BETWEEN:	1. RUDRA PRASAD	
	
	2. PRATITA PRASAD   
					
						Plaintiffs 

AND:	MINISTER OF REVENUE AND CUSTOMS 
															Defendant

BEFORE THE LORD CHIEF JUSTICE PAULSEN 

Counsel: 	Mr. K Crosland and Mr. W Edwards for the plaintiffs 
Mr. ‘A Kefu SC (on 9 April 2018) and Mr. S Sisifa SC (on 11 July 2018) for the defendant 

Hearing:		9 April 2018 and 11 July 2018
Date of Ruling:	20 July 2018

JUDGMENT 
	The claim
[1]	This litigation arises out of the sale of the business of Moapa Enterprises Limited (Moapa), a company now in liquidation, to Luna’eva Enterprises Limited following the cancellation of Moapa’s business licence in 2015.  
[2]	The Prasads, who were directors and shareholders of Moapa, are seeking declarations challenging the issue by the Minister of Revenue and Customs (the Minister) of recovery notices under s. 15 of the Revenue Services Administration Act (RSAA) and their liability under s. 29 of the RSAA for the tax liabilities of Moapa.
The course of this proceeding
[3]	The action was heard on 9 April 2018.  Mr. Prasad attended the hearing and confirmed the contents of his written briefs of evidence and gave additional viva voce evidence.  A brief of evidence of Mr. Michael O’Shannassy for the Minister was admitted into evidence by consent.  Counsel then presented their submissions.  
[4]	Following the hearing I discovered that the Prasads had not obtained leave to commence this action as required by 0. 39 Rule 2 Supreme Court Rules.  There were also legal issues that had not been addressed by Counsel and I offered Counsel the opportunity to make further submissions.  
[5]	The Prasads then made an application for leave to commence this action under 0.39.  Further affidavits of Mr. and Mrs. Prasad were filed in relation to the issues I had raised and Counsel filed further legal submissions.  There was another hearing on 11 July 2018 when Counsel spoke to their submissions. 
[6]	The Minister has not opposed the granting of leave under 0.39 or the admission of the affidavits of Mr. and Mrs. Prasad and did not apply to cross examine the Prasads on their affidavits.  I admit the affidavits and have read them.  I will deal with the issue of leave later in the ruling.  

The facts 
[7]	Moapa operated supermarkets.  The Prasads were directors and shareholders of Moapa.  
[8]	Rampra Investments Limited (Rampra) is a company incorporated in Fiji and owned by Mrs. Prasad and a third party.  Rampra was a supplier of goods to Moapa. 
[9]	Moapa ceased trading in April 2015 upon the cancellation of its business licence.  Its licence was cancelled upon the ground that false information had been provided in support of its application and specifically in relation to the fact of its foreign ownership.  Upon the cancellation of its business licence Moapa was unable to trade.  It was holding stock, including perishable stock, and other assets.  
[10]	Mr. Prasad prepared agreements for the sale by Moapa of its business, assets and stock to Luna’eva Enterprises Limited (Luna’eva).   Luna’eva was owned by one of Moapa’s shareholders, ‘Etiluna Mafi, and his wife.   The sale was documented in a sale agreement and a management agreement.  There was a third agreement relating to certain tenancies that I do not need to refer to further.  The sale agreement and the management agreement were signed on 14 April 2015.
[11]	The sale agreement was between Moapa, Luna’eva and the Prasads.  Under it Moapa sold to Luna’eva its business including stock, fixtures, fittings, motor vehicles and goodwill.  Luna’eva agreed to pay a purchase price of TOP$750,000 of which TOP$650,000 was owing and was to be paid by four instalments.  Luna’eva also assumed the obligation to pay a debt of TOP$3.353m owed by Moapa to Rampra.  In schedule 1 of the sale agreement is a list of Moapa’s assets that were acquired by Luna’eva and their values totaling TOP$4.103m.  The schedule explicates that the purchase price of TOP$750,000 was the value of Moapa’s assets less the debt owed to Rampra.  
[12]	The management agreement was between Luna’eva, Mr. Mafi, Rampra and the Prasads’ son, Rulesh Prasad.  The recitals record that Luna’eva had acquired the business of Moapa and assumed the obligation to pay Rampra on a condition that Rulesh Prasad (or his nominee) would have management control of the business.  The three purposes of the agreement were stated to be to; (1) ensure Luna’eva paid Rampra the debt Luna’eva assumed from Moapa within 5 years; (2) to train a nominee of Mr. Mafi to manage the business; and (3) for Rampra to remain a major supplier of the business.  The term of the management agreement was five years or until Rampra was paid in full.  Mr. Mafi was not to be involved in the day to day operations of the business and other restrictions were placed on him as a director.  A management fee was payable to Rulesh Prasad (or his nominee).
