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Moehau v Tominaga [2022] TOSC 103; CV 20 of 2020 (1 December 2022)

IN THE SUPREME COURT OF TONGA
CIVIL JURISDICTION
NUKU’ALOFA REGISTRY


CV 20 of 2020


BETWEEN:


[1] SIONE ‘ATILI MOEHAU
[2] NUKU’ALOFA INVESTMENT LIMITED
[3] SIOSAIA MOEHAU
Plaintiffs


-and-
[1] HIROSHI TOMINAGA
[2] LESIELI NAMOA
Defendants


REASONS FOR JUDGMENT


BEFORE: LORD CHIEF JUSTICE WHITTEN KC
Counsel: Mr D. Garrett SC for the Plaintiffs
Mr W.C. Edwards SC for the Defendants
Trial: 28 November 2022 to 1 December 2022
Judgment: 1 December 2022


Introduction

  1. In this proceeding, the plaintiffs claim TOP$1,777,210 in damages for breach of agreement arising from the sale to the defendants of a property known as the Loumaile Lodge. The defendants deny liability for the claim and counterclaim in the sum of TOP$2,759,286 by way of alleged overpayments under the agreement and a further TOP$1,500,000 in damages for alleged misrepresentation as to the condition of the Lodge building.
  2. Evidence was filed from Mr Siosaia Moehau on behalf of the plaintiffs. A brief of evidence was also filed from Lesieli Namoa, the second defendant. No brief of evidence was filed from the first defendant, Mr Tominaga. A brief of evidence was filed from HSH Prince Tu’ipelehake although he was not required for cross examination and his brief was accepted into evidence without objection. Mr Moehau and Ms Namoa gave further evidence during the trial.

Background

  1. On 31 October 2018, the parties entered into a sale and purchase agreement for the property. The agreement described Sione Moehau, the first plaintiff, as Seller A and as the lessee of Government lease 8599 located at Taufa’ahau Road in Nuku’alofa on which Loumaile Lodge is erected. The second plaintiff, Nuku’alofa Investments Limited, was named as Seller B and, relevantly, as the owner of the Lodge, its contents and fixtures. Mr Tominaga and Ms Namoa were described as the purchasers. In summary, the relevant terms of the agreement were as follows:
“Seller A and Seller B have made full and fair disclosure in all material respects of any matter that could reasonably be expected to affect the purchasers’ decision to purchase the land, building and assets/contents in the building on the terms set out in this agreement.”
  1. The agreement was signed by each of the parties on 31 October 2018. Hereinafter, that agreement will be referred to as the first agreement.
  2. On 1 February 2019, the parties executed a variation to the first agreement. Relevantly, the parties agreed to amend or vary clause 1 of the first agreement (or “principal agreement” as it was described in the variation agreement) as follows:
“Seller A will undertake within 7 days of executing this agreement to transfer the Government lease 8599 to the purchasers. Lease 8599 is for 30 years from 26 November 2014 to 25 November 2044 with the remaining lease of 26 years.”
  1. Clause 5, the terms of payment, was also varied as follows:
  2. The variation agreement was signed by Sione Moehau in his own capacity as lessee and on behalf of Nuku’alofa Investments Limited and was witnessed by Siosaia Moehau who is also a director of that company. For the purchasers, the variation agreement was signed by Stephen Conrad Murphy as authorized signatory for Mr Tominaga as well as Ms Namoa as one of the purchasers.
  3. On the same day, the parties entered into a second agreement for the sale and purchase of the property. This time, however, HSH Prince Tu’ipelehake was added as one of the purchasers together with Mr Tominaga and Ms Namoa. The formal terms were substantially in conformance with the first agreement. The lease provisions were amended to reflect the variation agreement, namely, that Sione would undertake to transfer the lease to the purchasers which was again noted again as having a term of 30 years with 26 to run. The same provisions applied in relation to the sale of the building and its contents. More significantly, however, the purchase price in clause 4 provided:
“(a) The purchaser shall pay a total purchase price of TOP$3,000,000 for the remaining 26 year lease, Building and Assets/Contents of the building which is the property of both Seller A and Seller B.
(b) Seller B shall be responsible for the applicable Consumption Tax of the sale.”

