second tranche payment Lord Sevele suggested that this would be discussed later but that:

Given the nature of this “grant”, there appears to be some room to manouevre [sic] – outside the strict confines of the current agreement.

[56] Lord Sevele said in evidence that the Agency Agreement was unfair to Tongasat because it paid all the costs of managing the orbital positions while the KOT contributed nothing and collected income. This belief, along with his recognition of the benefits that the KOT had received from Tongasat’s agency in the form of revenue share and taxation, influenced Lord Sevele’s decisions in his dealings with Tongasat. It is reflected in his email of 12 July 2008 where he wrote:

...the view I take, and which should feature significantly in the proposed review is that the current agreement is not a fair one – with one party paying all the expenses whilst the other party simply takes a disproportionate share of the benefits...

[57] On 12 July 2008 Ms. ‘Ilaiu responded to Lord Sevele by email accepting the division of the grant funds on the basis that he had set out in his email of 12 July 2008. She advised Lord Sevele that HRH would redraft her letter of 11 July 2008 to reflect the understanding reached and to emphasise the high costs of maintaining the orbital positions.

The 14 July 2008 agreements

[58] On 14 July 2008 two agreements were signed in Beijing. The first was headed ‘Summary Record of the Satellite Network Coordination between [CESEC] and [Tongasat]’ (the Summary Record) and concerned the coordination of satellite networks at 130° East and other orbital positions. The Summary Record made no mention of any financial arrangements between CESEC and Tongasat or between the PRC and the KOT.

[59] The second agreement was between the PRC and the KOT and was headed ‘Agreement on Economic and Technical Cooperation between the Government of the Kingdom of Tonga and the Government of the People’s Republic of China’ (the first tranche agreement). It was signed at a different location and after the Summary Record. The then Minister of Finance signed it on behalf of the KOT.

[60] The first tranche agreement recorded that to further develop friendly relations and economic and technical cooperation the PRC would provide the KOT with US$25,450,000:

..in grant aid to support the economic and social development of the Kingdom of Tonga.

[61] On 17 July 2008 the PRC Ambassador to Tonga wrote to Lord Sevele that he was pleased to learn that the PRC and the KOT had signed the first tranche agreement under which the PRC would ‘provide the Tongan Government with grant aid’ and that the PRC intended to sign another such agreement at an appropriate time providing a further USD$25.45 million in ‘grant aid to the Kingdom of Tonga’.

The first tranche payment

[62] As had been foreshadowed in the email correspondence between Ms. ‘Ilaiu and Lord Sevele, on 23 July 2008 HRH had delivered to Lord Sevele a letter (dated 11 July 2008) recording Tongasat’s understanding of what had been agreed as to the revenue share ‘from the Grants’.

[63] The letter highlighted the high costs of filing and maintaining the orbital positions. It also contained passages concerning the agreed division of the first tranche payment, recognised the nature of the first tranche payment as grant aid from the PRC and (one can infer) was intended to set the scene for the payment to Tongasat of the entire second tranche payment when that was eventually received. HRH wrote:

It is understood, and we would appreciate your confirmation, that the Governments 50% share of the first tranche shall first be used to clear the outstanding debts of Tongasat amounting to US$1.3 Million Plus interest to the Tonga Trust Fund and US$7.46 Million to the Government being the amount of revenue share owed by Tongasat up to, and including, the 30th of June 2008.

...As a result of the huge investment to secure contracts for Tonga’s filings, we have been able to sustain the long term relationship with the Chinese Satellite Operators and the Chinese Government. This has finally paid off whereby, with your support, Tongasat has successfully brokered Grants from the Chinese Government equivalent to US$49.9 Million. The first tranche being US$24.45 million and the second tranche being US$25.45 million.

...In respect of the second tranche, there are further negotiations to be undertaken, not as to its entitlement but as to its payment and the manner thereof, but this can wait until after the coronation.

[64] On 4 August 2008 Lord Sevele wrote to HRH concerning the sharing and payment of ‘the first tranche of the grants from China to the Government of Tonga/Tongasat’ and confirming that Tongasat would receive 50% of the first tranche payment upon receipt from the PRC. He did not mention payment of Tongasat’s debts from the Government’s share. Lord Sevele confirmed that there would be a review of the Agency Agreement which he again described as ‘unfair’. The letter was copied to the Deputy Prime Minister, the Minister of Foreign Affairs and the Minister of Finance and National Planning.

[65] It appears that Lord Sevele and HRH proceeded on an assumption that the Agency Agreement entitled Tongasat to 50% of the first tranche payment but (assuming the Agency Agreement applied) under the memorandum of understanding of 24 May 1996 Tongasat’s share would have been 40% (not 50%). Although clause 3.3 of the Agency Agreement anticipated the variation of the agreed percentage shares of the parties there was nothing to suggest that was what Lord Sevele and HRH were intending to do nor would it explain the departure from clause 4.1 by the payment of Tongasat’s debts from the KOT’s share.

[66] On 6 August 2008 there was a Cabinet meeting. There is no Cabinet briefing paper in evidence. There is a Cabinet Decision No. 840 from the meeting that simply states ‘Approved’ but does not identify what was discussed, recommended or approved. There was also a handwritten note, apparently relating to the meeting, which cryptically states:

Tongasat and funds from China

(1) Approved.

[67] There is a reference to Cabinet Decision No 840 in a Government media release of 22 October 2012 which records that Cabinet accepted aid funds from China amounting to USD$49.9 million. There is also a paper prepared by Lord Sevele for His Majesty’s Privy Council dated 5 September 2008 which refers to Cabinet Decision No. 840 and states that Cabinet had approved the formation of a Ministerial Committee to discuss with Tongasat the allocation of the grant funds. Certainly, as far as the first tranche payment was concerned, HRH and Lord Sevele had already reached an agreement on how that would be shared by the KOT and Tongasat by 4 August 2008.

[68] The KOT received the first tranche payment of USD$24.45 million from the PRC on 4 September 2008. Tongasat received a 50% share and in addition, from the Government’s share, satisfaction of Tongasat’s existing indebtedness amounting to USD$8,760,667.

[69] I accept Dr. Harrison’s analysis that the result was that the first tranche payment was divided up as to USD$20,985.667 to Tongasat and USD$3,464,333 to the KOT (an 85.8%/14.2% split).

[70] On 5 September 2008 Lord Sevele presented his paper to His Majesty’s Privy Council and noted that ‘Grant’ funds for the Government and Tongasat were received and that there was a mutual understanding that these funds would not be publicised. He noted that agreement had been reached for a 50/50 split of the first tranche funds between the KOT and Tongasat and that the Government’s share would cover Tongasat’s outstanding debts.

[71] Lord Sevele also stated in his paper that because of the ‘grant nature of these funds’ a mutually satisfactory compromise was reached with Tongasat which ‘essentially approximates the terms and conditions of the existing Agreement’, by which he was referring to the Agency Agreement. In justifying the revenue split by analogy Lord Sevele appears to have been accepting that the grant funds were not revenue to which Tongasat was entitled to a share as of right.

[72] The Privy Council approved recommendations that a Ministerial Committee be given authority to review the Agency Agreement with the intention of terminating it and establishing a fair license fee regime. The Prime Minister was given full authority to sign on behalf of the Government.

[73] In answer to questions from Mr. Edwards, Lord Sevele said that the decision as to how the first tranche payment was shared with Tongasat was endorsed by the Privy Council and was not his decision as Prime Minister. There is no document containing such endorsement. Lord Sevele’s evidence was also contrary to his expressed view concerning his powers as Prime Minister under s. 17 of the Government Act. He ‘most strongly disagreed’ with the plaintiffs’ claim that he had no ‘power or authority to negotiate nor to agree to make the payment to Tongasat of the grant funds from the PRC’.

