Tongasat case “of national importance” says judge as he declares payments were illegal

Princess Pilolevu Tuita, left, and Prime Minister 'Akilisi Pōhiva. Picture: KANIVA TONGA

NUKU’ALOFA, 20 AUGUST 2018 (KANIVA TONGA NEWS) – Tonga’s Chief Justice Paulsen has described the Tongasat case as a “matter of national importance.”

The judge made his comments in the Supreme Court when ruling in favour of Prime Minister ‘Akilisi Pōhiva and the Public Service Association (PSA) which had fought a five year battle against Tongasat over what it claimed were illegal payments to the company.

The Supreme Court ruled that the payment of the tens of millions of dollars of Chinese money to Princess Pilolevu’s satellite company was illegal.

The judge said five other cases had been held over waiting for his decision.

Pōhiva began the case when he was in Opposition.

Tongasat was established to exploit the commercial possibilities of exploiting the right to place satellites in the orbital slot assigned to Tonga by the International Telecommunications Union.

It was 80% owned by Princess Pilolevu.

The government did not contribute any money to setting up Tongasat, but was to be paid half its net income for 15 years. This was later changed to a percentage of gross income.

In 2006 it was discovered that a Chinese state agency called China Electronic System Engineering Company had placed a satellite in the Tongan orbital slot.

Tonga sought to negotiate with the People’s Republic of China (PRC). After what the judge described as “long, difficult and frustrating” negotiations, Tonga effectively surrendered  its priority in the orbital position to China.

Tonga had expected to conclude a commercial agreement with China over the orbital slots, but at the last minute, China  announced it would pay a grant totalling USD$49.9 million. This sum was to be paid in two tranches.

During the negotiations, a proposal was made on the Tongan side that a large portion of the grant would be used to cover money Tongaat owed the Tongan government.

In July 2008 and June 2011 China paid the Tongan government US$24,450,000 and US$25,450,000.

On June 24, 2011 the two governments signed a certificate stating that the payment of US$25,450,000 was a grant to help the kingdom in its economic and social development.

However, almost all the Chinese money –  93% – from both tranches, was paid to Tongasat or used to pay money Tongasat owed the Tongan government.

The PSA and Pōhiva argued that the payments were illegal because they were in breach of the Public Finance Management Act (PFMA).

Justice Paulsen said the primary issue was whether the first and  second  tranche  payments  were  public money and therefore subject to the PFMA.

The PSA and Pōhiva argued that the grants were public money and could not be spent unless authorised by an Appropriation Act and could not be used towards payment of any debt or liability of Tongasat

They argued that no contract, arrangement, or side agreement the Tongan government and Tongasat, could override or authorise a payment made without such statutory authority.

The government and Tongasat argued that the tranche payments were trust money as definedin the PFMA and therefore excluded from the definition of   public money and not subject to the restrictions on expenditure in the PFMA.

The judge said the PFMA over-rode all other statutes apart from the Constitution.

Clause 19 of the Constitution said: “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 special cases.

Justice Paulsen said there were many instances of government documents circulated during the negotiation period which referred to the Chinese money as grants.

The judge rejected a claim by Lord Sevele, who was Prime Minister at the time, that the Government act gave him the right to disburse the money without reference to Cabinet.

However, argument had been advanced that the Act also provided that the Prime Minister “shall not decide any grave or important matter without the consent of Cabinet.”

“I consider it beyond argument that the expenditure of almost US$50 million by the Government must be considered an important matter which would have required the consent of Cabinet,” the judge said.

The defence argued that Tonga had not asked for grants from the PRC which were paid  because the Chinese government did not want a record of the breach of Tonga’s orbital rights.

It said the payments could not be budgeted for by the Tongan government because they were not linked to a project or Ministry.

It also argued that the payments were to compensate Tongasat for its losses and that the government treated the money as trust money.

However, the judge said the defence had undermined its own argument by submitting that the first and second tranche payments were intended as a gift and that the government 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,” the judge said.

The starting point must be that the PRC required the tranche payments to be made as grant aid and that the government accepted them on that basis, he said.

“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.

“The money was undoubtedly received by the Government and must be considered in their entirety as comprising public  money under the PFMA.

“There is simply no room to argue that the purpose of the tranche payments was anything other than grant aid.

“The plaintiffs have established that the payments to Tongasat were unlawful.

“The plaintiffs 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,” he said.

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