[emphasis added]


  1. The terms of payment under the second agreement were stated as follows:
  2. The same representations and warranties were recorded as in the first agreement.
  3. The parties signed the second agreement on page 4 thereof as they did on the variation agreement, except that Ms Namoa also signed for Prince Tu’ipelehake.
  4. However, page 5 of the (5 page) document then contained the following:
“The above agreement is only for the purpose of facilitating the lease transfer as requested by the purchasers, however, [sic] does not alter the Principal Sale and Purchase Agreement signed by the Sellers and Purchasers on 31st October 2018 and the Variation to the Principal Sale and Purchase Agreement signed on 1st February 2019.”
  1. That was followed by the words “The Sellers and Purchasers attest to the above as follows” and thereunder appeared the signatures of Sione Moehau in the presence of Siosaia Moehau, Stephen Conrad Murphy for Mr Tominaga and Ms Lesieli Namoa. It was not signed by or on behalf of Prince Tu’ipelehake.
  2. Subsequently, the purchasers made the following payments to the plaintiffs:
  3. On 18 February 2019, the transfer of the lease was registered by the Minster of Lands naming HSH Prince Tu’ipelehake, Lesieli Namoa and Hiroshi Tominaga as the new lessees following the assignment of lease 8599 from Sione Moehau to them.[2] It appears uncontroversial that thereafter, the lease now in the name of the purchasers was extended for a total of 99 years due to primarily the involvement of Prince Tu’ipelehake and his dealing with the Minister of Lands.
  4. According to the plaintiffs, the final instalment of the purchase price of US$500,000, which was due in April 2019, was not paid.
  5. From that time until 15 May 2019, Ms Namoa and Siosaia Moehau exchanged a number of emails and texts in which, relevantly, Ms Namoa acknowledged the outstanding debt of US$500,000 and sought an accommodation from Mr Moehau for the payment of it. Those negotiations culminated in a written loan agreement made on 15 May 2019 between Siosaia Moehau as the lender and Lesieli Nomoa as the borrower. The recitals to the loan agreement stated as follows:
“(a) The lender is owed the third and final payment of the property sale of the Loumaile Lodge from the borrower, the payment concerned is USD$500,000 / TOP$1,167,210 which was due to be paid on 30 April 2019. The Sale and Purchase Contract of the Loumaile Lodge is annexed to this Agreement as Schedule 1 and is a vital component of this agreement.
(b) The lender is also owed US$75,000 US dollars / TOP$110,000 from the borrower.
(c) The borrower has requested an advance of the funds noted in clause (a) above from the lender with interest payable (TOP$250,000) in order to defer the payment owed to the lender and the amount in clause (b) above to be repaid at the same time.
(d) The lender has agreed to advance the funds as stipulated in this agreement.”
  1. The operative provisions of the loan agreement included:
  2. It was signed by Ms Namoa and Mr Siosaia Moehau on the date it bore and their signatures were witnessed by a Ms Mishka Tu’ifua, who was the general manager at the time of National Business Services Limited, which, suffice to say, was associated with Nuku’alofa Investments Limited, both being in the business of money lending and financial services. Ms Tu’ifua had also been instrumental in the drafting of the agreements pertaining to the sale and purchase agreements for the Lodge.
  3. The plaintiffs claim that the amount of the loan agreement has not been repaid by Ms Namoa when it fell due or at all. As a result, in March 2020 these proceedings were commenced, seeking recovery of that amount plus an additional TOP$250,000 by way of alleged interest (referred to below).

Consideration – claim

  1. I turn now to the issues arising on the claim as revealed by the pleadings and the evidence.

Which agreement applied?