[74] Lord Sevele also said that other Government officials, Ministers as well as the Ministerial Committee were all involved in the decision to share the first tranche payment. There are however no records of any meetings of the Ministerial Committee nor of meetings between Lord Sevele and Ministers nor any advice concerning the matter from officials.

[75] I am satisfied that Cabinet resolved to accept grant aid funds from the PRC in respect of the settlement of 130º East but not that Cabinet approved the sharing of the first tranche payment as agreed by Lord Sevele and HRH. I am also satisfied that Lord Sevele believed he had authority to make agreements with HRH on behalf of the KOT in respect of the division of the tranche payments.

[76] On 11 September 2008 Lord Sevele issued a statement to the Legislative Assembly confirming that Tongasat had cleared its debts to the Government and that the Government and Tongasat had agreed to terminate the Agency Agreement in favour of a licensing regime. The statement did not refer directly to the first tranche payment or to how it had been shared between the KOT and Tongasat.

The Westpac letter

[77] Lord Sevele referred to a letter that he and the Minister of Finance had written to Westpac Bank dated 16 January 2009. This was a letter of comfort to the Bank and it provides confirmation that the PRC was to pay the KOT approximately USD$25 million no later than 31 December 2010 and that ‘The Government of Tonga will pay at least 50% of this 2nd tranche to Tongasat’.

The Agency Termination Agreement

[78] It was not until 30 April 2009 that the KOT and Tongasat entered into a formal agreement terminating the Agency Agreement (the Agency Termination Agreement).

[79] The recitals to the Agency Termination Agreement acknowledged the Agency Agreement, the fact it had been varied by memoranda of understanding, Tongasat’s role in developing the satellite industry for Tonga, a mutual agreement to terminate the Agency Agreement in favour of a licensing regime and that Tongasat had existing contracts entered into with third parties.

[80] For present purposes the important clauses of the Agency Termination Agreement are clauses 1.1-1.6 and item 7 of Schedule 1.

[81] Clause 1.1 provided for the termination of the Agency Agreement with effect from 5 September 2008.

[82] Clauses 1.2-1.6 were concerned with preserving Tongasat’s existing contractual rights with third parties. Clause 1.2 provided that ‘the termination of the Agency Agreement shall not affect the contracts already entered into by TONGASAT with third parties’.

[83] Clause 1.3 identified that the ‘existing commercial contract and current negotiations and discussions between TONGASAT and third parties’ were as set out in the Schedule.

[84] Clause 1.4 provided that the KOT was to observe the rights and interests of third parties with whom Tongasat had contractual obligations in respect of frequency assignments at orbital positions insofar as those rights and interests gave options for renewal or further terms to be negotiated.

[85] Clause 1.6 provided that with respect to Tongasat’s existing commercial contracts and current negotiations and discussions Tongasat ‘shall have proprietary rights in respect of those matters’ until 2038.

[86] Schedule 1 was headed ‘Existing Commercial Contracts and Current Negotiations/Discussions between Tongasat and Third Parties’ and listed as item 7 the following:

Agreement on the Satellite Orbital Slot and Frequency Cooperation between China Electronic System Engineering Company and Friendly Islands Satellite Communications Limited Company of Tonga


Negotiations concerning the second tranche payment

[87] On 16 November 2010 HRH wrote to Lord Sevele in anticipation of receipt by the KOT of the second tranche payment. The letter referred to HRH having discussed with Lord Sevele the investment made by Tongasat and the financial expense and hardship endured by Tongasat since incorporation and proposed as ‘a goodwill gesture on Tongasat’s part’ a USD$6 million payment from Tongasat to the KOT out of the second tranche payment. There was a clear presumption that the second tranche payment was Tongasat’s entitlement and that the amount to be retained by the KOT was not by way of revenue share or an obligation but as an act of generosity by Tongasat. In addition, HRH’s letter proposed the forgiveness by the KOT of the outstanding tax obligations of not only Tongasat but also HRH and Tongasat’s employees, management, directors, officers and shareholders. The final page of the letter made provision for Lord Sevele to sign an acknowledgement as acceptance of its terms.

[88] Lord Sevele gave evidence that he signed the letter of 16 November 2010 and that he would have returned it to HRH and retained a signed copy on the file in the Prime Minister’s office. He regarded the letter as creating a binding agreement between the KOT and Tongasat in relation to the sharing of the second tranche payment. No version of this letter signed by Lord Sevele was produced, although Tongasat and the KOT should each have retained a copy. Neither Mr. Panuve nor Ms. ‘Ilaiu could confirm that they had ever seen the letter signed by Lord Sevele. HRH did not give evidence. Lord Tu’ivakano said at first that he had not seen the letter and later that he may have seen it in 2014. His evidence on this aspect was unsatisfactory and I do not take anything from it.

[89] I consider that Lord Sevele was mistaken that he signed and returned the letter. This is not only because no copy of the letter signed by Lord Sevele was produced and no other witness can confirm seeing it. It is also because Lord Sevele said that he would not have agreed to forgive the taxation liabilities of anyone other than Tongasat. Yet that is what the letter clearly requested of him in respect to the employees, management, directors and shareholders of Tongasat. When that was put to him Lord Sevele said that he would have signed the letter of 16 November 2010 ‘with clarification’. No document containing or referencing any such clarification is in evidence and no other witness said that the letter was subject to any clarification.

[90] It is important also to put the letter of 16 November 2010 in context. Tonga was about to hold a General Election and a change of administration was possible. The PRC had not confirmed a date upon which the second tranche payment would be made. There was no apparent need for haste, at least as far as the KOT was concerned, to decide if and to what extent it would share the second tranche payment with Tongasat. It would be surprising if Lord Sevele had, just days before the Election, signed and returned the 16 November 2010 letter agreeing to the disbursement of such a very large sum of money to Tongasat.

[91] On 25 November 2010 there was a General Election and following the Election Lord Tu’ivakano became Prime Minister.

[92] Tongasat had expected that the second tranche payment would be made by 31 December 2010 after CESEC had launched a new satellite into 130° East. However, CESEC raised technical issues and a further round of meetings was conducted in December 2010 and January 2011 requiring Tongasat to involve an expert consultant. Again, Tongasat paid all the costs of these further negotiations. CESEC’s issues were duly resolved paving the way for the second tranche payment to be made.

[93] A report by Mr. Panuve to HRH of 21 January 2011 recorded that the second tranche payment remained a firm commitment of the PRC and would most likely be made in late March 2011 and that the date of payment would be relayed between Governments.

[94] Lord Tu’ivakano said that following the General Election he had a meeting with HRH and Ms. ‘Ilaiu and was satisfied from what he was told that the former Government had made a binding decision for the payment of the second tranche payment to Tongasat. At around this time also Mr. Panuve and Ms. ‘Ilaiu met with the Ministers of Finance and Justice to inform the new Government of what they regarded was Tongasat’s entitlement to the second tranche payment.

[95] On 18 April 2011 Tongasat wrote to Lord Tu’ivakano making a request for three specific payments in favour of Tongasat of the entire second tranche payment. The payments requested were USD$6 million for the settlement of tax liabilities of Tongasat and HRH, USD$500,000 to the Tonga Development Bank (no purpose was identified) and the balance of USD$18,950,000 to Tongasat’s account with the Westpac Bank. This letter referred to the Agency Termination Agreement and the letter of 16 November 2010 from HRH to Lord Sevele, apparently as justifying the disposition of the second tranche payment to Tongasat.

Receipt of the second tranche payment

[96] On 19 April 2011 a further ‘Agreement on Economic and Technical Co-operation between the Government of the Kingdom of Tonga and the Government of the People’s Republic of China’ was signed in Tonga under which the PRC agreed to provide the KOT with grant aid of USD$25.45 million (the second tranche agreement). The grant was stated to be ‘In accordance with the needs of the Government of the Kingdom of Tonga’.