[13]	In other proceedings between the Prasads and Luna’eva (CV 42 of 2015) it has been held that what was intended as between Moapa, Rampra and Luna’eva was a novation whereby Moapa’s obligation to pay Rampra was discharged with Luna’eva assuming the liability to pay Rampra on the terms contained in the management agreement.  Mr. Crosland accepted this analysis. 
[14]	The sale of Moapa’s business took place against a background of disputes between Moapa and the Ministry over its tax liabilities including proceedings before the Tax Tribunal and requests by the Ministry for financial and business records relevant to the assessment of its tax liabilities in various years.
[15]	The Ministry of Revenue and Customs was advised of the sale of Moapa’s business on 14 April 2015.  On both that and the following day the Ministry sent Mr. Prasad four income tax assessments for Moapa for the period July 2011 to June 2014 and a consumption tax assessment for Moapa for the period September 2007 to August 2010.  The total amount assessed as payable was TOP $2.585m.  
[16]	Mr. Prasad filed objections to the amended assessments but he has not pursued the objections.  Mr. Crosland sought to cast doubt on the amended assessments as containing obvious errors but for present purposes I must accept them as correct (s.7 and 12 of the RSAA).
[17]	At the time of the sale of its business to Luna’eva, Moapa was holding TOP$2.640m of stock of which TOP$1.807m in value had been supplied by Rampra.  Rampra was Moapa’s largest creditor.  The evidence was that the only other creditors were a supplier called Ampco that was owed USD$40,000 (approximately TOP$90,000) and the Minister for tax.
[18]	On 15 April 2015, three notices were issued under s.15(3) of the RSAA directed to the Westpac Bank of Tonga and the ANZ Bank and, additionally, to Luna’eva.  The notices effectively froze the bank accounts in the name of Moapa or the Prasads up to the outstanding amount of Moapa's tax liability.  Luna’eva was required to hold any payments to Moapa, again up to the outstanding amount of Moapa's tax liability.  Mr. Prasad was served with copies of the notices.
[19]	On 15 April 2015, Mr. Crosland, representing the Prasads, corresponded with the Ministry disputing any liability on their part for any tax debt of Moapa.  In response he was advised of the Ministry's position that the Prasads were personally liable for Moapa’s tax debt under s. 29 of the RSAA.  The Prasads did not invoke the procedures under Part IV of the RSAA for challenging taxation decisions. 
[20]	In the ensuing months further notices were issued under s. 15(3) and correspondence continued between the lawyers representing the Prasads and the Ministry.  
[21]	On 30 September 2015, the Ministry had served on Mr. Prasad a document entitled ‘Notice under s 29 of the [RSA Act]’ explaining why, in the Ministry's opinion, that section was applicable to render the Prasads liable for Moapa’s taxation liabilities. 
[22]	Having taken possession of Moapa’s business Luna’eva decided that it would not pay Rampra or otherwise perform the management agreement because, amongst other things, it considered that the agreement was an illegal contract (s. 5 Business Licences Act 2002).  There have been court proceedings between the Prasads, Rampra and Luna’eva but Rampra and the Prasads have to date not been successful in recovering payment from Luna’eva.  
[23]	As far as Moapa is concerned, in response to s. 15 notices issued to it by the Minister Luna’eva has made payments of TOP$325,000.  I understand, that a further sum of around TOP$400,000 has been recovered by the Minister from Moapa’s bank accounts. 
[24]	On 19 October 2015, the Prasads commenced proceedings in the Supreme Court (CV 66 of 2015) in which they sought to impugn the decision of the Minister to issue the s. 15 notices (or the notices themselves) and the s. 29 notice.  The Minister made an application to set aside the action on the basis that the Tax Tribunal had exclusive jurisdiction.  That action was finally resolved in the Court of Appeal in Minister of Revenue and Customs v Prasad (Unreported, Court of Appeal, 14 September 2016, AC 7 of 2016, Moore, Blanchard, Hansen and Tupou JJ) where the Prasads’ action was dismissed as an abuse of process. 
