Talia'uli v Simpson [2019] TOLC 10; LA 27 of 2018 (16 December 2019)

IN THE LAND COURT OF TONGA
NEIAFU REGISTRY

LA 27 of 2018

BETWEEN : SAMISONI TALIA’ULI

- Plaintiff

AND : 1. LITIA & TREVOR RONALD SIMPSON

2. MINISTER OF LANDS

3. INTERNATIONAL METROPOLE LTD

- Defendants

RULING

BEFORE HON. JUSTICE NIU

Counsel : Mr ‘Ofa Pouono for plaintiff
Mr Sione Sisifa for second defendant
Mrs Loupua Pahulu-Kuli for third defendant
Trial : 18 – 19 November 2019
Submissions : by Mrs Pahulu-Kuli on 25 November 2019
by Mr Sisifa on 3 December 2019
by Mr Pouono on 29 November 2019
Date of Ruling : 16 December 2019

The issue

[1] The issue to be decided in this case is whether the covenant of the lease held by the lessee, International Metropole Ltd, has been breached, so that the lease may be ordered to be cancelled. The lessor is the plaintiff who is the holder of the town allotment now leased to the lessee.

The facts

[2] The facts are not in dispute.

[3] The lessor was lawfully registered as holder of a town allotment at Fangaloto, estate of the Crown, and was granted a deed of grant of that allotment on 17 October 2001. It has an area of 773.1m².

[4] On 24 October 2002, he had a mortgage registered in the sum of $69,649.69 in favour of the Tonga Development Bank as mortgagee, no doubt to secure a loan for the purpose of building of a residential house on the allotment.

[5] That mortgage was discharged on 29 June 2005, and was replaced with another mortgage to ANZ Bank on the same day for $60,000.

[6] That mortgage was discharged on 14 October 2008, and was replaced with another mortgage on the same day to Westpac Bank of Tonga for $607, 087.00.

[7] With that loan, the lessor completed the construction of a two storey dwelling house on the allotment. The house is of concrete block walls and concrete foundation and concrete floors with corrugated iron roof. It has 4 bedrooms upstairs, one of which is the master bedroom with its on suite and a walking in dressing room and a spa bath, and a separate toilet and shower for upstairs. It has verandahs on two sides. Downstairs, there is one bedroom, lounge, kitchen, dining room, toilet and shower and laundry. It has a verandah at the front. It also has a carport for two motor vehicles and the whole allotment is walled with high concrete blocks with a tubular metal gate. It is well designed and is impressive.

[8] By 3 July 2009, the lessor was indebted to the bank for $1,068,000.00. By deed of settlement of that date, the bank released the lessor from all liability in respect of that debt in consideration of grant by the lessor to the bank as lessee a lease of the allotment for 50 years at an annual rent of $100 for residential purpose.

[9] A lease application form for that purpose, term and rent was signed by the lessor and the bank and it stated, for the applicant bank, as follows:

“I have the honour to make application for the lease of certain property at Kolofo’ou more particularly described below. The purpose for which I wish to put to use the said property is RESIDENTIAL.”
[10] That application was approved by Cabinet on 15 June 2011 by its decision no.516 as follows:
“Recommendation is approved, i.e:

That, pursuant to section 19(3) of the Land Act, His Majesty’s Cabinet consent to the Minister of Lands granting a lease on the following terms:

Lessee : Westpac Bank of Tonga

Lessor : Samisoni Talia’uli

Area : 773.1m²

Term : 50 years

Rental : $100 per annum

Purpose : Residential

Effective : Date of Registration.”

[11] A deed of lease no. 8223 was granted and registered on 26 July 2012 to Westpac Bank of Tonga as lessee of the allotment for 50 years at $100 rent per annum.

[12] On 14 November 2012, the bank sold that lease to the first defendants, Litia and Trevor Simpson, for $130,000. Cabinet approved the transfer of the lease to them by its decision no. 82 of 1 February 2013, and it was registered on 17 April 2013.