[97] On 25 May 2011 the Secretary for Information and Communications, Mr. Paula Ma’u, wrote a memo to Lord Tu’ivakano addressing how the second tranche payment should be shared as between the KOT and Tongasat. The memo refers to Tongasat’s letter of 18 April 2011 requesting the full proceeds of the second tranche payment but states that this is ‘contrary to agreement’, by which Mr. Ma’u was referring to the sharing of the first tranche payment, ostensibly at least, on a 50/50 basis. Mr. Ma’u referred (with apparent approval) to the recommendation of an earlier meeting on 20 April 2011 that Tongasat’s tax arrears, then amounting to TOP$15.68 million, be first deducted from the second tranche payment with the balance split 50/50 between the KOT and Tongasat. The recommendation was not adopted.

[98] Lord Tu’ivakano said that in addition to the representations from Tongasat he had advice from officials that the second tranche was to be paid to Tongasat. His evidence was unspecific and not supported by any documents containing or referring to such advice other than from Mr. Ma’u.

[99] Lord Tu’ivakano’s position was that he took no part in any decision as to how the second tranche payment would be disbursed as be believed that decision had already been made by the previous government.

[100] On 30 May 2011 the Minister of Finance wrote to the National Reserve Bank of Tonga directing that upon receipt of the second tranche payment there be a transfer to the Government’s Operating Account of TOP$11,559,683 (being Tongasat’s tax arrears of TOP$15.68 million less penalties previously imposed but now waived) with the remaining balance to be transferred to Tongasat. There is no document which records any earlier Privy Council, Cabinet or Ministerial approval for this direction.

[101] The second tranche payment was received by the KOT on 9 June 2011 and it was deposited into a Government of Tonga United States Dollar Special Account at the National Reserve Bank. In accordance with the Minister of Finance’s directive of 30 May 2011, of the USD$25,450,000 aid grant from the PRC, USD$6,789,001.83 was deposited into the Government’s operating account in satisfaction of Tongasat’s taxation liabilities. The balance of USD$18,660,998.17 was paid to Tongasat. In effect Tongasat received the entire second tranche payment either by way of a direct payment or in satisfaction of its existing taxation liabilities.

[102] As noted earlier, Tongasat received 85% of the first tranche payment. It received 100% of the second tranche payment. In total it received 93% of the first and second tranche payments combined.

[103] On 24 June 2011 representatives of the Governments of the PRC and the KOT signed a Hand-Over Certificate which recorded that the payment of USD$25,450,000 was a grant aid to assist the KOT in its economic and social development.

The plaintiffs’ special interests

[104] As a result of allegedly defamatory publications by the first plaintiff and an unsuccessful criminal prosecution taken by the second plaintiff against HRH, Lord Tu’ivakano and others, actions have been filed against the plaintiffs which are presently before the Supreme Court. These include actions by Lord Tu’ivakano and a former Minister, Mr. Clive Edwards, for defamation against the first plaintiff and for malicious prosecution by Tongasat, HRH, Lord Tu’ivakano and Mr. Edwards against the second plaintiff. All of these actions are concerned with the manner of expenditure of the first and second tranche payments and, specifically, whether they were lawfully paid to or for the benefit of Tongasat.

Media releases

[105] There are Government media releases of 22 October 2012 and 2 November 2012 concerning Tongasat and the first and second tranche payments. They are not always consistent in their description of the circumstances under which the first and second tranche payments were shared with Tongasat. In both cases there is an acknowledgment that the KOT had agreed to accept USD$49.9 million as aid money from the PRC and that it was paid in two phases (or tranches). They also stated that the first tranche was shared 50/50 between the KOT and Tongasat. However , the release of 22 October 2012 stated that from the Government’s share Tongasat paid off its debts to the Government. The media release of 2 November 2012 made no mention of that but stated that the sharing was by agreement between the parties.

[106] In relation to the second tranche payment, the release of 22 October 2012 stated that it was paid out in accordance with the Agency Termination Agreement and HRH’s letter of 16 November 2010 which, it was said, Lord Sevele had agreed to. The media release of 2 November 2012 made no mention of the Agency Termination Agreement but did refer to the letter of 16 November 2010.

[107] Both releases contended that the second tranche payment was disbursed in accordance with approval and agreements reached by the former administration. Neither media release asserted that the grant aid was trust money or that the PRC intended it for Tongasat.

The Public Law Claims

The issue

[108] The primary issue is whether the first and second tranche payments were ‘public money’ and therefore subject to the PFMA. The plaintiffs contend that the first and second tranche payments were public money and could not be expended unless authorised by an Appropriation Act (s. 9 of the PFMA) and could not be used towards payment of any debt or liability of Tongasat (s. 30 of the PFMA). Furthermore, the plaintiffs argue that no contract, arrangement, or side agreement between the KOT and Tongasat, could override or independently authorise a payment made without such statutory authority.

[109] The KOT and Tongasat argue that the tranche payments were ‘trust money’ as defined in the PFMA and therefore specifically excluded from the definition of public money and not subject to the restrictions on expenditure in the PFMA.

Executive accountability

[110] It is useful to start with a statement of first principle. It is fundamental that the Legislature’s control over the manner in which public money is expended is the ‘mainspring of executive accountability’ (Philip Joseph ‘Constitutional and Administrative Law in New Zealand’ 4th Ed at page 333). Procedures to control public finances are predicated on the principle that no executive ratification can vindicate illegal expenditure (Auckland Harbour Board v R [1924] AC 318 (PC) at 326-327)

[111] In Tonga this is reflected in cl. 19 of the Constitution which provides:

Expenditure to be voted

No money shall be paid out of the Treasury nor borrowed nor debts contracted by the Government but by the prior vote of the Legislative Assembly, except in the following cases:

(i) Where an Act duly passed by the Legislative Assembly gives power to pay out money or borrow or contract debts, then money may be paid out, or borrowing carried out or debts contracted in terms of that Act; and

(ii) In cases of war or rebellion or dangerous epidemic or a similar emergency, then it may be done by the Minister for Finance with the consent of Cabinet, and the King shall at once convoke the Legislative Assembly and the Minister for Finance shall state the grounds for the expenditure and the amount.

[112] Clause 19 was amended by the Constitution of Tonga (Amendment Act) (No. 2) Act 2010 but not in any way material to this action.

The PFMA

[113] The PFMA states in its long title that it is an Act to ‘regulate economic, fiscal, and financial management by Government’. In various parts it is concerned with ‘Responsibility for Financial Management’, ‘Budgets and Appropriations’, ‘Public Money, the Public Fund and Trust Money’, ‘Borrowing, Loans, and Guarantees’ and ‘Financial Reporting’.

[114] I accept Dr. Harrison’s submission that the overall purpose of the PFMA can be said to include responsible management of the Kingdom’s finances, transparency and the legal accountability of those entrusted with responsibility for the handling of the Kingdom’s finances and economic assets.

[115] Section 2 contains key definitions, which in particular include ‘grants’; ‘public money’; ‘revenue’; and ‘trust money’ as follows:

“grants” means —

(a) non-repayable receipts from other Governments, international or domestic institutions or individuals; or

(b) non-repayable payments made by the Government of Tonga to other Governments or international or domestic institutions or individuals;

“public money” means all money other than trust money received by the Government, including all revenue, grants, loans and other moneys, and all bonds, debentures, and any other securities received by, or on account of, or payable to, or belonging to, or deposited with the Government by —

(a) any officer of Government in his capacity as such; or

(b) any person on behalf of Government;

“revenue” means all non-repayable Government receipts;

“trust money” means —

(a) money that is deposited with the Government pending the completion of a transaction or dispute and which may become repayable to the depositor or payable to the Government or any other person;

(b) money that is paid into Court for possible repayment to the payer or a third party, by virtue of any Act, rule, court order or other authority;

(c) unclaimed money that is due to or belongs to any person and is deposited with the Government;

(d) money that is paid to the Government in trust for any purpose as approved by the Minister; and

(e) money that belongs to or is due to any person and is collected by the Government under any agreement between the Government and that person;

[116] Section 3 provides that the Minister of Finance is responsible for the management of public finance under the Act. The Minister’s duties include the preparation of the Estimates for each forthcoming financial year, under s. 7 of the Act.