  1. The first issue is which agreement applied. The defence relied on the second agreement as being binding between the parties.
  2. It is important to note that the qualification to the second agreement set out in page 5 thereof was pleaded by the plaintiffs in their reply to defence and defence to counterclaim. It was not refuted in any subsequent pleading by the defendants, for example, by way of rejoinder. More importantly, the contents of page 5 were not referred to in the defendants’ evidence filed for trial. Critically, page 5 of the second agreement was not included in the defendants’ bundle of documents for trial (which only included the first four pages). The complete document was produced by Mr Garrett in a supplementary bundle of documents at the commencement of the trial.
  3. During her evidence at trial, Ms Namoa admitted that the first agreement was the binding agreement between the parties. That evidence was consistent with the irresistible conclusion to that effect for these reasons:
  4. That conduct is consistent only with the first agreement being the binding agreement. Post contractual conduct is admissible for the purposes of identifying the parties to a contract, the existence and subject matter of a contract and the terms of it: Kaukauloka v Luna'eva & Sons Co Ltd [2020] TOLC 11 at [92], citing WorkPac Pty Ltd v Rossato [2020] FCAFC 84 at [80] to [89]. At the heart of this proceeding was identification of the term of the parties’ agreement as to the currency of the purchase price.
  5. The only purported resistance put up by Ms Namoa during the trial was in relation to her signing of the agreements. Despite some initial reticence, she eventually confirmed each of her signatures on the agreements referred to thus far. However, she then tried to suggest that she could not remember signing the agreements. Then she suggested that it was possible that anyone could have forged her signature. However, Mr Edwards (quite correctly, with respect) disavowed any potential allegation of fraud, it not having been raised in any of the pleadings or in any of the evidence filed for trial. Finally, Ms Namoa said in evidence that she did not read any of the agreements before signing them. She also gave evidence during cross-examination that she had over 20 years business experience including involvement in international transactions. That evidence rendered her assertions of not having read the agreements before signing them highly implausible. It is also to be compared with the payments which were subsequently made and the loan agreement, all of which were consistent with the purchase price being US$3 million, something which could only have been performed pursuant to an understanding of the contents of all the agreements, including page 5 of the second. For those reasons, I am satisfied that Ms Namoa was aware of the contents of each of the agreements to which I have referred.
  6. But even if Ms Namoa did not read any of the agreements before signing them, as a matter of law, the general rule is that where there is no suggested vitiating element such as, for example, fraud, misrepresentation, where the other party sets out to conceal from the other terms and conditions of the document or to encourage him or her not to read them or the defence of non est factum,[3] and where there is no claim for equitable or statutory relief, a person who signs the document which is known by that person to contain contractual terms and to affect legal relations is bound by those terms, and it is immaterial that the person has not read the document: L'Estrange v F Graucob Ltd [1934] 2 KB 394. In the Canadian case, Tilden Rent-A-Car Co. v. Clendenning (1978) 83 DLR (3d) 400, the Ontario Court of Appeal held the signature would only bind if it was reasonable for the party relying on the signed document to believe the signer assented to onerous terms (i.e. unlike Graucob, where the document was intended to have contractual effect). By contrast, in 2004 in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165, the High Court of Australia challenged the Clendenning decision robustly and affirmed L'Estrange. In the UK, in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 [43], Moore-Bick LJ was at pains to emphasise that L’Estrange sets out ‘an important principle of English law which underpins the whole of commercial life; and that any erosion of it would have serious repercussions.’ Toll v Alphapharm and the statement of the plurality (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) at [45] was referred to recently in Cocker Enterprises Ltd v McCarthy (trading as Le-Ata Fashion Boutique & Gift Shop) [2021] TOSC 1 at [13]:
‘It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it.”
  1. In closing submissions, and despite Ms Namoa’s revelatory admissions during her evidence, Mr Edwards did not positively press the defence as pleaded (or the overpayment counterclaim) based on the second agreement. Rather, he invited the Court to have regard to what he described as a “devious arrangement” by the plaintiffs. The submission was misguided. Firstly, it ignored the fact that Ms Namoa gave sworn evidence in which she conceded that only the first agreement was binding on the parties. Secondly, there was a conflict in the evidence as to who proffered the second agreement and at whose request it was created. But, in my view, that was irrelevant to the issues in the case which solely concerned money claims by both sides. Thirdly, there was no issue raised at any stage of the proceeding of fraud or illegality or that enforcement of the first agreement was somehow contrary to public policy.[4] The opacity of the position advanced by Mr Edwards was unsurprising for the simple reason that by signing the second agreement (including page 5) the defendants became party to whatever arrangement was intended by it.
  2. This case was not a prosecution for any potential breach/es or any lands or revenue regulatory requirements. There was in fact no clear evidence of what the second agreement was used for other than the reference in page 5 of it. There is some basis for inferring that it was presented to the Ministry of Lands in support of what became the indenture for the transfer of the lease[5] as registered on 18 February 2019, but again there was no clear evidence as to that.
  3. During his cross examination, Siosaia Moehau denied that the second agreement was used for the assessment of consumption tax (or ‘sales tax’ as it was erroneously referred to in the Statement of Claim). I will say more about that later.
  4. As to any other evidence about the purpose of the second agreement, Ms Namoa stated at paragraph 36 of her brief of evidence:
“[36] ... The price was reduced to TOP$3 million pa’anga because of the question over the lease as well as the condition of the building.”
  1. No further detail was given in her brief of evidence about those assertions nor did she give any further viva voce evidence about it at trial. More importantly, her assertion was never pleaded. As matters transpired, and contrary to her brief of evidence, during cross examination, Ms Namoa said she had no knowledge of the reason for the second agreement other then it was proffered by the plaintiffs through Ms Tu’ifua.
  2. Otherwise, Mr Edwards did not attempt to identify any legal significance or consequence of the second agreement in terms of any defence to the claim.
  3. For those reasons, I find that there is no defence as to liability for the claim and there was no proper basis for the pleaded defence having been advanced.