[13] On 24 October 2014, the first defendants let and one ‘Epeli Taione rented the whole property for one year at a monthly rent of $2,800.00 and he and his wife and family occupied it.

[14] On 28 October 2016, by its decision no. 1180, Cabinet approved the sale and transfer of the lease from the first defendants to the third defendant. In his evidence, Mr Tsay, director of the third defendant, stated that he paid $190,000 to the first defendants for the property. That transfer was not registered until 4 December 2018.

[15] On 13 July 201, the plaintiff lessor wrote and asked the second defendant Minister to cancel the lease or alternatively to increase the annual rent from $100 to $15,000. That proposal was forwarded by the second defendant to the third defendant and the third defendant responded on 25 July 2017 that the annual rent be increased to only $500.00.

[16] The second defendant, on 11 July 2018, wrote to the third defendant (via its counsel, Vaipulu) that he would recommend to Cabinet to approve that the annual rent be increased from $100 to $3,000 and copied that letter to the plaintiff.

[17] To date, no decision has been made as to the proposed increase of the annual rent from $100 to $3,000.

[18] Mr Tsay stated in evidence that when the Land Office advised his counsel, Mr Vaipulu, that it would recommend that the annual rent be increased to $3,000, he instructed Mr Vaipulu that that annual rent was OK with him. He also stated that after he had paid the money to Litia Simpson, he allowed her to continue to occupy the house because the transfer of the lease to his company had not been registered, and that when it was registered and he took over possession, and he allowed his very good friend, Zhang, and his employees to live in the house for free until they have built their own accommodation and that they still so use it up to now. That evidence was supported by the evidence of two other Chinese, Lu Yang and Jian Wang.

The plaintiff’s claim

[19] The plaintiff claims that when the first defendants let the property to ‘Epeli Taione at a monthly rent of $2,800, they were thereby breaching the purpose of “residential” for which the Cabinet had approved the lease because the first defendants, as lessees, were not residing on the property but were renting it out as a business of rental house to make money, that is, for commercial purpose.

[20] He says that he complained to the second defendant Minister to cancel the lease for that reason, or alternatively, that the annual rent be increased to $15,000 per annum but the Minister did nothing and instead transferred and registered the lease in the third defendant instead.

[21] Mr Pouono has submitted that although the lease is now registered in the third defendant, and although the third defendant is not renting out the property to tenants like the first defendants had done, that does not cure the breach which had been committed by the first defendants and the lease should still be cancelled because the defendants were aware of the complaint which the plaintiff had made since 2017 and they still did nothing about it. He says that the plaintiff has no other recourse but to come to this Court.

Defendant’s defences

[22] Mrs Pahulu-Kuli for the third defendant submits that –

(a) the third defendant was a bona fide purchaser for value without notice of any defect in the title of the first defendants in the lease, let alone breach of any covenant, thereof;

(b) the “purpose” required by this lease was that of use thereof for residence, ie a place of abode, and the use which ‘Epeli Taione had used it for was just that, a place of abode for himself, his wife and their family, and so there was no breach of that purpose of residential when the tenants used it as that.

[23] Mr Sisifa for the second defendant submits and points out that the covenant itself allows the lessee “to use or permit any person to use the lease” so long as such use is residential. This is because, he argues, the wording of the covenant (b) allows it, as follows:

“And furthermore, the Lessee covenants for himself, his heirs and representative that in respect of the land hereunder leased, he will not:

(a) ...
(b) use or permit any persons to use it for any purpose other than that upon which application and approval have hitherto been made,
(c) ...”

He says that the covenant does allow the lessee to allow or permit another person to use the land of the lease so long as that use is the use applied for and approved by Cabinet. As Mr Taione and his family had only used the land as their placed of residence, the covenant was not breached.

Consideration

[24] Land in Tonga is owned by the Crown, that is, the Government. The King and Privy Council do not own it, but they are given the authority to make grants of hereditary estates of lands out of Crown land to the King and the nobles. The remainder of the land is still owned by the Crown and is administered by the Minister of Lands for Government.