[117] In Part III, s. 9(1) provides that no public money shall be expended unless authorised by an Appropriation Act or as statutory expenditure. Statutory expenditure’ is defined in s. 2 of the Act. Sections 9(2)–(5) further limit how public money that has been appropriated shall be expended.

[118] Section 16 governs and limits dealing with public money by ensuring that it is paid into a designated bank account, so that its ultimate expenditure is controlled. In particular, ss. 16(1) and (2) provide:

Dealing with Public Money

(1) Public money is the property of the Government.
(2) Public money shall, except as otherwise provided in this Act, be paid into bank accounts designated by the Ministry for that purpose and such accounts shall form part of the Public Fund.

[119] Section 22 governs how trust money (as defined) is to be dealt with and accounted for. Section 22(1) empowers the Minister to establish trust accounts, and requires that all trust moneys are paid into such trust accounts. Under ss. 22(2)–(4), an instrument containing prescribed details must be prepared and subject to Ministerial approval.

[120] Part V of the PFMA addresses both borrowing and loans by Government. Section 30 provides that the Government shall not be liable to contribute towards the payment of any debt or liability unless it is liable to contribute under any Act, or under any guarantee or indemnity given under the PFMA.

[121] Section 39, creates offences and penalties, and s. 40 provides for disciplining of accountable officers who overspend. Sections 39(1)(b) and (g) prescribe offences for failure to account for, and improper payment of, both public money and trust money.

[122] The PFMA prevails over all other statutes apart from the Constitution. Section 47 provides that:

Subject to the Constitution, where any provision of this Act conflicts [with] any other enactment, the provision of this Act shall prevail.

The plaintiffs’ case on the application of the PFMA

[123] Dr. Harrison submits that when ascertaining the legal status of the first and second tranche payments in terms of the PFMA, the Court has to consider a number of factors namely, the source of the funds in question, the identity of the recipient (including the underlying, contemporaneous banking and any accounting transactions), and any official or publicly documented agreement or statement as to the nature of the payment transaction which, he contends, must necessarily prevail over any ex post facto assertions to the contrary.

[124] In respect of this last matter, to some degree all of the witnesses for both the KOT and Tongasat made assertions as to the meaning and effect of the Agency Agreement and/or the Agency Termination Agreement and/or as to the intentions of the PRC in relation to KOT’s use of the first and second tranche payments that contradicted the contractual documents that the parties had entered into recording their agreements. I do not set out each instance as it is sufficient for me to note that for the most part such evidence is inadmissible (ss. 79 and 81 of the Evidence Act) or was (by its subjective nature and hindsight bias) of little assistance to the Court.

[125] The plaintiffs’ argue that the first and second tranche agreements described the tranche payments as being by way of grant aid and stated the purposes of the payments. Dr. Harrison submitted that their wordings squarely brought the first and second tranche payments within the definition of ‘grants’ in the PFMA and they could not therefore be trust money.

[126] This was because the term ‘public money’ was exhaustively defined and distinguishes ‘grants’–as well as all money (other than ‘trust money’) received by the Government–from the separate ‘trust money’ regime established by s. 22 of the Act.

[127] There is, Dr. Harrison submitted, a bright-line drawn between ‘trust money’ on the one hand, and ‘all [other] money ... including all revenue, grants, loans and other moneys...’ on the other. It necessarily followed that receipts of funds falling within the definition of ‘grants’ must be treated as public money, and equally cannot be categorised as trust money.

[128] Dr. Harrison also referred to the contemporaneous documents and correspondence which he argued confirmed the status of the tranche payments as grants and not trust money. I note the following:

(a) The email from Ms. ‘Ilaiu to the PRC Ministry of Foreign Affairs of 9 July 2008 refers to the ‘Government Grant document’ and the ‘instrument for the Grant’.

(b) The email from Ms. ‘Ilaiu to Lord Sevele of 9 July 2008 refers to ‘the Grant from China that Tongasat brokered on behalf of Government’, and to ‘the Grant that will be made by the People’s Republic of China for the sum of USD$29.9 million to the Kingdom of Tonga’.

(c) The first letter from HRH to Lord Sevele of 11 July 2008 referred to ‘the Grant that will be made by the People’s Republic of China...’.

(d) The second letter from HRH to Lord Sevele dated 11 July 2008 (delivered 23 July 2008) refers to Tongasat as having ‘successfully brokered Grants from the Chinese Government equivalent to US$49.9M’.

(d) The letter from the PRC Ambassador to Lord Sevele of 17 July 2008 refers to the first tranche agreement as providing ‘the Tongan Government with grant aid’, and to the PRC Government’s intention to sign a second agreement on economic and technical cooperation, ‘under which the Chinese Government will provide USD$25.45M in grant aid to the Kingdom of Tonga’.

(e) The letter from Lord Sevele to HRH dated 4 August 2008 addresses sharing of ‘the first tranche of the grants from China to the Government of Tonga/Tongasat’.

(f) The Prime Ministerial paper dated 5 September 2008 to His Majesty’s Privy Council refers in relation to the first tranche payment to ‘the grant nature of these funds’.

(g) The letter from HRH to Lord Sevele dated 16 November 2010 refers to the ‘final tranche payment of a grant by the Peoples’ Republic of China’ and to ‘the remaining payment of the grant brokered by Tongasat’.

(h) The Hand-Over Certificate dated 24 June 2011 signed on behalf of both the KOT and the PRC refers to the contemporaneous provision of the second tranche payment as a ‘grant aid’ in accordance with the 19 April 2011 agreement on economic and technical cooperation between the two Governments.

(i) In relation to the second tranche payment, Dr. Harrison also referred me to contemporaneous correspondence and records which proved that the second tranche payment was paid into the KOT’s general bank accounts and not into any separate trust account (as would have been mandatory under s. 22 of the PFMA, if the funds were trust money).

[129] It followed, in Dr. Harrison’s submission, that the first and second tranche payments were therefore ‘money other than trust money’ ‘received by the Government’, and in its entirety comprised ‘public money’ under the PFMA.

[130] Therefore the tranche payments were ‘the property of the Government’ (s. 16(1)) and could not be expended without authorisation (s. 9); and could not be offered up to Tongasat by means of an agreement purporting to be an acceptance by the Government of any third party liability, other than strictly in accordance with s. 30.

The KOT’s case on the PFMA

[131] Mr. Kefu accepted that if the first tranche payment was not trust money (as defined) then it must be public money. He accepted also that Lord Sevele’s authorisation of the division of the first tranche payment would not resolve the plaintiffs’ objections to its use in breach of the PFMA. Mr. Kefu submitted that the ‘only applicable statute’ is the PFMA which, he said, was the legislation that was used as the basis for the payments made by the Government to Tongasat. At least two things can be said to follow from those submissions. First, that it is accepted that if the tranche payments were public money and not trust money then they were expended in breach of the PFMA. Secondly, (whilst Mr. Kefu formally reserved the KOT’s position on the point) the KOT does not argue that as Prime Minister Lord Sevele had the power under the Government Act to authorise the payments to Tongasat.

[132] Lord Sevele relied specifically upon s. 17(1) of the Government Act as giving him authority to deal with the tranche payments and I will consider this matter now. Although the section has been subject to amendment (s. 4 of the Government (Amendment) Act 2010) at all relevant times s. 17 provided that the Prime Minister ‘shall be charged with the administration of any department or any government property the administration of which is not specifically provided for in this or any other Act’. Section 17(3) provided that the Prime Minister ‘shall not decide any grave or important matter without the consent of Cabinet’.