The legal consequence of the loan agreement

  1. The next issue is the legal consequence of the loan agreement.
  2. The original cause of action for breach of the first agreement by all plaintiffs against both defendants was effectively compromised by Siosaia Moehau agreeing to Lesieli Namoa’s request to loan her the amount of the final payment due under the first agreement. That was couched in the exchanges of messages between them as her asking to ‘use the money’, meaning the final instalment which presumably had been provided by Mr Tominaga to complete the payment schedule under the first agreement. The loan agreement also specified the amount of US$75,000 or TOP$110,000 (referred to further below) and interest.
  3. As such, the claim for the balance of the purchase price was satisfied by the entry into the loan. In other words, a defence of accord and satisfaction is engaged. Moreover, the original cause of action merged in the loan agreement as between Siosaia and Lesieli. That analysis appears to be consistent with how the claim was ultimately pleaded in the Statement of Claim.
  4. There was no evidence that the other parties were aware of this arrangement. In that regard, I note that the defendant’s bundle of documents for trial included a power of attorney by Hiroshi Tominaga in favour of Lesieli Namoa, dated 4 February 2019. However, it was not signed by Mr Tominaga. As that document was never raised either in the pleadings or in the evidence, I will not dwell on it further now.
  5. The above analysis was accepted by Mr Garrett and Mr Edwards made no submissions on the issue. Therefore, it may be inferred that Siosaia Moehau assumed responsibility for discharging the balance of the purchase price and accounting for same to the first and second plaintiffs (namely, his brother and their company). It may be further inferred that Lesieli Namoa assumed responsibility for payment of the loan to Siosaia Moehau and accounting to Mr Tominaga for any funds he advanced for the completion of the purchase of the property.
  6. Accordingly, judgment on the claim can only be in favour of Siosaia Moehau against Lesieli Namoa.