[25] Land cannot be bought or sold by any person. An interest only in the land can be granted. Those interests are as follows:

(a) a life interest in a town allotment and in a tax allotment are granted to any Tongan male subject of or above the age of 16, which devolves on his death to his widow and then to his eldest legitimate son, and is hereditary in accordance with the rules of succession;

(b) that life interest is granted by the Minister of Lands out of remaining Crown land and out of hereditary estates of nobles with the consent of the respective nobles;

(c) in default of heirs of the holders of allotments the lands thereof revert to the respective nobles.

[26] No restriction is made with regard to the use of the lands of a town allotment or of a tax allotment, but there are requirements that the town allotment is kept clean and maintained and that the tax allotment is cultivated with minimum specified crops.

[27] The only other interest in land which can be held is a lease. Such interest can only be granted by the Minister and it can only be granted if it is consented to by the noble who holds the estate, if the land has not been granted as an allotment, or by the allotment holder, if the land is an allotment, and it must be consented to by Cabinet in all cases, if the lease is for less than 99 years or by the King and Privy Council if it is for a period in excess of 99 years. And it must be registered by the Minister.

[28] Once granted, the lease can be sold and bought and transferred, but only if consented to by Cabinet and such transfer is registered.

[29] However, the use of the land of a lease is restricted only to achieve the purpose for which the lease has been granted, which purpose must be stated in the application for the lease and consented to by Cabinet.

[30] A tight control is therefore placed by the law on the use and purpose, and duration and transfer of leases. Such use was for building of jetties, warehouses, stores, bakeries, businesses, schools and colleges, plantations, ranches, churches, playing fields, halls, and even for residences. A lease approved for one use cannot be used for another use or purpose.

[31] There is therefore this specific covenant in every deed of lease:

“...the Lessee covenants for himself and his heirs and representative that in respect of the land hereunder leased, he will not:

...

Use or permit any persons to use it for any purpose other than that upon which application and approval have hitherto been made.”

[32] Mr Sisifa has quoted it as I have stated above, and that is the covenant which the plaintiff claims has been breached by the Lessee, the first defendants, while they held the lease and when they had rented the house thereon to ‘Epeli Taione for $2,800 per month. He claims that by so doing they thereby used the land for a commercial purpose, for making money for themselves instead of simply residing on it as a residential house. If they were to have done that for the remaining 48 years of the lease, they would make a total of $1,276,800. If they deduct their outlay of $130,000, they would have a gross profit of $1,146,800. They only need to deduct the $100 rent of the lease for 48 years which come to $4,800 leaving a profit of $1,142,000.

[33] It appears from the facts that the first defendants did not reside on the land at all. They rented the house out to ‘Epeli Taione almost as soon as they had the lease transferred to them. But it also appears that the high rent paid by ‘Epeli Taione did not carry on after the first year because in August 2016, the first defendants sold the lease to the third defendant for only $190,000.

[34] The question therefore is : Did the first defendants, when they rented the house to ‘Epeli Taione for $2,800 per month, thereby use the land of the lease for business or commercial purpose and not for residential purpose?

[35] The answer lies in this : was the rent of $2,800 per month payable because of the land or was it payable because of the house and facilities erected on the land? I note that the wording of the quoted covenant is this:

“...the Lessee covenants for himself and his heirs and representative that in respect of the land hereunder lease, he will not:”

The underlined words only refers “to the land hereunder leased: and not to the buildings or houses erected on the land that is being leased.

[36] I also note that in Tonga, buildings, houses and fences, etc, erected on the land are not part of the land. That has been well established as the law in Tonga. And I also note that the deed of lease itself refers to buildings and structures as such as follows:

“But it shall be lawful for the Lessee, his heirs or those that represent him to remove all houses and improvements which may have been built on the said land.”

[37] I am therefore satisfied that the covenant in this lease was, and is, concerned only with the use of the land of the lease and not with the use of the house or building situated on it, unless the use of such house or building is for a purpose other than as a residence.