[25]	In so far as the Prasads challenged the s. 15 notices, the Court of Appeal held that the only available mechanism for them to do so was in Part IV of the RSAA and not in civil proceedings before the Supreme Court.  In relation to the Prasads’ challenge to the s. 29 notice, the Court of Appeal held that the operation of s. 29 is self-executing and does not give rise to any decision amenable to judicial review.  
[26]	The genesis of this present proceeding is the Court of Appeal’s observation that the Prasads’ liability under s. 29 could ‘probably’ be challenged by way of an action seeking declaratory relief, subject to the operation of 0. 39 Supreme Court Rules.  Taking their lead from the Court of Appeal’s remarks, the Prasads commenced this action.  
[27]	On 4 May 2016, Moapa was put into liquidation by the Supreme Court on the application of the Prasads. 

Failure to obtain leave under 0. 39. 
[28]	The Minister does not oppose the granting of leave under 0. 39.  The failure to obtain leave under 0. 39 is an irregularity and leave should be granted if the interests of justice require it (Faoliu v Public Service Commission (Unreported, Supreme Court, CV 52 of 2015, 7 December 2017, Paulsen LCJ)).  
[29]	For reasons that follow, the Prasads’ first cause of action is an abuse of process and leave is refused.  The second cause of action raises an important issue and the Prasads are granted leave under 0. 39 Rule 2(1) to pursue the second cause of action in the amended statement of claim only.  
	The statutory provisions
[30]	The relevant sections of the RSAA for present purposes are ss. 15 and 19. 
[31]	Section 15 is concerned with the issue of recovery notices and provides:
15 Recovery of tax 
(1) For the purposes of sections 15, 16 and 17, “payer” means a person who owes or may subsequently owe money to the taxpayer, or who holds or may subsequently hold money for, or on account of, the taxpayer or who holds money on account of some other person for payment to the taxpayer, or who has authority from some other person to pay money to the taxpayer, and includes the Crown. 
(2) This section shall apply where a taxpayer is liable to pay an amount of tax and — 
(a) the tax has not been paid by the taxpayer by the due date for payment; or 
(b) the Minister has reasonable grounds to believe that the taxpayer will not pay the tax by the due date for payment. 
(3) Where this section applies, the Minister may, by notice in writing, require any person who owes money to the taxpayer to pay the amount specified in the notice to the Minister. The amount to be specified in a notice under this subsection shall not exceed the amount of tax that has not been paid or the amount that the Minister believes will not be paid by the due date. 
(4) Subject to subsection (5), a payer shall pay the amount specified in a notice under subsection (3) by the date specified in the notice. The date for payment specified in the notice shall not be a date before the date that the amount owed to the taxpayer becomes due to the taxpayer or held on the taxpayer’s behalf. 
(5) A payer shall not pay an amount under this section in excess of the amount owed to the taxpayer. 
(6) A copy of the notice served on the payer shall be served on the taxpayer.
[32]	Section 19 is concerned with the liability of certain specified persons for the tax payable by a company and relevantly provides:
29 Liability for tax payable by a company left with insufficient assets
(1) This section shall apply where an arrangement has been entered into with the intention or effect of rendering a company unable to satisfy a current or future tax liability under any revenue law. 
(2) In this section — 
“arrangement” means any contract, agreement, plan, or understanding whether express or implied and whether or not enforceable in legal proceedings; 
…….
 “director”, in relation to a company, means any person occupying the position of director of the company. 
(3) Subject to subsection (4), where this section applies, every person who was a director or controlling shareholder of the company at the time the arrangement was entered into shall be jointly and severally liable for the tax liability of the company. 
(4) 	A director of a company shall not be liable under this section for the tax liability of the company where the Minister is satisfied that the director derived no financial or other benefit from the arrangement and — 
(a) the director has on becoming aware of the arrangement, formally recorded with the company his dissent and notified the Minister in writing; or 
(b) the director satisfies the Minister that, at the time the arrangement was entered into — 
(i) the director was not involved in the executive management of the company; and 
(ii) the director had no knowledge of, and could not reasonably have been expected to know of the arrangement.
	The first cause of action
[33]	The first cause of action pleads that the Prasads are not ‘taxpayers’ as defined by s. 4 of the RSAA and that s. 29 is not concerned with declaring a person to be a ‘taxpayer’ but to impose on a specified person liability for a taxpayer’s tax.  The critical pleading reads:
In the above circumstances s. 29 of the Act does not convert the plaintiffs into taxpayers under the Act to enable the Minister to then issue a s.15 notice under the Act.