[133] Dr. Harrison submitted, and I agree, that the provisions of the PFMA ‘specifically provided’ otherwise in respect to the expenditure of public money and that, in any event, the claimed authority over ‘administration of ... any government property’ did not extend to authorising the expenditure of the first and second tranche payments. I also consider it beyond argument that the expenditure of almost USD$50 million by the Government must be considered an important matter which would have required the consent of Cabinet.

[134] Mr. Kefu’s central premise was that the first and second tranche payments were paid to the KOT subject to an understanding between the KOT and the PRC that the funds were intended for Tongasat and they were therefore trust money as defined in the PFMA. The KOT’s case was put squarely on the basis that the payments fell with paragraph (e) of the definition of trust money.

[135] Mr. Kefu argued that it does not matter how the first and second tranche payments were characterised at the time they were paid, what was important was how the funds were received and used by the KOT under the PFMA and that the money was earmarked for Tongasat ‘for giving CESEC unfettered access to the frequencies in the 130ºE slot’.

[136] Contrary to the position advanced by Dr. Harrison, Mr. Kefu argued that whilst the scheme of the PFMA is that trust money is not public money, grants can be paid to Government for a trust purpose and therefore are not public money. He put his argument this way:

A grant can also be paid to Government as money belonging to someone, and it is agreed that Government would collect it under an agreement between Government and that person.

[137] In support of the KOT’s stance Mr. Kefu relied on the following matters:

(a) The KOT had not asked for grants from the PRC;

(b) The PRC paid the money as a grant as it did not want a record of the breach by CESEC of the KOT’s priority rights;

(c) There was nothing that regulated the conflict over 130° East and it was up to the parties to resolve it as they saw fit;

(d) The payments could not be budgeted for by the KOT as they were not linked to a project or Ministry;

(e) The payments were to compensate Tongasat for its loss; and

(f) The Government treated the money as trust money.

[138] Mr. Kefu also referred me to various documents and correspondence which he submitted showed that the first and second tranche payments were either not ‘normal aid’ or were payments in respect of the ‘CESEC arrangement’ or the performance by Tongasat of its duties under the Agency Agreement or were due to it under the Agency Termination Agreement.

[139] However, Mr. Kefu also advanced submissions which to my mind negate the premise upon which the KOT has built its case. He submitted that the first and second tranche payments were intended as a gift to the KOT and that the KOT had a discretion on their use. If either of these matters is correct then there can be no suggestion that the PRC intended the tranche payments for Tongasat or that they were trust money.

[140] Another difficulty for the KOT is that it is accepted that the s. 22 procedures were not followed. This is strong evidence that the tranche payments were not trust money. Faced with this, Mr. Kefu submitted that compliance with s. 22 was unnecessary and that the manner in which the tranche payments were received and paid out was otherwise consistent with them having always been trust money intended for Tongasat.

[141] Finally, Mr. Kefu argued that it was for Government to decide how it would share the first and second tranche payments with Tongasat and the Courts have no right to interfere in its decision on such a matter.


Tongasat’s case in relation to the PFMA

[142] Mr. Edwards began by submitting that Tongasat had no control over, and was not responsible for, the manner in which the tranche payments were received by the KOT or how the KOT disbursed them to Tongasat. His submissions did not, in the main, concern the application of the PFMA but were principally directed to the conceptually and analytically quite different question of Tongasat’s entitlement to payment under the Agency Agreement and/or the Agency Termination Agreement and/or pursuant to agreements reached between HRH and Lord Sevele.

[143] Mr. Edwards did, however, argue that the tranche payments were trust money intended for Tongasat and submitted that paragraphs (a), (d) and (e) of the definition of trust money might all be applicable. He did not provide any specific analysis of those provisions.

[144] Mr. Edwards submitted more generally that when all the facts and circumstances, including the lack of any request by the KOT for grant aid and the terms of the Summary Record, were taken into account it could be reasonably inferred that the tranche payments were not grant aid but ‘payment in respect of the 130° East orbital slot between [Tongasat] and CESEC’.

Discussion

[145] The starting point must be that the PRC required the tranche payments to be made as grant aid and that the KOT accepted them on that basis. The wordings of the first and second tranche agreements unquestionably brought both the first and second tranche payments within the PFMA definition of ‘grants’, namely as non-repayable receipts from another Government. Subject then only to the arguments advanced by the KOT and Tongasat that the payments were trust money, they were undoubtedly ‘received by the Government’, and must be considered in their entirety as comprising public money under the PFMA.

[146] I am not fully convinced by Dr. Harrison’s bright-line argument that receipt of funds falling within the definition of ‘grants’ must be treated as public money, and cannot be categorised as trust money. I do not need to decide that matter as I arrive at the same conclusion as Dr. Harrison, that the tranche payments were public money and not trust money, by another route.

[147] Turning to the definition of trust money in the PFMA, as I have noted earlier Mr. Edwards argued that paragraphs (a), (d) and (e) of the definition might be applicable in this case, whereas Mr. Kefu relied only upon paragraph (e).

[148] Paragraphs (a) and (d) plainly do not apply. The first and second tranche payments were not deposited with Government ‘pending completion of a transaction or dispute’ for the purposes of paragraph (a) and, in fact, were distributed immediately upon receipt by the KOT.

[149] There is no evidence that the money was deposited by the PRC ‘in trust’ or that any such trust purpose was approved by the Minister of Finance for the purposes of paragraph (d).

[150] That leaves paragraph (e) which I set out again below:

“trust money” means —

....

(e) money that belongs to or is due to any person and is collected by the Government under any agreement between the Government and that person;

[151] This definition has the following features. First, it contemplates three parties namely; (1) a person who owes money due or holds money belonging to another; (2) the person to whom the money is due or belongs; and (3) the Government. The second feature is that the terms ‘due’ and ‘belongs’ indicate an existing state of affairs; that is that the money belongs to or is due to the second party before collection by the Government. The third feature is that the money is collected by the Government under an agreement between the Government and the second party. The fourth feature is that the money is received by the Government as trust money; that is money held by the Government subject to a fiduciary obligation to deal with it for the benefit of the second party.

[152] Applying this analysis, it is plain that the tranche payments do not come within this definition of trust money. At no time was the PRC indebted to or holding money that belonged to Tongasat. Tongasat had no claim against the PRC (or CESEC) in respect of the use of 130° East. The tranche payments became payable (that is due) by the PRC to the KOT only upon the signing of the tranche agreements but they were never due to and never belonged to Tongasat. In so far as it can be argued that Tongasat was entitled to share in the tranche payments that could only be pursuant to an agreement between it and the KOT. It follows that paragraph (e) cannot apply.

[153] In addition there was no agreement between the KOT and Tongasat that the KOT would collect the tranche payments for Tongasat. Furthermore, the tranche payments were never collected as trust money. The requirements of s. 22 were not complied with and any sharing was always subject to Tongasat reaching agreement with the KOT and the KOT recovering its revenue share (in respect of the first tranche payment) and Tongasat’s outstanding indebtedness (in the case of both tranche payments).

The PRC’s intentions

[154] Whilst that is enough to dispose of the argument that the tranche payments were trust money I will also deal with the other arguments advanced by Tongasat and the KOT starting with the submission that there was an understanding with the PRC that the tranche payments were for Tongasat.

[155] The evidence of the witnesses involved in the negotiations with CESEC and PRC (Lady Dowager Fusitu’a, Ms. ‘Ilaiu and Mr. Panuve) that resulted in the signing of the first tranche agreement accepted that there were only two agreements reached at that time, namely the first tranche agreement and the Summary Record. Neither agreement supports the contention that the tranche payments were intended for Tongasat nor do the terms of the second tranche agreement. When one considers that evidence, along with the PRC’s insistence that the payments be made as grant aid and the many other contemporaneous documents/correspondence to which I referred recording the understandings of both PRC and KOT that the tranche payments were grant aid, there is simply no room to argue that the purpose of the tranche payments was anything other than grant aid.

