GK Enterprises Ltd v Korean Enterprises Ltd [2015] SBHC 62; HCSI-CC 132 of 2013 (31 July 2015)

IN THE HIGH COURT OF SOLOMON ISLANDS
FAUKONA J:

CC: NO. 132 OF 2013

BETWEEN:

GK ENTERPRISES LIMITED
Claimant

AND:

KOREAN ENTERPRISES LIMITED
Defendant

Date of Hearing: 21/4/15, 22/4/15, 18/5/15
Date of Judgment: 31st July 2015

Mr M Pitakaka and Mr Taupongi for the Claimant
Mr A Radclyffe for the Defendant

JUDGMENT

FAUKONA PJ: A Claim in Category A was filed by the Claimant on 2nd May 2013. The Claimant seeks two declaration Orders and four consequential Orders. On the whole, the claim is for declaratory relief and for damages for alleged loss.

Background Facts

2. The Claimant and the Defendant at all material times are companies incorporated in Solomon Islands. The Claimant was represented by Ms Gol Khadem and the Defendant was represented by Mr James Kim and Ms Mary Kim.

3. The Defendant at all material times, carried out various business enterprises within Honiara. It owns the Hyundai Mall ("the Mall") and is leasing the rooms to the tenants. The Mall is situated at Point Cruz and is one of the modern buildings in Honiara. It has three floors and expensively constructed; in fact, it is one of the multi-million dollar buildings in Honiara.

4. Sometimes in 2010, the Claimant was intended to open a bakery in Honiara. To implement that interest, Ms Khadem then ordered machines from New Zealand. While the machines were en route to Honiara, she had to find a space to rent. The Claimant became interested in renting a space in the Hyundai Mall.

5. In late November 2010, Ms Khadem and Ms Mary Kim, who represented the Defendant commenced negotiations contemplating a Tenancy Agreement. Mr Don Boykin, the Defendant's architecture was present at the initial meeting. The two met several times later to continue their negotiations.

6. On 26th November 2010, Ms Mary Kim informed Ms Khadem and provided details about the room and attached a draft Tenancy Agreement, rules for the Mall and floor plans. On 28th November, Ms Mary Kim sent an amended Tenancy Agreement to Ms Khadem without a floor plan.

7. From 6 – 14th December 2010, both representatives of the parties continued discussing the terms of the Tenancy Agreement. This was done by email. Eventually the Tenancy Agreement for lease of Suit 201 of the Mall was finalised and executed on 22nd December 2010. The floor plan was then sent to Ms Kim on 29th December 2010 and the Claimant paid the security deposit of $71,000.00 on 31st December 2010.

8. Prior to signing of the Agreement, the Defendant was not informed, nor aware of the actual size and weight of the ovens and other equipment. The information about this was received several weeks after the Tenancy Agreement had been signed.

9. In January 2011, the Claimant moved the oven in three parts into the premises and was storing in the room a large and heavy quantity of flour. The Defendant was concerned about the safety of the building and the other tenants. So the Defendant wrote a letter "a stop work notice" to the Claimant (Exh. JK17) on 26th January 2011 and expressed concern about the equipment and flour. The letter also expressed that the Defendant would require professional indemnity insurance cover. The Defendant also informed Kayhan Khadem and others about this concern.

10. The Claimant then provided an expert report from Cutwhart Ashmore Consultants Ltd dated 28th January 2011. The Company was based in New Zealand and appears to be based on information provided by the Claimant.

11. After receiving the report, Mr James Kim on behalf of the Defendant, wrote a letter dated 3rd February 2011 to the Claimant to remove the large commercial oven and large quantity of flour from the premises. On the same date, the Claimant, for the first time provided the weight and specifications of the equipment. A reply was made on 4th February, 2 011. Shortly after that the Claimant did remove the large oven and the flour from the premises.

The Issues:

12. There were a number of issues identified by the parties to be considered by the Court. They are in terms of a preliminary point of law, opening hours of the bakery, the size of the bakery, the weight of the machines and who to disclose the weight limitation of the premises, breaches of the Tenancy Agreement and the right to terminate Tenancy Agreement. In this judgment, reasoning will accomplish one or more issues.