Quantum

  1. The next issue in relation to the claim is the quantum of the claim. Three components were pleaded.
  2. The first was the balance of the US$3 million purchase price being US$500,000 or the Tongan equivalent at the time which was set out in the loan agreement at TOP$1,277,210. In her brief of evidence,[6] Ms Namoa agreed to having signed the loan agreement but asserted that “the figures are wrong”. She did not explain that complaint in her brief of evidence or during her viva voce evidence. However, it would appear from other parts of her brief of evidence[7] that Ms Namoa believed the balance under the first agreement was TOP$460,713, not the amount in the loan agreement. For the following reasons that belief is incorrect.
  3. Firstly, she acknowledged the amount owing under the first agreement in the loan agreement. Secondly, she appears to have assumed that US$3 million was the equivalent at the time of TOP$6 million. That may be derived from the payments set out in her brief of evidence[8] which total TOP$5,539,286 plus the asserted balance of TOP$460,713. Thirdly, and however, the exchange rate in March 2019 was 2.2597 pa’anga to 1 US dollar.[9] Therefore, US$3 million was the equivalent of TOP$6,779,100.
  4. The second component of the amount claimed by the plaintiffs was for what was described as a contribution to consumption tax of US$75,000 or TOP$110,000. That part of the claim was never properly elucidated in the pleadings or in the evidence filed for trial. However, during his cross-examination, Mr Moehau explained that after the parties entered into the first agreement, they orally agreed for the purchasers to pay that amount by way of contribution to any consumption tax that may have been payable on the transaction. Mr Moehau also explained that during those discussions, the possibility of consumption tax of approximately TOP$900,000 (15% of approximately TOP$6 million) was discussed. Notwithstanding, he said that the defendants agreed to contribute the amount stated and that the plaintiffs would “take care of the rest”, that is, payment of any consumption tax that may have been assessed. That arrangement was consistent with the variation agreement and the loan agreement. Mr Moehau’s evidence in that regard was never contradicted. There was also no protest by Ms Namoa in her messages with Mr Moehau leading up to their entry into the loan agreement including for the amount of the consumption tax contribution.
  5. Mr Edwards submitted that this part of the claim should not be allowed because there was no evidence that the consumption tax had been paid by the plaintiffs. In my view, the submission misconstrued the claim. It was not claimed as consumption tax owing pursuant to the revenue law but pursuant to an agreement as effectively part of the purchase price for the property.
  6. The third component of the pleaded claim was for TOP$500,000 in interest associated with the loan agreement.[10]
  7. In an endeavour to understand how that claim came about (because the Statement of Claim never fully explained it), I have had regard to a number of emails contained in the court book[11] between Siosaia Moehau and Ms Namoa and (after she stopped responding) between Mr Moehau and Stephen Murphy complaining about the fact that Ms Namoa had not repaid the loan by the end of August 2019 as promised. During the course of those emails, Mr Moehau sought to impose an additional amount of interest of TOP$250,000 to cover a further extension on the loan to 29 November 2019, and which then brought the total amount owing to TOP$1,777,210 as pleaded.
  8. However, there was no evidence from Siosaia Moehau to support this part of the claim nor was there any evidence of any agreement by Ms Namoa to be bound by the purported imposition of additional interest.
  9. Ultimately, and perhaps for different reasons, Mr Garrett obtained instructions to amend the claim to reduce that interest claim from TOP$500,000 to $250,000 as per the loan agreement.
  10. The final component or issue in relation to quantum was a payment of TOP$230,000 by the defendants to the plaintiffs. The defendants pleaded[12] that $230,000 was paid on 15 February 2019 as the final payment advanced by them under the second agreement. That latter basis has been rejected for the reasons stated above. Quizzically, there was no evidence from Ms Namoa about the payment of $230,000. By contrast, the payments about which she did give evidence did not include the amount of $230,000.
  11. Notwithstanding, and contrary to Mr Garrett’s submission that I should disregard the $230,000 by reason of it not being claimed effectively in evidence via Ms Namoa, in his brief of evidence,[13] Mr Moehau admitted that the $230,000 was paid on 29 November 2019 and that it was a payment towards interest under the loan agreement. He also went on to confirm that that payment reduced the debt owing to TOP$1,297,210.
  12. In the Statement of Claim, the plaintiffs also claimed interest up to judgment. It was a bare claim in the prayer for relief which was not expanded upon by any reference to any basis whether by way of contract, statute or otherwise; nor was any rate nominated. Mr Edwards did not make any submission in relation to this part of the claim.
  13. The Court’s power to award prejudgment interest as discussed in the decision of Luna’eva Enterprise Ltd v Manu [2020] TOSC 1. In my view, this is an appropriate case in which to compensate Mr Moehau for the period of time he has been 'out of his money', and during which, Ms Namoa was legally obligated to repay the money and wrongfully retained the benefit of it.
  14. The identification of appropriate interest rates was also discussed in Luna’eva Enterprise Ltd v Manu and more recently in Tonga Cable Ltd v DS Venture (CV 68 of 2019, Ruling on claims for interest and costs, 17 October 2022). Under the loan agreement, the interest specified of TOP$250,000 period of 14 weeks represents an annual interest rate of approximately 72%. Here, Mr Garrett agreed that a rate of 10% would be reasonable. That rate is also consistent with post judgment interest specified by Order 30 rule 2 of the Supreme Court Rules.
  15. Accordingly, I will order that prejudgement interest be applied from the period from September 2019 (the month after the loan was due to be repaid) to November 2022, being a period of 38 months, at 10 % on the principal amount owing of TOP$1,297,210 which totals TOP$410,783.

Consideration – counterclaim

  1. I turn now to the counterclaim. As indicated at the outset, there were two components: an overpayment claim based on the purchase price being as per the second agreement and a damages claim for alleged misrepresentations concerning the condition of the building (which I will abbreviate to “the building claim”).