[156] Lord Sevele and Lord Tu’ivakano said that they were advised by representatives of the PRC that the tranche payments were meant for Tongasat. I am not able to accept that the PRC expressed any wish that the KOT use the first and second tranche payments for Tongasat. Neither Lord Sevele nor Lord Tu’ivakano were involved in the negotiations with CESEC and the PRC. The advice they say they received from Chinese officials contradicts the terms of the first and second tranche agreements that were prepared by the PRC reflecting their requirement that the payments be grant aid. The payment of grant aid was consistent with Tongasat’s emphasis in the negotiations with CESEC and the PRC on the economic and social needs of Tonga and the effects of the 2006 riots. Neither Lord Sevele nor Lord Tu’ivakano pointed to any document that conveyed the PRC’s wish that the tranche payments go to Tongasat. There is no document in which the PRC or any representative of the PRC has expressed a desire (much less a requirement) that the first and/or second tranche payments were for Tongasat. No representative of the PRC was called to give evidence to that effect either.

[157] Both Lord Sevele and Lord Tu’ivakano said that the KOT had not made any request for grant aid and much was made of this by Counsel. There is no requirement for a request in the definition of ‘grants’ in the PFMA. Furthermore, the existence of a request for aid was implicit in the conduct of the KOT in signing the first and second tranche agreements. Those agreements state the purpose of the grant aid payments and say nothing at all about Tongasat.

[158] Mr. Edwards argued that the PRC’s intentions could be discerned from reading the first tranche agreement and the Summary Record together but even read together those agreements do not support an inference that the first tranche payment was intended for Tongasat.

[159] Furthermore, as a matter of common sense it is difficult to see why the PRC would have any interest in advancing the commercial interests of Tongasat or would even consider that its interests vis a vis the KOT needed protecting.

Compensating Tongasat

[160] The submissions that the tranche payments were to compensate Tongasat for its loss of 130º East and that it was Tongasat that granted CESEC unfettered access to 130º East are not correct. These submissions obfuscate that it was the KOT (and not Tongasat) that had rights to 130° East and that Tongasat was the KOT’s agent with no power to grant any rights except with the KOT’s consent.

The manner of use of the tranche payments

[161] Mr. Kefu is not correct that the status of the tranche payments is to be determined by their use. Their status must be determined by the application of the PFMA when received by Government. As Dr. Harrison submitted, it would subvert the purpose of the PFMA if public money could after receipt be classified as trust money and ‘spirited away’ for other purposes.

[162] In any case, it is not at all clear how it is that the tranche payments are said to have been used as if they were trust money. There was no compliance with s. 22, which strongly suggests that the tranche payments were not regarded as trust money and certainly were not treated as such. Whilst the tranche payments were paid or applied to the extent of 93% for the benefit of Tongasat one cannot infer from that the existence of a trust. The circumstances, including the retention of some portion of the first tranche payment by the KOT and the use of both tranche payments to pay debts owed to the KOT, are not consistent with a trust relationship.

[163] There is also no contemporaneous document to support the submission that the tranche payments were upon receipt regarded by the KOT as trust money. The first time that argument appears to have been raised is in an Auditor General’s report of 16 June 2014. That report concluded that the use of the tranche payments was unlawful but I place no reliance upon that conclusion nor upon the categorisation of the funds as trust money, which is based on an incorrect understanding that the Minister of Finance had directed that the tranche payments be held in trust for Tongasat. There was no such direction.

The challenge to the Court

[164] I do not accept the submission that the Court has no place questioning the KOT’s use of the tranche payments. The Court is being asked to rule on whether the tranche payments were expended in breach of the PFMA. The Court’s jurisdiction to review executive action in a case such as this is well established (The Queen on the application of Hooper v Secretary of State for Work and Pensions [2003] EWCA Civ 813 and R v Foreign Secretary, Ex p World Development Movement Limited [1994] EWHC Admin 1; [1995] 1. W.L.R. 386).

[165] It is relevant that in Hooper at [131]-[132] the Court stated:

[131] Where a Minister proposes to make a payment that has been authorised by a specific statute the Court can properly review his decision to see whether, on a true interpretation of the statute, the payment falls within its authorisation. If it does not, the decision to make the payment will be unlawful...

[132] Where a Minister proposes to make payments in circumstances where this conflicts with the intention of Parliament, as manifested in a specific statute, the decision will be unlawful as an abuse of power, even, it seems, if Parliament has authorised the issue of funds for that purpose in an appropriation statute – see R v Home Secretary, ex parte Fire Brigades Union [1995] UKHL 3; [1995] 2 AC 513 at p.554H.

The Agency Agreement and the Agency Termination Agreement

[166] The KOT’s rights to 130° East were obtained and managed by Tongasat and at Tongasat’s cost. Tongasat conducted the negotiations with CESEC and the PRC over a number of years, again entirely at its cost. The negotiations resulted in the PRC making the tranche payments. It was always the expectation of Tongasat and the KOT that they would share the proceeds of the settlement of 130° East. Understandably the KOT and Tongasat argue that Tongasat was entitled to share the tranche payments. They contend that Tongasat’s entitlement arose, in the case of the first tranche payment, under the Agency Agreement and, in the case of the second tranche payment, under the Agency Termination Agreement.

[167] As the tranche payments were ‘public money’ within the meaning of the PFMA they could not be expended except in accordance with the PFMA and, for reasons that I shall come to, that did not occur. I accept Dr. Harrison’s submission that no contract between the KOT and Tongasat could authorise a payment of public money made without such statutory authority.

[168] In Auckland Harbour Board v R (supra) Viscount Haldane observed at pages 326-327:

For it has been principle of the British Constitution now for more than two centuries....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, and may be recovered by the Government if it can, as here be traced.

[169] But in addition I do not accept that Tongasat had a contractual entitlement under either the Agency Agreement or the Agency Termination Agreement to share in the tranche payments.

The Agency Agreement

[170] Dr. Harrison argued that the agreed financial rewards for Tongasat under the Agency Agreement were expressly limited to revenues from the licensing, leasing, use or other grant of benefit associated with the satellite slots ‘while’ registered in the name of the KOT. It followed that the sharing as between the KOT and Tongasat of gross revenue in agreed percentages related only to the authorised dealings with individual satellites ‘short of outright sale or disposition’. He also submitted that any other interpretation would produce absurd results and posited the circumstance of an owner of a house and a real estate agent agreeing to share equally the profits from the agent’s renting of the house. He argued that the prior agreement as to sharing of the income from the house bears no connection with any sharing of the proceeds of the ultimate sale of that asset.

[171] The Agency Agreement was not in its terms limited to revenue earned while orbital positions are registered in the name of the KOT. Clause 3.1 refers to the licensing, lease, use or other grant of benefit associated with the satellite orbital positions ‘being’ (not ‘while’) registered in the name of the KOT. This has a quite different connotation than the one advanced by Dr. Harrison. Nor is it absurd that the KOT and Tongasat might agree to share the proceeds of the outright disposition of orbital positions in circumstances where Tongasat was, entirely at its own cost, responsible for obtaining the ITU registrations and preserving and maintaining them over many years as well as negotiating the sale. Dr. Harrison’s land agent example is not apposite. A land agent does not acquire and maintain his client’s house nor is he expected to negotiate its sale all at his own cost.

[172] In my view, the difficulty facing Tongasat and the KOT is that the Agency Agreement is concerned only with the sharing of revenue received by Tongasat as a result of ‘Tongasat’s operations’. There is no term in the agreement which requires the KOT to share grant aid or other revenue it receives upon an outright sale or other disposition of an orbital position nor can such a term be implied. A term will not be implied into an agreement when it is not necessary and would be inconsistent with the tenor of the agreement as a whole (Chitty on Contracts, 29th Ed Vol. 1 at 13-009 and 13-023). A term requiring the KOT to share the tranche payments is not necessary and would be contrary to the tenor of the Agency Agreement as a whole, particularly the revenue sharing provisions (clause 3), clause 4.1 (the KOT had no obligation to contribute money to Tongasat ‘for any purpose’) and the entire agreement clause (clause 11.4).