Preliminary Point of Law

13. Initially the Claimant sued the Defendant under a Company name GK Enterprises Ltd. After the proceedings were commenced and before Gol Khadem signed her sworn statements, the Company name was changed to GK Enterprises Group Ltd. There was no application to amend the name of the Claimant in these proceedings. So the Claimant as named is no longer a legal entity capable of suing the Defendant.

14. That argument perceivably a view confine to one side of the coin. It appears logic but reflects quite a contrast situation from the actual point of law. Mr Pitakaka, in his submissions, made reference to Section 11(4) of the Companies Act, 2009. Whether the Claimant has applied to change its Company name or not, that Section does not remove the Claimant's standing notwithstanding the change in name.

15. Section 14(5) states that legal proceedings that have commenced against a company or continued under its former name may be commenced or continued against it under its new name. And Section 11 (4) states change of name of a company does not affect rights and obligations of the company, or legal proceedings by or against the company.

16. In law, change of name of a company during the course of continuation of a proceeding does not affect the standing of the company and its rights nor its obligation. The fact that the Claimant failed to apply during the proceedings to amend the company name, does not change the position expounded by Section 11(4) and (5) of the Companies Act.

No Claim for Specific Performance

17. The Claimant admits it does not seek specific performance as a relief. The Defendant had issued notice repudiating the Tenancy Agreement. That had been accepted by the Solicitors for the Claimant thereby bringing the agreement to an end. It is the case for Claimant to decide what line of action to take, it decided to sue for breach of contract. It is not the case for the Defendant to question why Claimant did not sue for specific performance.
18. In the circumstances of this case, the stop work notice issued and deemed for immediate removal of the oven without no specific period of time, taken to mean removal immediately which was done accordingly. What specific performance would the Defendant offer again since the oven had been ordered to be removed, a significant machine without it no bakery will exist and work. I my opinion the Claimant was taken the course of action which it thought prudent to itself and that it could able proceed with in Court.

The Term of the Tenancy Agreement

19. The core dispute in this case concerns certain terms of the Tenancy Agreement that had not been agreed upon by the parties. It is either the terms not conclusively agreed upon, or was incomplete. Therefore, the parties have a dispute concerning the Agreement.

20. The issue of a "kind of bakery" is a major term in itself. It is important in the sense that would enable the Defendant to consider the kind of machines to be used and their weights, considering the bakery will engage Suit 201 which is located on the first floor of the Hyundai Mall building, Clause 17(3) (use of the premises) is set as a guideline.

21. At the negotiation stage, the evidence reveals two variable expression of intention, which now becomes contentious. To ascertain the truth, I am reminded to take an objective approach to discover the truth of what was said.

22. On the date of the first meeting, Ms Gol Khadem informed Ms Mary Kim that they would use the premises for a retail bakery, something similar to the Hot Bread kitchen at Point Cruz but with a café. That she would bring commercial machines and equipment for the bakery and large quantity of flour. On the other hand, Ms M Kim would gather from their negotiations that Mrs Gol was intending to install a deep fryer and sell pastries. However, she was aware that the bakery will be commercial and will be similar to Hot Bread Kitchen.

23. The expression by the representatives of the parties at the negotiation stage can be evaluated as giving rise to two possible use or interpretation of the word "bakery". One is a bakery in a commercial sense which is similar to Hot Bread Kitchen with large bakery machines, and the other is small size bakery that could produce cakes and pastries that will go along with a café.

24. I noted that Hot Bread Kitchen had large commercial machines to produce bread. Logically, a café next to it or located at the side could not be possible because bread that is produced is intended to be used at home for breakfast and etc. Additional expression of having a café beside the suite denotes the bakery which the Claimant intended to establish will also produce something like deli and pastries. Conveniently, only deli and pastries will go along with a café, a western culture of diet which few Solomon Islands now becoming access to. To produce deli and pastries, huge commercial machines is not necessary. I think that was the implication Ms M Kim had at that time.

25. Item 7 of the Tenancy Agreement expressed that the use of the premises is restricted to "bakery" as per application (no application form completed). So the word bakery is expressed in singular and can mean anything.

26. Mr Pitakaka admits the word "bakery" used in the Tenancy Agreement has three (3) possible meanings and is therefore ambiguous, but the uncertainty can be cured by extrinsic evidence, an exception to the parole evidence rule.