The overpayment claim

  1. The overpayment claim was abandoned during the trial by Mr Edwards on (audible) instructions from Ms Namoa to effect that it was for him to decide whether to pursue it or not. Later, and for reasons which were never properly explained, Ms Namoa appeared to change her mind and sought through Mr Edwards to withdraw the abandonment of that part of the counterclaim. At that stage, Mr Edwards described the situation as one of ‘disarray’ and that he had ‘lost control’ of his case. When coupled with Ms Namoa’s evidence (and instructions on the run to Mr Edwards during the early stages of the trial) about the agreements and her signatures, this latest approbation and reprobation appeared to reduce the Defendants’ case to, as I described it during the trial, a shambles.
  2. Nonetheless, and after some debate with Mr Edwards about what further relevant evidence was to be adduced, I indicated then that I would decide this issue after hearing from Ms Namoa. After receiving her further evidence (outlined above), I saw no reason to permit the defendants to resile from the abandonment of the overpayment claim.
  3. The overpayment claim was based entirely on the second agreement being binding. Ms Namoa’s admission, and the finding (for the other reasons stated above) that the first agreement was the binding agreement between the parties was, in any event, fatal to the overpayment counterclaim. As there was no other basis for the overpayment claim pleaded or presented in evidence, it must fail.

The building claim

  1. To understand the building claim, it is necessary to recite the relevant pleading:
[24] Prior to the signing of both the first agreement in October 2018 and the second agreement in February 2019, the plaintiffs did represent and disclose to the defendants that the building was in good order and condition and the Lodge was a going concern and profitable.
[25] The defendants acted and relied on the plaintiffs' representations and entered into the said second agreement and also believing the building was sound and in good condition.
[26] The said representations by the plaintiffs were and are false and misleading.
(a) The building was not in good condition.
(b) The roof of the building leaked badly and the entire roof requires replacement.
(c) The leaking of the roof renders the rooms and accommodation on the second floor uninhabitable.
(d) The leaking has caused damages to the building and the floor covering on both floors of the building.
(e) The building has moved and is structurally unsound and requires removal.
[27] The replacement cost of the building or damages sought is $1,500,000.
  1. There were no particulars pleaded of any alleged representations as asserted in paragraph 24. The pleading was therefore embarrassing and, without proper particulars, should have been struck out.
  2. Further, this part of the counterclaim was entirely unsupported on the evidence. Firstly, there was no evidence of any of the representations alleged having been made by or on behalf of any of the plaintiffs. That alone is fatal to this part of the counterclaim. Secondly, the pleading purports to contradict clause 6.2(d) of the first agreement (and the corresponding provision in the second) where the purchasers agreed that the sellers had made full and fair disclosure in all material respects of any matter that could reasonably be expected to affect the purchaser’s decision to purchase the property. Thirdly, Ms Namoa gave evidence during cross-examination that she, Mr Tominaga and Mr Murphy had inspected the building a combined total of three times before the signing the relevant agreement. Fourthly, notwithstanding those inspections and the lack of any evidence as to any difference between the state of the building when they did inspect and as depicted in photographs from the defendant’s bundle of documents and which clearly showed some damage and the effects of water ingress in parts of the building, the purchasers did not seek to obtain a building report from a qualified expert prior to entering into the transaction. Fifthly, Ms Namoa asserted in her brief of evidence to the state of the building being ‘reported’ to the plaintiffs at the time the defendants took possession. There was no other evidence or explanation as to what that meant other than a cross-reference to the photographs.
  3. The photographs of course are damning evidence of the fact that the defendants well knew the state of the building prior to entering the agreement. Therefore, the legal maximum caveat emptor (let the buyer beware) applies. The common law doctrine places the burden on buyers to reasonably examine property before making a purchase. A buyer who fails to meet the burden is unable to recover for defects in the property that would have been discovered had the burden been met. The maxim was referred to in the Tu’ivai v Fifita [1991] TOLR 63. It has since been routinely applied throughout the common law world.[14]
  4. Exceptions to the application of caveat emptor often arise to address what is referred to in the cases as “information asymmetry” through legislative consumer protections or contractual warranties agreed between the parties to relevant agreements. None of those matters were raised here.
  5. Even if there was evidence of actionable representations, there was no evidence of reliance nor could any be inferred in the circumstances. Further, even if there was evidence of actual or inferred reliance, the fact that the defendants inspected the building before executing the operative agreement (and when the photos showed patent defects in the building) would have rendered any asserted reliance on any such representations unreasonable.
  6. Ms Namoa conceded that the defendants have not undertaken any maintenance or repairs to the building since taking possession of it.
  7. Finally, there was no evidence (which in a case like this required expert opinion evidence) to support the pleaded quantum of damages claimed.
  8. For those reasons, the counterclaim, in its entirety, is dismissed.