[173] The circumstances that arose in this case, with the KOT conceding its priority to an orbital position and receiving directly grant aid funds, were not contemplated by the parties when they entered into the Agency Agreement. That may well explain Tongasat’s stance during the negotiations that it was proposing a commercial arrangement and not an aid project. It would also explain why, when it became clear that the PRC insisted upon making payments as grant aid, that Tongasat attempted to negotiate a special one-off sharing arrangement with the KOT outside the terms of the Agency Agreement.

The Agency Termination Agreement

[174] Mr. Kefu submitted that the Agency Termination Agreement saved the contracts entered into between Tongasat and third parties including the Summary Record which he said ‘provided for the payment of the first tranche and the second tranche’. He acknowledged that there was no provision for dealing with revenue sharing between the KOT and Tongasat in the Agency Termination Agreement and submitted that it therefore ‘seemed’ that Tongasat was entitled to 100% of the second tranche payment.

[175] The submission that the Summary Record provided for payment of the first and second tranches is incorrect. It did not provide for any payment by CESEC or the PRC to Tongasat or the KOT.

[176] The Agency Termination Agreement was concerned with preserving existing contracts already entered into by Tongasat with third parties, being those specific contracts identified in the Schedule. The second tranche agreement was not an existing contract nor was it a contract between Tongasat and a third party and nor was it mentioned in the Schedule. The parties to the second tranche agreement, when it was eventually entered into, did not include Tongasat but only the KOT and the PRC.

[177] It is the case that the Summary Record is referred to in the Schedule with a statement of future revenue of US$25,450,000 by 31 December 2010. That was the amount of the second tranche payment. This does suggest that Tongasat was to have some entitlement in respect of the second tranche payment. The references to ‘current negotiations and discussions’ might conceivably have been referring to negotiations and discussions concerning payment by the PRC of the second tranche payment. But what Tongasat’s entitlement might be is undefined and it goes too far to suggest that it can be inferred from the absence of a revenue sharing regime that Tongasat was entitled to the entire second tranche payment. Furthermore, because the Agency Termination Agreement was concerned with contracts between Tongasat and third parties it cannot have had the effect of preserving or extending into the future rights Tongasat may have had to a share in the second tranche payment under the Agency Agreement.

The tranche funds were public money

[178] I am satisfied that both the first and second tranche payments were public money within the meaning of the PFMA and could only be received and expended in the manner authorised by the Act. I reject the argument advanced by the KOT and Tongasat that the first and second tranche payments were trust money.

Breaches of the PFMA

[179] There was no attempt by the KOT or Tongasat to justify the manner in which the first and second tranche payments were expended in the event that the Court found (as I have found) that the tranche payments were public money within the meaning of the PFMA.

[180] I am satisfied that the first and second tranche payments were expended in breach of s. 9 of the PFMA. To the extent that the money was paid to or applied for the benefit of Tongasat the expenditure was not authorised by any Appropriation Act nor was it statutory expenditure (as defined in s. 2).

[181] I am also satisfied that the use of the first and second tranche payments to satisfy the liabilities of Tongasat for unpaid revenue share and outstanding taxation liabilities breached the prohibition in s. 30 of the PFMA against the Government contributing to debts or liabilities except for those for which it is liable under any Act or a guarantee or indemnity given under the PFMA.

[182] These were not mere technical breaches of the requirements of the PFMA. It is through appropriation legislation that the Executive (through its Ministries) is issued with funds only to the extent that it is shown that the funds are required to perform its functions. Clause 19 of the Constitution and the PFMA provide the mechanisms by which the Legislature exercises the elements of control and accountability over the Executive. In this case those elements were not exercised.

The plaintiffs’ standing to bring the public law claim

[183] The next issue is whether the plaintiffs’ have standing (i.e. legal capacity) to challenge the lawfulness of the payments made to or for Tongasat

[184] There has been a trend in most Commonwealth jurisdictions towards allowing greater access to the Courts in public interest litigation. In O’Neil v Otago Health Board (High Court, Dunedin, CP50/91, 10 April 1992) at [4] Tipping J said:

Any person who shows an honest interest in a public issue may invoke the processes of the Court to have the substantive matter of concern considered. It will usually be necessary to examine the substantive issue or the substantive issues before a decision on standing can be made. If the Plaintiff fails on the substantive issues the question of standing will be academic. If the Plaintiff would otherwise succeed it will be an unusual case in which either as a matter of standing or as a matter of discretion the Plaintiff will fail. It is my view that the only circumstance in which a Plaintiff should be shut out in limine for want of standing is where the Defendant can show that the Plaintiff lacks good faith or that the complaint is clearly frivolous, vexatious or otherwise untenable.

[185] In Inland Revenue Commissioners v National Federation of Self-Employed and Small Businesses Limited Ltd [1981] UKHL 2; [1982] AC 617 (HL) at 641 Lord Devlin (quoting Lord Denning) noted that outdated rules should not prevent public spirited citizens from bringing claims to vindicate the rule of law or stop unlawful conduct.

[186] In Great Christchurch Buildings Trust v Church Property Trustees [2012] NZHC 3045; [2013] 2 NZLR 230 the Anglican Church’s decision to deconstruct the Christchurch Cathedral following the Christchurch Earthquake could be challenged even though the decision was made under a private charitable trust and the applicant was not a member nor beneficiary under it. This was because the Christchurch Cathedral was regarded as the ‘heart and soul’ of the city and performed both religious and quasi-civic functions. Chisholm J said at [72]:

Professor Joseph explains in Constitutional and Administrative Law in New Zealand that public interest litigation is wholly concerned with vindicating the rule of law. He notes that the Courts have granted interest groups standing owing to the importance of the issue raised, the effect of the issue on the community, and the likely absence of any other responsible challenger. The Professor also notes that public interest groups may bring actions in their representative capacity or/on behalf of the public.

[187] In the present case the Court of Appeal issued a ruling ([2015] Tonga LR 439) recognising both the importance of this litigation and that it offered the most convenient route for determining the legality of the payments to Tongasat. The Court said at [4]-[5]:

The respondents have not yet filed statements of defence but it is plain that they reject the pleaded allegations. Scott J recorded in his judgment (at [17]) that all parties were in agreement that the central issue, the lawfulness of the disbursement in question, is a matter of national concern which will involve careful consideration of important and sometimes difficult questions of fact and law.

This is not the first court proceeding directed to the validity of the payment to Tongasat. Indeed there has already been skirmishing between the parties and persons allied to each side in the controversy in the form of an unsuccessful private prosecution and actions for defamation and malicious prosecution. Other aspects of the matter are the subject of judgments that this Court is also delivering at this time. It is fair to say, however, that the present proceeding appears to be the most convenient means of having the Supreme Court rule on the legality of the payment to Tongasat.

[188] I am satisfied that the plaintiffs have standing to bring the public law claims. This is because of the following matters:

(a) The issues raised are important and involve a very substantial sum of public money;

(b) The matters in issue are of great public interest and are legitimately within the public arena;

(c) This is not a situation where the plaintiffs are busy bodies meddling in matters that should not concern them. The first plaintiff represents a substantial number of public sector employees and the second plaintiff was at all relevant times a People’s Representative and is now Prime Minister. They have a substantial and genuine interest in the outcome of the action;

(d) In addition, the plaintiffs are subject to litigation by persons involved in the matters that are the subject of this litigation, the result of which may well be determined by this action;

(e) The issue of the lawfulness of the payments to Tongasat was brought for genuine reasons in my view notwithstanding some suggestion from the defendants to the contrary, and there is every reason to believe that the issues would not have been tested had it not been for this action taken by the plaintiffs; and

(f) The plaintiffs have established that the payments to Tongasat were unlawful. In a public law context it should be a rare case that standing would be refused in such a circumstance.