27. In an attempt to cure the uncertainty, the two prevailing expressions advocated as extrinsic evidence by both representatives, and which I have highlighted in paragraph (19) above, remain unresolved. Simply the parties had never come to one term. One thinks of one thing, the other thinks of another. Their minds had never met to agree on what kind of bakery. This is a significant fact that will assist the Defendant determine whether to allow the bakery to operate from Suit 201 or not. This issue of the nature of bakery directly relates to Clause 17(3) (c) that the Claimant must not overload the floor of the premises. This is not a question that consensus ad idem was not pleaded. What transpired from the actions and responses from the parties is not certain and can rightly be ascribed that their minds had never met.

28. There is argument that overloading which definitely refers to design and construction has a limit but no specification of such was disclosed. The question whether the Defendant which sets the limit, obliged to disclose weight limit is a matter of their concern. They own the premises and are obliged to ensure that premises and the building is safe. It is a judgment left on them to assess a load limit and no one else. Consequently, the content of Mr Kim's letter of "stop work notice" dated 26th January 2011 was a reflection of a limit assessed on their part of the overloading of the Suit. A move to write a letter was after they had seen physically how the Suit was loaded with items which perhaps they could not expect.

29. On another point, Clause 17(3) (c) is a preparatory provision that will apply in the future. It is a guiding provision to ensure the Claimant must not overload the Suit when all the equipment and machines and other goods arrived. It would appear the Defendant had already foreseen from the Claimant's expression and intention that the bakery in its term will bring risk. Risk from their judgment that would materialise in the future, not so much that the weight will exceed the design and construction limits, but weight that they could be able to see with human eyes and assess that it was overload, which will bring risk to the premises.

30. Several weeks after the execution of the Tenancy Agreement, before the actual weight and size of the equipment including flour were provided to the Defendant. I noted the oven was moved in three parts into the Suit; it was done by a crane. Therefore the decision to issue 'stop work' notice was after the Defendants own assessment that the equipment were too much for the premises. I think it is quite logic for Mr Kim to make a decision. He did not make it of his own but after he had consulted Mr Siosi of LBS engineers, for second opinion.

Business Hours

31. In the Tenants Rules and Regulations the business hours at the Mall are; weekdays from 7am to 7pm and weekends and public holidays from 9am to 3pm. These Rules and Regulations were formulated on the basis of Item 8 of the Tenancy Agreement which the parties had executed. This simply mean that business hours the Claimant ought to adhere to was expressly stated therein.

32. Ms Gol stated in evidence that business hours had been agreed upon verbally by the representatives as at 3 am. Ms M. Kim agreed they have discussed opening hours to be at 3am but did not agree. Eventually change of opening hours from 7am to 3am was not expressly stated in the Tenancy Agreement.

33. This is an important term of the Tenancy Agreement. Ms Gol concern to open at 7am is not convenient and suitable for bakery business. Bakers have to be prepared earlier as 3 am. By 7am the bakery shop should open for business.

34 Mr Pitakaka argues that extrinsic evidence is allowed to prove verbal agreement made during negotiations which forms part of the tenancy agreement and has to come into existence. Therefore the parole evidence rule is no bar to implying the term in the written tenancy agreement. However, exemption clauses can exclude implied terms. In this case, there was nothing, however appropriate term may be implied.

35. Implied term is a term of the contract that the parties intended should form part of the contract but which they have not expressly incorporated. For that reason the court will imply to give effect to the unexpressed intention. A term can be implied in two ways, by statute and under the common law. In this case the reason for implying has not been canvassed based on the two grounds.

36. I noted from evidence that the Draft Tenancy Agreement had been forwarded to and from parties four times. The idea was to give privilege to the parties to endorse any changes or insist on any change before finalisation. At the end of the fourth circulation, there was no changes made to the business hours and eventually the Tenancy Agreement was executed by the parties.

37. The Claimant now argues, despite the business hours had not been incorporated; it had accepted the statement given by Ms Kim that the Tenancy Agreement was a standard agreement. That presumably implicates that normal business hours can be practically diverted from, to allow the Claimant's bakery business to open at 3 am.

38. That assertion can hardly be accepted. Sufficient time was given for any amendment to be done. Circulating the draft agreement is enough privilege for the Claimant to insist on opening hours to be entrenched into the agreement. In the end there was no amendment done and the agreement was concluded.