Result

  1. There will be judgment on the claim in favour of the Third Plaintiff, Siosaia Moehau, against the Second Defendant, Lesieli Namoa, in the sum of TOP$1,707,993.
  2. Interest on the judgment sum shall accrue at 10% per annum pursuant to Order 30 rule 2 of the Supreme Court Rules until it is paid.
  3. The claims of the First and Second Plaintiffs are dismissed.
  4. The Defendants’ counterclaim is dismissed.

Costs

  1. Mr Garrett submitted that the conduct of the defendants’ case had prolonged the trial and added unnecessarily to the work required to prepare the case for trial (e.g. the building claim) so as to warrant a special costs order such solicitor/client costs of the proceeding; alternatively, that the defendants pay 80% of the costs.
  2. Mr Edwards submitted that costs should only be ordered on the standard basis, without any attempt to counter Mr Garrett’s criticisms.
  3. The recognized grounds for special costs orders were discussed recently in the decision of Lavemai v Kingdom of Tonga (Director of Civil Aviation) [2022] TOSC 83. They include whenever it appears that an action (which here, includes a counterclaim) has been commenced or continued in circumstances where (here) the defendants, properly advised, should have known that they had no chance of success. In such cases, which are fortunately rare, the action must be presumed to have been commenced or continued for some ulterior motive or because of some willful disregard of the known facts or the clearly established law.[17]
  4. In my view, the defendants’ conduct of their defence to the claim and prosecution of their counterclaim in this case falls within the above category of conduct which may attract a special costs order. However, it seems to me that the plaintiffs were dilatory, at least, in not pursuing applications for summary judgment application in respect of their claim and the overpayment counterclaim and to have the building counterclaim struck out particularly once they had identified the contents of page 5 of the second agreement and relied on it in their Statement of Reply in September 2020. On the evidence, such applications would most likely have been successful and therefore truncated the proceeding dramatically. In the absence of any reasonable explanation, any additional costs incurred by the plaintiffs since then to now are at least partly attributable to their own failure to have pursued that course. Similarly, on the proper legal analysis of the effect of the loan agreement, which should have been appreciated by the plaintiffs and their respective counsel since the Statement of Claim, there was no viable cause of action by the first and second plaintiffs once the loan agreement subsumed any cause of action for non-payment of the balance of the purchase price under the first agreement.
  5. In those circumstances, I am not convinced that any special costs order should be made
  6. Accordingly, I order that:

