By Linny Folau
The Tonga Development Bank will retain its CEO and Board Chairman, for the time being, pending the resolution of a dispute at trial, in an ongoing civil action against the National Reserve Bank of Tonga.
Lord Chief Justice Malcolm Bishop, in a ruling on 19 September, also ordered that Tonga Development Bank (TDB) must still refrain from engaging in any economic development activities, without the prior approval of the National Reserve Bank of Tonga.
This ex parte application for an injunction is the latest ruling in the dispute between the plaintiffs, the Tonga Development Bank, Emeline Tuita (TDB CEO) and Penisimani Vea (Board Chairman) against the defendants, Tatafu Moeaki (Governor) and the National Reserve Bank of Tonga.
The TDB CEO and chairman continue in place pending the resolution of this matter at trial, the judge ordered.
“I am entirely conscious of the fact that this may make for friction and difficulty but that responsible people, as I accept those in the employ of the Development Bank and the National Reserve Bank are, will be dealt with in a grown-up way. I am told that an acting CEO has been appointed, that is unfortunate, but there it is.”
Lord Chief Justice ordered that a previous directive (i) that TDB is not to engage in any economic development activities (joint development agreements) without the prior approval of the NRBT, continues in full force. While he said that directive (iv) was no longer relevant that any acting CEO appointment must be affirmed by the National Reserve Bank of Tonga.
He said that In the meantime, the parties must prepare draft orders which must include an undertaking to serve a sworn statement dealing with the allegations of non-disclosure, lack of authorization and the assertion of a substantial withdrawal of funds.
Least worst solution
"What I have struggled with is to evaluate the balance of convenience in this matter I am in the doleful position of concluding that whatever order I make some harm will irreparably follow. If I restore the CEO and the chairman there is inevitably a danger of friction and unfavourable working conditions; if however, I refuse the regulatory directives and the concerns of the defendants prove well founded, then great damage to the interests of subscribers, customers and the people of this country generally will be unavoidable.
“Thus, what I have to consider is not the balance of convenience but the balance of inconvenience. What is the least worst solution? On the one hand, we have the concerns that I have already indicated, which either side allege in their favour will flow from the granting or refusing of relief. There is the additional issue of whether the resolution of the Development Bank to bring these proceedings was authorized or not," he said.
“In addition, there was the further allegation that those acting for the Development Bank are in breach of their duty to the court in that there has been material non-disclosure. I am, on the current state of the evidence and material before me, not persuaded that the supervisory role of the Reserve Bank excludes supervision of the economic activities of the Development Bank,” he stated.
Central bank
The LCJ stated that the functions of the Tonga Reserve Bank are set out in the Tonga Development Bank Act 2020 as amended and include the following: to promote the expansion of the economy of Tonga for the economic and social advancement of the people of Tonga by giving financial and advisory assistance in its discretion to any enterprise operating or about to operate in Tonga.
The National Reserve Bank of Tonga has all the functions of a central bank, which includes important regulatory powers. Although the controlling interest of the Reserve Bank is the government it is a separate and distinct body from the Development Bank which has the same controlling interest, i.e. the government.
“I have seen nothing which suggests that this sensible stipulation has been heeded by either party. Although they are two distinct entities the government has the controlling interest in each. The Development Bank now seek an interlocutory mandatory injunction restraining the National Reserve Bank from enforcing directives 1,2,3 and 4.
“Taken together these directives require the Tonga Development Bank to be closely controlled by the Reserve Bank and to in effect give the Reserve Bank a veto on any of that bank’s development activities. To ensure that this is carried into effect the Reserve Bank ask that the CEO and chairman be removed from their posts and their successors affirmed by the Reserve Bank,” he stated.
“The Tonga Development Bank in its application sets out a large number of reasons why they say these directives would hobble the future activities of the bank to the detriment of its customers and shareholders.
“It is asserted in paragraph 18 of the application that under its current leadership the TDB CEO has successfully driven profitability from a target of $1.2 million for the year 2022/23 to $2 million and for the following year a target of $1.8 million resulted in an actual profit of $2.3 million (albeit these figures are unaudited).
“The plaintiffs have said that if continued these directives would cause serious and indeed catastrophic consequences. This plainly establishes a serious question to be tried. Whether that turns out to be ultimately correct depends on the findings of a trial, but I must take these assertions as credible and I do so.”
Damages
The next question is whether damages would be an adequate remedy although there could be no question of either bank not having the resources to meet any damages order. I accept that the consequential damages flowing from implementation of the directives are difficult if not impossible to evaluate and including significant and perhaps fatal reputational damage, he said.
"Furthermore, I have to consider the interests not only of the parties to this litigation but those who may be affected by it, including but not limited to, depositors, shareholders, creditors and account holders.
“I am therefore persuaded that the damages would not be an adequate remedy on the basis of the plaintiff's case. However, I have before me an affidavit from the Deputy Governor of the National Reserve Bank which raises some important matters of concern.
“At paragraph 6 the deputy governor deposed:
“it is my belief that counsel [at the ex parte hearing] indicated that a substantial sum had been withdrawn on account of the actions taken by the first and second applicants”.
The deputy governor continued,
“I can confirm to this Honourable Court that upon that matter being made known to me, I undertook searches of the bank records insofar as I am aware in my capacity as Deputy Governor, that if there are deposits of a considerable sum withdrawn from many banks, they will be reflected in the daily bank banking settlement records, and the monthly return submitted by all commercial banks in Tonga, and which the NRBT has access to. Moreover, there was no record of any major deposit being withdrawn either before, or shortly after, 10th June 2024 in circumstances explained to this Honourable court by Counsel for the Plaintiffs and in respect of which this court was so moved to act upon. If those statements were made, they were not true in that regard."
The Development Bank refuted this serious allegation, but at this stage it was neither necessary nor fruitful to decide where the truth lies, the Lord Chief Justice stated.
"I must proceed on the basis of the untested information now before me"
Question to be tried
"This in my judgment establishes, first, that there is a serious question to be tried, namely the dismissal of the CEO's and the chairman and the imposition of restrictions on the activities of the bank, which the plaintiffs allege was undertaken unlawfully in that no justification arose and it was procedurally irregular in that the dismissals took place without warning.
“These allegations are comprehensively refuted and so, I repeat, there is certainly a serious question to be decided in due course. I am also satisfied for the reasons I have already indicated that damages here would not be an adequate remedy," said the Lord Chief Justice.
In conclusion he stated that: “The parties must prepare draft orders, and I will consider them later today before they are perfected, which must include the usual cross-undertakings as to damage, an undertaking insofar as this has not already occurred to serve a sworn statement dealing with the allegations of non-disclosure, lack of authorization and the assertion of a substantial withdrawal of funds.”