[34]	The prayer for relief seeks declarations as follows: 
A	A declaration that the plaintiffs are not taxpayers for the purposes of ss. 15 and 29 of the Act.
B	A declaration that s. 29 of the Act does not convert the plaintiffs into taxpayers under the Act to enable the Minister to the issue a s. 15 Notice under the Act.
[35]	The Prasads want a declaration that they are not taxpayers because under s. 15 a recovery notice may only be issued in respect of tax payable by a taxpayer.  The utility of such a declaration would be to impugn the Minister’s decision to issue the s. 15 notices freezing their bank accounts.  
[36]	An issue before the Court of Appeal was whether ‘the only mechanism for challenging the notices issued under s.15 was under Part IV [of the RSAA]’ and it held emphatically, at [14]:
…the case pleaded by the Prasads …..is entirely misconceived because no challenge can be made in the Supreme Court to the s15 notice or any decision to issue it.
[37]	Despite that clear finding the Prasads have launched another attack on the s. 15 notices in this action.  Whether one approaches the matter on the basis that a res judicata estoppel arises or (more correctly in my view) that the Prasads’ claim is an abuse of process does not matter in the final result.  The Prasads cannot challenge the s. 15 notices (Broadspectrum (New Zealand) Limited v Nathan [2017] NZCA 434 and Butcher v Body Corporate 342525 [2018] NZCA 19)
[38]	Although it appears that the Prasads may not have argued before the Court of Appeal that they are not taxpayers it is implicit that they must have been considered to be taxpayers.  If that were not so the Prasads could not have invoked the statutory procedures to challenge the s. 15 notices, which the Court said was the only avenue open to them.  
[39]	Furthermore, a party to litigation is expected to raise every point that is relevant to the issues before the Court in that litigation and it may be an abuse of process should they fail to raise a matter in one proceeding but then try to raise it in later proceedings between the same parties.  
[40]	The relevant principles were set out by Sir James Wigram VC in Henderson v Henderson [1843] EngR 917 said:
In trying this question, I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.
[41]	In Broadspectrum (supra) Winkelmann J said:
[50] If a party does not raise an aspect of its case in litigation, but then in a later proceeding attempts to introduce it as relevant to the same issue between the parties, that can amount to an abuse of procedure.  Lord Bingham put the matter as follows in Johnson v Gore Wood & Co (a firm): 
But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them.  The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole.  The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all.
[42]	The arguments that the Prasads now advance in support of the contention that they are not taxpayers for the purposes of s. 15 could and should have been pursued before the Court of Appeal and they go directly to the availability of the statutory procedures under Part IV of the RSAA (ss. 8(1) and 15(2) of the RSAA).  
[43]	The Court of Appeal did not, as Mr. Crosland submitted, invite the Prasads to seek declaratory relief in respect of the issue the s. 15 notices.  That would contradict its own finding that the Prasads could not challenge the s. 15 notices by civil proceedings.  The possibility of declaratory relief was raised only in relation to the Prasads’ liability under s. 29.  This was made clear in the following extract from the Court of Appeal’s ruling at [16]:
..it is probable that such a proceeding [for a declaration] could be brought in and determined by the Supreme Court subject to the operation of Order 39 of the Supreme Court Rules ……But that is not the case the Prasads are presently advancing in their pleadings and to the extent that they do seek declaratory relief it is directed to the s 15 notices.  They do not raise the narrow issue of whether they are liable under s29 for the tax liability of Moapa.  The Minister's application of 1 December 2015 sought the dismissal of the Prasads' claim on the basis that the Supreme Court did not have jurisdiction or that it was an abuse of process.  As presently framed, it is in our view an abuse of process and for that reason should be dismissed.
[44]	The Prasads first cause of action is an attack on the final ruling of the Court of Appeal and an abuse of process.  It is for that reason that I refuse them leave to pursue it under 0. 39. 
	The second cause of action 
	The pleading 
[45]	The Prasads plead that it was the cancellation of Moapa’s business licence and not the sale of its business that caused Moapa’s inability to pay its tax liability and that in those circumstances s. 29 ‘does not operate to attribute to the Prasads liability for Moapa’s tax liability’.  
[46]	The Prasads seek the following declarations:
A	A declaration that the cancellation of Moapa’s business licence caused, and had the effect of creating, Moapa’s inability to pay its current and future tax liability; and 
B	A declaration that the plaintiffs are not liable for the current and future tax liability of Moapa under s. 29 of the Act.