Remedy

[189] The plaintiffs are seeking declaratory relief. The granting of declaratory relief is discretionary but this Court has consistently taken the approach that if a plaintiff establishes a substantive basis for a declaration then the circumstances under which relief is refused must be exceptional.

[190] As Joseph (supra) notes at 1180:

Declarations perform the critical constitutional function of vindicating rights and promoting ideals of the rule of law. They announce to the world at large breach of the applicant’s rights and operate as vindication for the prejudice or loss suffered. For contumelious disregard for the law, they admonish the wrongdoer and register society’s disapproval....the courts have reined in the remedial discretion in recognition that uncontrolled judicial discretion is as inimical to constitutional proprieties as uncontrolled executive discretion.

[191] Mr. Kefu argued that declaratory relief should be refused. The first three matters he relied upon were effectively a repetition of the argument that the tranche payments were intended for Tongasat. The fifth matter was a repetition of the argument that the Court has no role to play in providing oversight as to how the tranche funds were expended. I have rejected those arguments.

[192] The only new matter Mr. Kefu has raised was that the KOT’s failing was ‘procedural and administrative in not complying with section 22’. The KOT was not required to comply with s. 22 as the tranche payments were not trust money. The KOT’s failing was in spending a very substantial sum of public money without the required oversight of the Legislature or other lawful authority.

[193] The issues at stake in this action are so important that it would derogate from this Court’s constitutional function to refuse to grant the plaintiffs’ a declaration. I therefore will make a declaration but understood Dr. Harrison to say that the Court might call for further submissions on the terms. I propose to follow that course.

The Private Law Claims

The causes of action

[194] The plaintiffs rely on common law and equitable causes of action in seeking orders that Tongasat be ordered to repay the KOT (or the Government) the full amount of the first and second tranche payments (or such lesser sum as the Court may determine) or damages in an equivalent amount. Both the KOT and Tongasat challenge the merits of the claims and also argue that the plaintiffs have no legal standing to make them.

[195] Had a claim for recovery of the tranche payments been made by the KOT they would (subject to any cross claims) be recoverable as ultra vires payments of public money without the need to have recourse to the more complex arguments based on breach of fiduciary duty that Dr. Harrison advanced (Auckland Harbour Board v R (supra); Woolwich v IRC [1993] A.C. 70 and Commonwealth of Australia v Burns [1971] VicRp 100; [1971] V.R. 825).

[196] But no such claim is advanced by the KOT. The reason why it does not advance a claim, particularly given the second plaintiff’s position as Prime Minister, was never explained.

Standing

[197] Mr. Kefu submitted that the plaintiffs cannot point to any authority in law which would support the contention that they have standing to bring the private law claims.

[198] Dr. Harrison conceded that he could not refer to any authority to support an argument that the plaintiffs have standing. In his opening submissions he foreshadowed this difficulty but said:

It is accordingly hoped that the Court will see fit to deal with these issues on their merits, untrammeled by any technical objections based on lack of standing or delay.

[199] In his closing submissions, Dr. Harrison argued that despite the lack of any authority the Court should act boldly and that such an approach was justified because the party for whom the relief was sought (the KOT) is not a stranger to the action but a party who has had the opportunity to be heard.

[200] In our system of law private law claims are based on causes of action which consist of certain essential facts which a plaintiff must prove to justify the right to sue. Those facts will only be true of certain persons and only such persons will have the right of action. By way of example, it is generally recognised that a claim of unjust enrichment can only be brought by a claimant who alleges that the defendant was enriched at his expense.

[201] In ‘The Common Law’ Oliver Wendall Holmes (who later sat as an Associate Justice on the United States Supreme Court) at page 239 said:

Conversely, rights spring from certain facts supposed to be true of the person entitled to such rights. Where these facts are of such a nature that they can be made successively true of different persons, as in the case of the occupation of land, the corresponding rights may be successively enjoyed. But when the facts are past and gone, such as the giving of a consideration and the receiving of a promise, there can be no claim to the resulting rights set up by anyone except the party of whom the facts were originally true, - in the case supposed, the original contractee - because no one but the original contractee can fill the situation from which they spring.

[202] More succinctly but to similar effect, the High Court of Australia said in Bateman’s Bay Local Aboriginal Land Council v Aboriginal Community Benefit Fund Pty Ltd [1998] HCA 49; (1998) 194 CLR 247 at [43]:

In private law there is, in general, no separation of standing from the elements of the cause of action.

[203] In my research of each of the private law causes of action advanced by the plaintiffs I have found nothing to support their right to sue on behalf of KOT. To recognise that the plaintiffs have standing to advance the private law claims would be more than bold. It would be contrary to established law, create a dangerous precedent and may result in an increase in litigation by persons with mercenary motives undermining the coherence in society.

[204] There may be reasons on a consideration of all the facts why the KOT may decide that it will not take action against Tongasat notwithstanding my finding that the expenditure of the tranche payments was unlawful. In Director General of Social Services v Hales [1983] FCA 81; [1983-1985] 78 FLR 373, 411 Sheppard J noted that there may be many reasons why those charged with public administration might sensibly choose not to pursue the recipients of ultra vires payments. He said:

If an overpayment is detected, the question will arise as to whether it is sensible to pursue the person to whom it has been made. He may be quite impecunious...The pursuit of such a claim may involve the throwing away of good money after bad. In other cases a compromise may be offered....In other cases the wisdom might indicate that action should await the day when a payee’s financial circumstances may change...

In my opinion the Auckland Harbour Board case is authority for no more than that a payment made without parliamentary authority may be recovered. I have emphasised the word ‘may’ because it is the word used by Viscount Haldane in the judgment which he delivered on behalf of the Board...Thus in no sense can the case be said to be one which decides that action must be taken to recover moneys paid without parliamentary authority. All it and the later cases decide is that an action for the recovery lies and estoppel will not assist the defendant.

[205] Other considerations might include the extent to which the KOT considers it benefited from the arrangements with Tongasat through the payment of revenue share and taxation and that it was undoubtedly the case that both Tongasat and the KOT had expected that Tongasat would (and was entitled to) share in the proceeds of any settlement in respect of 130º East and that Tongasat paid all of the costs of that negotiation in reliance upon that common understanding. I am not to be taken as expressing any view on these matters and the weight (if any) to be given to them are a matter for the Government.

[206] I find that the plaintiffs have no standing to pursue the private law claims. It is therefore unnecessary for me to consider Dr. Harrison’s detailed submissions on the private law causes of action.

Result

[207] In respect of the public law claims the plaintiffs are successful and are entitled to declaratory relief. I formally reserve my decision as to the terms of the declaration and invite Counsel to submit memoranda within 14 days. I will issue a further ruling as to the terms of the declaration on the papers unless Counsel request a hearing.

[209] In respect of the private law claims I find that the plaintiffs have no standing and they are dismissed.

[210] Notwithstanding my finding in relation to the private law claims the plaintiffs have been substantially successful. They have brought before the Court for determination a matter of national importance. The plaintiffs are entitled to the costs of the action against both defendants which are to be fixed by the Registrar if not agreed.

[211] I note that there may be issues arising in relation to costs as between the KOT and Tongasat and I reserve leave for either to apply within 14 days.

[212] There are five actions (CV 49 and CV55-58 of 2014) which are being held pending the issue of this ruling. I direct that they are to be called before me at 9am on 6 September 2018 at which time Counsel must be in a position to advise the Court if they will be pursued.


O.G. Paulsen
NUKU’ALOFA: 17 August 2018. LORD CHIEF JUSTICE


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