[38] I am satisfied that ‘Epeli Taione used the house on the land of this lease as a residence for himself and his family at a monthly rent of $2,800, and that that high rent was befitting the size, lay out and quality of the house and facilities therein as well as the carports and fences on the land. That rent would not have been possible to be paid simply for the empty land which is being leased by the plaintiff. It is being paid because of the house and improvements thereon, and which house and improvement can be removed and taken away by the lessee of the lease at or before the end of the lease, irrespective of the land of the lease.

[39] I also note that in Tonga the owner of a dwelling house, or residential house situated on his allotment, can lawfully let it on a tenancy, such as the first defendants had done with the dwelling house in this case to ‘Epeli Taione, to a tenant at an agreed rent. That was expressly decided by the Court of Appeal in Yang v Manoa and Anor [2016] Tonga LR 123. That case concerned a shop downstairs and residence upstairs being rented by a Chinese lady. It was situated on land of the town allotment of a Tongan man and it was jointly owned by the man and his wife who jointly let it to the Chinese woman for 10 years at a monthly rent which was paid in a lump sum in advance.

[40] The Tongan man forceably closed off the building to a sub-tenant of the Chinese woman, to whom the premises had been properly let in accordance with the tenancy agreement. She sought the enforcement of that agreement. The Tongan couple, inter alia, defended that the agreement was unlawful because of S.13 of the Land Act. That section provides as follows:

“13. Any land holder who enters or attempts to enter into any agreement for profit or benefit relating to the use or occupation of his holding or part thereof other than in the manner prescribed by this Act or as approved by the Minister in writing shall be liable on conviction to a fine not exceeding $200 or to imprisonment for any period not exceeding 12 months or both.”
[41] This is what the Court of Appeal held on p.127:

“[16] In our opinion, such agreements are not caught by S.13 if they simply relate to the occupation and use of a building and its curtilage. This general statement would, of course, be subject to any specific and clear statutory exceptions. The foundation of this conclusion is the acceptance in Tongan law that buildings erected on land do not form part of the land and are chattels. Decisions of this Court recognising this status of buildings include Kolo v Bank of Tonga [1997] Tonga LR 181, Mangisi v Koloamatangi [1999] TOCA 9, Cowley v Tonga Tourist Services Ha’apai Ltd and Fund Management Ltd [2001] Tonga LR 183, Niu v Tapealava [2013] Tonga LR 55 and Westpac Bank of Tonga v Fonua [2014] Tonga LR 94. In Mangisi v Koloamatangi this Court said that S. 13 did not apply to an agreement dealing with the occupation and use of a building. Though the Court spoke of “short term tenancy agreements,” the duration of the agreement cannot have a decisive effect on its legal character for the purpose of S. 13.”

[42] I would add that the words used by S. 13 is only with regard to the use of his “holding or parts thereof”, that is of the land of which he is the “landholder.” And I am satisfied that term “landholder” was not intended to apply only to allotment holders, but also to estateholders and leaseholders as well, hence the use of the word “landholder”, although S. 2 does not expressly include leaseholders or lessees.

[43] I am also satisfied, and I agree with Mrs Pahulu-Kuli and Mr Sisifa, that the covenant itself envisages that the lessee may permit other persons to use the land of the lease but that such persons must not use the land for any purpose other than the purpose applied for and approved. In the present case, the first defendants permitted ‘Epeli Taione to use the land of the lease and ‘Epeli Taione simply used the land for residential purpose, which was the purpose of this lease. That use was lawful and was permitted by the covenant.

Conclusion

[44] Accordingly, I find and I hold that the first defendants have not breached the covenant of this lease when they rented the substantial dwelling house on the land of the lease to ‘Epeli Taione for $2,800 per month because ‘Epeli Taione simply used the building to live in with his wife and family as a residence.

Orders

[45] I order that the claim of the plaintiff is dismissed with costs to the second and third defendants, to be taxed if not agreed.

Niu J

Nuku’alofa: 16 December 2019 J U D G E