	The arrangement 
[47]	Section 29(1) of the RSAA applies where an ‘arrangement has been entered into’ and the arrangement had ‘the intention or effect of rendering a company unable to satisfy a current or future tax liability...’  
[48]	It is not in dispute that the sale of Moapa’s business to Luna’eva was an ‘arrangement’ for the purposes of s. 29.  
[49]	Mr. Crosland argued that the ‘s. 29 notice’ of 30 September 2015 referred only to the sale agreement and the management agreement and the tenancy agreement can be put to one side.  I do not accept that submission as s. 29 does not require the Minister to issue a notice, much less one that identifies specific documents constituting the ‘arrangement’.  The arrangement was the sale of the business of Moapa to Luna’eva upon the terms of both the sale agreement and the management agreement.
	The ‘effect’ of an arrangement
[50]	Mr. Crosland presented helpful submissions on the meaning of the word ‘effect’ in s. 29.  He said that he was focusing on effect because that was a lower benchmark than intention giving rise to liability under s. 29.  
[51]	In the absence of any relevant Tongan cases he relied upon decisions concerning similar provisions in other jurisdictions, primarily New Zealand, which he submitted are ‘functionally the same’ and provide guidance upon the interpretation of s. 29. 
[52]	Mr. Crosland argued that the purpose of s. 29 is to target transactions which are directed at depleting or stripping a company of its assets so that it is unable to pay its tax (Henderson v The Commissioner of Inland Revenue [2016] NZHC 1987).  Developing this argument, he said that s. 29 is aimed at situations where a company could at one point in time pay its taxes and then after entering into an arrangement could not.  It followed, he said, that if a taxpayer could not pay its tax before and after an arrangement was entered into the arrangement was ‘causatively neutral’ and s. 29 was not engaged.  
[53]	Whilst s. 29 refers to an arrangement’s ‘intention or effect’ the applicable statutory provisions in other cases that I was referred to used the words ‘purpose or effect’.  The Courts have however equated purpose and intention.  They have also regarded the words purpose and effect as a composite term (Tayles (supra) at 734).
[54]	The motive of the parties in entering into an arrangement is irrelevant in determining its effect.  Rather, it is necessary to look at the arrangement objectively and consider what it actually does.  The effect of an arrangement is the end accomplished or achieved by it (Tayles v Commissioner of Inland Revenue [1982] 2 NZLR 726; Newton v Commissioner of Taxation of the Commonwealth of Australia [1958] AC 450 and Auckland Harbour Board v Commissioner of Inland Revenue [1999] 19 NZTC 15,433)
[55]	In Ashton v Commissioner of Inland Revenue [1975] NZLR 717, 722 (PC) Viscount Dilhorne said:
If an arrangement has a particular purpose, then that will be its intended effect.  If it has a particular effect, then that will be its purpose and oral evidence to show that it has a different purpose or different effect to that which is shown by the arrangement itself is irrelevant to the determination of the question whether the arrangement has or purports to have the purpose or effect of in any way altering the incidence of income tax or relieving any person from his liability to pay income tax. 
[56]	In Auckland Harbour Board v Commissioner of Inland Revenue (supra) at [99] after discussing Newton (supra) and Ashton (supra) Thomas. J said:
What, then, has the Privy Council in these cases said?  Simply, that the purpose of an arrangement is determined by its effect, and its effect is to be ascertained from its terms.  The effect of the manner in which the parties have dealt with each other ordains the purpose of the arrangement.  Put another way, to the extent that an arrangement can be said to have a purpose, that purpose is not independent of its effect.
[57]	Also in Ashton (supra) Viscount Dilhorne emphasised that the arrangement must necessarily be labelled as a means to avoid tax and not an ordinary business or family dealing which cannot be regarded as entered into for the purpose or effect of tax avoidance, even though it may result in a tax saving (at 723).  To similar effect Lord Denning in Newton (supra) at page 466 said that:
In order to bring the arrangement within the section you must be able to predicate-by looking at the overt acts by which it was implemented-that it was implemented in that particular way to avoid tax.  
[58]	In Tayles (supra) also McMullin. J considered that the question for the court was:
…whether the arrangements would have been framed and documented as they were to provide benefits for the family had the avoidance of income tax not been a significant consideration.
	What was the effect of the sale to Luna’eva?