Referral of the agreements to the relevant Ministries

  1. There is one final matter to be addressed in this judgment and that is the Court’s concerns in relation to the purpose for which the second agreement was brought into existence and deployed, if it all.
  2. Firstly, as I have already indicated, it is not clearly known whether the second agreement was presented to the Ministry of Lands. However, given that its stated purpose on page 5 thereof was for the transfer of the lease, it is likely that it was presented. If so, and if it did not contain page 5, there is a real possibility that the Minister of Lands has been misled.
  3. Secondly, I have reservations about Mr Moehau’s evidence as to whether the second agreement has ever been used for the assessment of consumption tax on the transaction for the following reasons:
“[7] Counsel for the respondents [Mr Garrett] says they would accept an order to disclose whether consumption tax was paid and if so in what amount.
[8] That appears a reasonable solution so there should be an order that the plaintiffs disclose any document showing what if any consumption tax was paid on the transaction referred to in the proceeding within 14 days.”
(c) During a debate at the commencement of this trial as to whether Mr Edwards was in a conflict of interest by reason of his dealings with Mishka Tu’ifua in 2018 in relation to the formation of the first agreement, Mr Edwards, without notice, filed an objection to Mr Garrett’s statement in Court that the plaintiffs had complied with the Court of Appeal’s direction. Mr Edwards included in his objection copies of documents which had been provided by email from Mr Garrett on 21 October 2022. The four documents comprised two consumption tax returns for Nuku’alofa Investments Limited for February and March 2019, a summary of consumption tax paid for the relevant period and a receipt for that consumption tax paid by the company. Mr Garrett stated in his email that he believed those documents satisfied the Court of Appeal’s orders.
(d) Those documents showed total amount of consumption tax payable for the period during which the plaintiffs received TOP$5.5 million for the subject transaction of only TOP$52,267.
(e) That is to be considered in the light of Mr Moehau’s evidence about the agreement for the payment of US$75,000 or TOP$110,000 by the purchasers as a ‘contribution’ to any consumption tax payable. His evidence about discussions at the time including possible consumption tax of about TOP$900,000 which he agreed may have been assessable on the total purchase price. He also insisted that the contribution amount had not been paid to the Ministry of Revenue because it had not been received.
(f) The consumption tax returns produced by the accountant for Nuku’alofa Investments Limited refer to the funds being allocated to “taxable outputs” which have resulted in the total outputs (or assessable supplies) being just over TOP$400,000 resulting in tax of just over TOP$52,000. No explanation was given in the document for that allocation.
(g) Mr Moehau testified that consumption tax was only payable on this transaction to the extent of rental due from one of the tenants named as ‘PICB’.
(h) Mr Moehau also mentioned that there were tax credits held by Nuku’alofa Investments Limited but did not specify how they were applied to the assessment of consumption tax for this transaction if, in fact, they were. If that was the case, then somehow, they had the effect together with the allocation or division of the purchase price received among the various components of the transaction (i.e. lease transfer, buildings and contents together with tenancy agreements) of potentially reducing the consumption tax by more than TOP$800,000 depending, of course, on which components of the purchase price were assessable.
(i) Finally, Mr Moehau was unable to explain why the second agreement was created. He said the defendants wanted it. Ms Namoa said that the plaintiffs wanted it. That conflict in the evidence did not require resolution for the reasons I have already given but it does remain a matter of concern in this context, namely, the reasons for and the use made, if any, of the second (or as it was coined during the trial, the “fake”) agreement. It is also of concern that none of the witnesses from whom the Court heard in evidence could cogently explain why the second agreement contained a reduction of the purchase price from US$3 million to TOP$3 million. As noted above, Ms Namoa’s assertion in her brief of evidence that the second agreement was made due to issues concerning the lease and the state of the Lodge building was neither pleaded nor supported by any admissible evidence.
  1. For those reasons, I consider it appropriate to direct that the Registrar of the Supreme Court is to forward copies of these reasons for judgment and the first agreement dated 31 October 2018, the variation to that agreement dated 1 February 2019 and the second agreement dated 1 February 2019 (including page 5 thereof) to the Ministry of Lands and Natural Resources and the Ministry of Revenue and Customs for their consideration and any further investigation they may consider appropriate.

NUKU’ALOFA
M. H. Whitten KC
1 December 2022
LORD CHIEF JUSTICE

[1] The last which, but for a typographical error, ought to have been clause 6.2(d).
[2] The registration named the new lease as number 8599A.
[3] “It is not my deed”.
[4] For example, through a defence of ex turpi causa non oritur actio (no cause of action should arise from illegal acts as recently discussed in Kacific Broadband Satellites International Ltd v Registrar of Companies [2021] TOSC 93 at [76].
[5] Which coincidentally named the consideration for the transfer simply as “$3,000,000” without any reference to currency.
[6] [23]
[7] [21]
[8] [19]
[9] https://www.exchangerates.org.uk/historical/USD/20_03_2019.
[10] Statement of Claim [13].
[11] Pages 93 to 96.
[12] Paragraph 9(e).
[13] [19].
[14] For example, in Australia, see Calidad Pty Ltd v Seiko Epson Corporation [2020] HCA 41 where the maxim was described as “inherent in common law conceptions of economic freedom”15 and in Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 where it was referred to as “the traditional common law approach”.16 In New Zealand, it has been referred to and applied recently in Ridgeway Empire Ltd v Grant [2019] NZSC 85. In the UK, see John Lobb SAS v John Lobb Ltd [2022] EWHC 2306 (Ch) 8 September 2022.
[17] Citing Fountain Selected Meats (Sales) Pty Ltd v Int Produce Merchants Pty Ltd (1988) 81 ALR 397 at 401; Colgate-Palmolive v Cussons [1993] FCA 536; (1993) 46 FCR 225; DS Clarke Nominees Pty Ltd v Adder Holdings Pty Ltd [2015] FCA 277. See also Slater v Blomfield [2019] NZCA 664 applying Bradbury v Westpac Banking Corp [2009] NZCA 234; [2009] 3 NZLR 400 at [29] which adopted Goddard J’s approach to indemnity costs in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [11] who adopted the categories of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd, supra. See also Niu J in ANZ Banking Group Ltd v Koto [2019] TOSC 51 at [15].

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