39. Practically by implying a term under the principle is a duty the Courts are bound to consider. In law, the principle lays down the jurisdiction and what the Court should do in such situation. In business dealing, the reality is that, by applying the principle it would produce some impact that will either maintain or minus the obligation of the parties. In this case, if I am to imply a term as I am urged to do, then it will reduce blameworthiness on the Claimant and shift the wrong on the Defendant, therefore place liability upon the Defendant. The facts appear to be different in this case. Sufficient time is granted to conclude the term. Business hours had never changed. Eventually the Tenancy Agreement executed which binds the tenant. I'm afraid implying a term to promote or maintain evicacy of business cannot be done now. All I could conclude is that the parties' representatives had agreed on the terms; simply their minds had not come together before executing the agreement. If the Claimant was taken to be betrayed by what Ms Kim said, then there must be an insistent of an amendment and a new inclusion, likewise been done in Clause 17(2) (c) concerning overloading.

40. In a written contract executed by the parties, they are bound by its terms. They cannot act outside from what they agreed upon and had been written down in the agreement. It would be a fallacy to rely on the oral words said of its truth, that the agreement was a mere standard form, hence allowing the change of opening hours to operate under the cover of the real truth. The circumstance of this case render that statement not part of the contract, it is a mere representation. Therefore, the Defendant has no contractual liability borne by the representor. There may be a tortuous liability under the tort of negligence. What had been expressed in the written agreement forms the conclusive contract that binds the parties.

Loss incurred by the Claimant

41. The two major terms of the agreement which the parties disputed had been determined in favour of the Defendant. As such, it is not necessary to decide on the loss incurred by the Defendant. However, to justify the case, I will consider.

42. Loss incurred by the Claimant is enumerated in paragraph 27 of the claim. There are seven (7) items altogether with a total sum of SBD3,333,907.88. Particularisations of most of those items were not pleaded.

(a) Security Deposit:

It is not disputed that $71,000.00 was paid by the Claimant as a security deposit or bond. However, the Claimant had occupied the room for two (2) months without payment of appropriate rent. Therefore the Defendant is entitled to keep the bond to cover the period of occupation.

(b) Renovation Costs:

This item was not particularised. There was no invoice in relation to materials used and perhaps labour costs. How many workmen was engaged and how much spent on their wages and salaries. There is no material evidence to substantiate this claim.

(c) Staff Expenses

This I understand to be wages and salaries and perhaps accommodation etc. There was no evidence to substantiate spending of $861,000.00 as staff expense.

(d) & (e) Bank Charges and Investment and Interest on Investment

Again, there is no evidence, material or otherwise about the bank charges which normally done in written forms, and further information of a kind of investment engaged in what particular particularised bank and any interest expectation.

(f) Spoilage of Ingredients

Again, this item was not. However, I accepted the submissions made by Mr Radclyffe that the flour and other commodities were ordered by the Claimant before she went to the Mall to find space for her bakery business. The Tenancy Agreement was signed later. There was no guarantee the Claimant would be able to make use of them.

(g) Loss of Profit

This is perhaps an estimate that the Claimant would make profit, should it allowed to do business from the Suit. The problem is that there is no actual evidence to substantiate it. There is no mention of a period that it would likely to acquire such profit from. Therefore such claim is far too remote.

Conclusion:

43. In conclusion, the term of overloading would have been far more better that parties await availability of information as to number of machines, their weights and other items to be stored in the Suit before actually executed the Tenancy Agreement. It would appear execution of the agreement was done under some kind of pressure to be done as soon as possible. At the time of the execution of the Tenancy Agreement, the parties had never come to one term. Clause 17 (3) (c) refers to loading which will be adjudged when the Suit will be loaded with machines and other items.

44. On the term of business hours, the Tenancy Agreement executed had said it all. It is not relevant to imply a term into the agreement more. The Agreement was signed and the parties are bound by it.

45. Having decided in favour of the Defendant, any cost or loss incurred by the Claimant is irrelevant to consider. Therefore, I must dismiss the claim in its entirety with costs.

ORDERS:

1. The claim be dismissed in its entirety.
   
2. Costs is paid to the Defendant by the Claimant.
   

THE COURT