[59]	It is helpful at this juncture to consider the case of Henderson (supra) which has some similarities with this case.  Henderson concerned action taken by the Commissioner of Inland Revenue (NZ) to recover outstanding taxation from Mr. Henderson.  It was alleged that he had entered into arrangements as a director that depleted the assets of his companies so that they were unable to pay their tax liabilities.  The facts were summarised by Gendall J as follows:
[2] David Ian Henderson (the appellant) was a director at the relevant time of three companies, FM1 Limited (FM1), FM3 Limited (FM3) and Property Ventures Investments Limited (PVIL) (together referred to in this judgment as “the companies”).  When the appellant was a director of the companies, no doubt at his instigation, they sold certain properties they owned in Christchurch to the Christchurch City Council (the Council).  The agreements for sale and purchase for these sales were signed on 1 August 2008.  The sales were on the basis that the proceeds of sale the companies received from the Council were to include GST of $1.7 million.
[3] Prior to settlement of the property sales by the companies, the appellant arranged for another company, ILR Holdings Limited (ILR) to be incorporated.  He was the sole director of this company.  ILR was incorporated on 1 August 2008.  Debts owed by the companies to yet another company under the appellant’s control (Property Ventures Limited (PVL)) were assigned to ILR early August 2008 for an initial consideration of $1, subsequently amended to $1.7 million.
[4] Upon settlement of the property sale transactions to the Council, the companies, no doubt under the direction of the appellant, used their sale proceeds first to discharge mortgages registered against the titles to the properties in question, and secondly to pay the costs of sale. The remaining net sale proceeds were paid to ILR.  That meant that the companies, having paid away all the sale proceeds, were unable to pay to the respondent their GST liabilities which were due on 28 September 2008.  GST invoices for the $1.7 million due had been issued earlier by the solicitors acting for the companies on 6 August 2008.
[5] As a result of all this, the respondent contended that the transactions in question were steps in an arrangement, an effect of which and one of the purposes of which was that the companies could not pay their GST liability on the supply of the three properties.  The companies had self-assessed as being liable to pay this total $1.7 million GST for the period ended 31 August 2008 but simply had no funds to make the payment when it was due a month later.  All of the companies have now been placed into liquidation.
[60]	One of the arguments advanced by Mr. Henderson was that the companies assuming debts which were repaid on the sale of the properties to the Council did not have the effect of leaving the companies unable to pay their tax liabilities because, amongst other things, the companies received full value for the debts and by paying the debts the companies discharged un-impugned debt obligations.  This was rejected by the Court which held:
[61] Under s 61 of the GST Act an effect of the arrangement must be that the company in question cannot meet a tax liability (either an existing liability or one that arises later).
[62] In this case the sale to the Council of the properties concerned converted the assets of the companies from land and buildings to cash.  There can be no doubt that the net sale proceeds were then stripped from the companies under the arrangement and following the various transactions and steps that were taken, the companies were unable to satisfy their GST debts.  I am left in no doubt that this was the end result of the arrangement.  It is what the arrangement achieved irrespective of any motive otherwise which the appellant maintains he had.  It was the effect of the arrangement and it must follow therefore that the TRA was correct to find that the second requirement under s 61 is satisfied.
[61]	Turning back to the facts of this case, when Moapa’s business licence was cancelled it could no longer trade.  It was not in a position to pay its creditors unless it sold its assets.  At the time of the sale of its business it had assets which, on the evidence, had a value of TOP$4.103m (as well as some money in the bank).  Its debts totaled TOP$6.028m.  In the usual case the sale of Moapa’s assets would convert them all to cash which would then be available to pay its creditors.  But that is not what happened here because the sale of Moapa’s business was structured to ensure that Rampra alone was paid in full and to secure for it ongoing business as a supplier to Luna’eva.   
[62]	Under the sale agreement Luna’eva acquired TOP$4.103m of assets but was required to pay Moapa just TOP$750,000.  The balance of the consideration provided by Luna’eva was its assumption of the obligation to pay Rampra.  In return for assuming that obligation Luna’eva received assets of Moapa of equal value to the amount that was owing to Rampra; that is assets to a value of TOP$3.353m.  As in the case of Henderson, whilst from a balance sheet perspective Moapa received full value for its assets, the sale in fact diverted a large proportion of the assets of Moapa which would otherwise have been available for payment of the creditors.  As the major creditor (following the sale) was the Minister, the effect of the sale was to render Moapa unable to pay its taxation liabilities.  
[63]	That this is so can be established by some simple arithmetic.  The position before the sale was that Moapa had assets worth TOP$4.103m and debts of TOP$6.026m.  In round terms Moapa had assets worth 68 cents for each dollar it owed its creditors (4.103/6.028 = .68).  Following the sale, Moapa was owed $650,000 by Luna’eva and had debts of TOP$2.675m.  In those circumstances Moapa had assets worth just 24 cents for each dollar owed to creditors (650,000/2.675m = .24).
[64]	Mr. Crosland acknowledged the logic of this analysis but raised a number of counter arguments.  The first of these was that it was the cancellation of Moapa’s business licence and not the sale of the business that in fact rendered Moapa unable to pay its taxation liabilities.  But for the cancellation, it was argued, Moapa would have continued to trade and pay its taxes.  
[65]	Secondly, Mr. Crosland presented what I regarded as counter factual arguments in an effort to show that Moapa would have been in a worse position had Mr. Prasad done nothing or adopted some other course.  His arguments included that Moapa’s assets were of little value, that the perishable goods it was holding would spoil unless sold quickly, that other stock had a limited shelf life, that the creditors did not have the ability to sell the assets of Moapa themselves, that Moapa could not sell its stock to the public or to competitors and the assets other than stock were ‘largely a herd of white elephants’.  
[66]	Both of these arguments suffer from the same misconception.  The Court is not concerned with why Moapa failed or ‘what might have been’ had another course been taken.  The Court is concerned with whether, viewed objectively, the sale of Moapa’s business to Luna’eva on the terms upon which it was framed and documented had the effect of rendering Moapa unable to satisfy its tax liabilities.  
[67]	It is quite wrong to suggest that there was no market for Moapa’s assets or that they were of little value.  There is no evidence of any attempt to sell the assets to anyone but Luna’eva.  Luna’eva was a willing buyer and in fact agreed to acquire the assets for a consideration of TOP$4.103m.  
[68]	The Prasads next argument is that the sale did not have the effect of depleting Moapa of trading stock as Moapa never owned the stock.  Mr. Prasad’s evidence at the first hearing was that Rampra had by the terms of it invoices retained title to the stock it supplied to Moapa.  Only one invoice was produced which had on it:
The ownership of the items detailed in this invoice shall only be transferred on the purchaser(s) when the payment for the items has been fully realised.
[69]	I called for further submissions on the Personal Property Securities Act (PPSA) as in the absence of any evidence of a signed security agreement Rampra’s retention of title would not be enforceable against Moapa or third parties (s. 12(1) of the PPSA).  It was in relation to this issue that Mr. Prasad filed his affidavit in which he produced a written agreement of 26 August 2009 between Rampra and Moapa which contained the following terms:
Rampra would continue supplying stocks to Moapa whereby Moapa unconditionally has agreed via this agreement/undertaking that Rampra would hold the ownership of all the unpaid assets supplied or to be supplied including fixtures fittings and stock in trade unless and until they are paid in full by Moapa to Rampra 
		and
Moapa will not transfer or encumber the Collateral to any third party without the prior written consent of Rampra is obtained or until paid in full 
[70]	Mr. Crosland argued that Rampra had a security interest in stock supplied to Moapa which attached to the stock and whilst the security interest was never perfected there is no evidence of any other security interest with priority over it (ss. 12 and 13).  In the absence of any challenge to the affidavit evidence of Mr. Prasad I accept Mr. Crosland’s analysis, subject to the following qualification.  
[71]	The terms of the agreement of 26 August 2009 and Rampra’s invoices do not secure all the indebtedness of Moapa to Rampra.  The terms create a security for payment of the purchase price of the stock only (Armour v Thyssen Edelstahlwerke AG [1991] 2 AC 339 (HL).  When Rampra supplied stock to Moapa it retained title until Moapa had paid for it.  Once Moapa paid for the stock it was no longer subject to Rampra’s security interest.  
[72]	Mr. Prasad gave evidence of the amount of Moapa’s indebtedness to Rampra but not how that sum was made up.  There was not sufficient evidence to satisfy me that all of the stock sold to Luna’eva had not been paid for.  There should have been a reconciliation of the stock against invoices and account statements of payments made.  In circumstances where Rampra supplied both perishable and non-perishable stock over a number of years it is highly likely that Moapa had paid for at least some of the stock (possibly a good deal of it).  The extent to which Rampra had retained title to the stock sold to Luna’eva has therefore not been established.
[73]	But even if Rampra did retain title to all of the stock that does not alter the effect of the sale.  The stock was valued at TOP$1.807m.  Luna’eva received assets of Moapa worth TOP$3.535m in exchange for it assuming the obligation to pay Rampra.  It follows that at least TOP$1.5m in value of Moapa’s assets (the difference between the amount owing to Rampra and the value of the stock) was diverted by the sale and was   not therefore available for payment of other debts including Moapa’s tax.
[74]	The Prasads then argue that there is no evidence that Mr. Prasad intended to deplete Moapa’s assets to avoid paying tax.  Mr. Prasad’s motives are irrelevant in relation to the effect of the arrangement (Ashton (supra) at 721) but notwithstanding that, the avoidance of tax was a reason why the sale of the business was framed and documented as it was.  The terms of the sale cannot be explained other than by the existence of an intention to prefer Rampra over other creditors.  As, following the sale, the Minister was by far the largest creditor of Moapa the avoidance of tax was a significant feature, not a mere incident, of the terms upon which the sale was made. 
	The position of Mrs. Prasad
[75]	Mrs. Prasad’s affidavit was filed to establish that she was unaware of the sale of the business when it occurred and unaware also of any tax problems associated with Moapa prior to 10 April 2018.  This evidence is directed towards s. 29(4) of the RSAA which the Court of Appeal referred to, at [11], as ‘an administrative step [that] can be taken involving the formation of an opinion by the Minister that would render inapplicable the direct effect of the combined operation of subsections (1) and (3)’.  
[76]	At paragraph 9 of her affidavit Mrs. Prasad says:
I therefore request that the Chief Commissioner of Revenue of Tonga, accept this explanation.  I confirm that I personally and to the best of my knowledge my husband have not received any financial or other benefit from this sale.  I would also add that Rampra…has received no funds whatsoever from the sale of Moapa’s business to Luna’eva.
[77]	It is not appropriate that the Court decide upon the application of s. 29(4) as the Minister was not given an opportunity by the Prasads to consider this new material.   If I am wrong about this, I would have refused to make any declaration that Mrs. Prasad had made out the grounds under s. 29(4).   
[78]	In my view, Mrs. Prasad did obtain a benefit from the sale of Moapa’s business.  The sale was structured to benefit Rampra and it was considered advantageous at the time for it to rely upon payment from Luna’eva, rather than remain a creditor of Moapa, and to secure a customer for its goods in Tonga.  Mrs. Prasad is a 50% shareholder of Rampra and would clearly derive a benefit through her shareholding.  
[79]	The existence of a financial or other benefit for the purposes of s. 29(4) should be considered at the time the arrangement was entered into not with the benefit of 20/20 hindsight.  The Prasads cannot now be heard to claim that things did not turn out as they would have wished.  In any event, whilst Luna’eva has refused to pay Rampra there is no evidence that Rampra cannot enforce payment in appropriate proceedings.
[80]	Mrs. Prasad’s assertion of a lack of knowledge defies belief particularly as lawyers have purported to correspond on these matters on her behalf and both she and Rampra have been named as parties to multiple court actions.  
[81]	Mrs. Prasad’s explanation that she does not involve herself in business affairs and trusts her husband implicitly does not explain that she is apparently the owner in her own right of Rampra, a substantial business, and actions have been issued by Rampra in which Mr. Prasad has no interest whatsoever (e.g. Luna’eva Enterprises Limited v Rampra Investments Limited (Unreported, Supreme Court, CV 38 of 2017)).  
[82]	If despite compelling indications to the contrary Mrs. Prasad has indeed been left in the dark by her husband or her lawyers then she has remedies open to her in respect of that.
[83]	For completeness,  I note that Mr. Crosland also argued that if it was found that Mr. Prasad alone was liable for Moapa’s tax then the Minister could not issue a notice under s. 15 in respect of bank accounts held jointly by Mr. & Mrs. Prasad.  As I have found that there can be no challenge to the issue of the s. 15 notices or any basis to find that Mr. Prasad alone is liable under s. 29 it is not necessary for me to consider this matter. 
	Result
[84]	The Prasads are granted leave under 0.39 Supreme Court Rules to pursue their second cause of action only.
[85]	The Prasads claim is dismissed.
[86]	The Minister is entitled to cost to be fixed by the Registrar if not agreed. 

O.G. Paulsen
NUKU’ALOFA: 20 July 2018                 		LORD CHIEF JUSTICE