Tonga Water Ltd v Tonga Asset Managers & Associates Ltd [2024] TOSC 72; CV 47 of 2023 (22 October 2024)

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

CV 47 of 2023

BETWEEN :
TONGA WATER LIMITED

- Plaintiff

AND:
TONGA ASSET MANAGERS & ASSOCIATES LIMITED

- Defendant

JUDGMENT

BEFORE HON. JUSTICE P. TUPOU KC

Counsel: Mr. W. Edwards for the Plaintiff
Mr. V. Folaumahina for the Defendant

Date: 22 October, 2024

1. This is a claim by the plaintiff as tenant of a certain factory shed located at the Small Industries Centre in Ma’ufanga, Tonga. These premises were leased to the plaintiff as tenant by the defendant pursuant to a tenancy agreement dated 26 June 2013. The plaintiff claims for breaches of the tenancy agreement and seeks judgment and other declarations in its favour.
2. Much of the factual background is not disputed but for the purposes of this decision it is necessary to narrate what is agreed and what is in contest. Essentially this is a claim in contract and the matter at issue focuses around the proper interpretation of the tenancy agreement and the conduct of the parties in relation to it.
3. It is not disputed that the parties entered into the tenancy agreement. That agreement was for a period of 10 years commencing on 1 June 2013. The rent for the premises is stated in the tenancy agreement to be the sum of TOP$774.54. There were arrangements about how this rent was to be paid and an important provision which said this:

“The rent shall be reviewed by 10% in July 2013. It shall be reviewed again and every two years with such review tied to a national CPI afterwards.”

4. There were conditions and provisions usually to be found in such agreements for the tenancy to be terminated:

“By either party upon breach of the other party or as otherwise mutually agreed between them, and shall inform the other party, by giving 30 days’ notice.”

5. And finally there was a provision in the tenancy agreement which stated as follows:

“If the tenant shall be desired of continuing the tenancy hereby created for a further term of one year at the expiration of the term hereby created the tenant shall give the landlord at least one months’ notice in writing of such desire ...”.

6. The plaintiff claims that on 30 June 2013 – just a few days after the agreement was signed – the defendant unilaterally imposed a new rental rate of T$1,200 per month commencing on 1 July 2013.
7. It is immediately clear that the change was not in terms of the original provision about the review of rent as it well exceeded the 10% specified earlier. But it is equally plain that the plaintiff acquiesced in that change of rental because for the next nearly 10 years that rental was paid by the plaintiff to the defendant.
8. It is also relevant that, at the time of what I will call the amended rent which lifted the rate as I have already set out, the Chairman of the Board of Directors of the defendant company was also the director for the plaintiff company.
9. It may therefore be that for that reason or for other reasons relating to the association between the two parties or for other good business reasons such as establishing goodwill, recognising efforts for improvement etc., the increased rent in excess of that stipulated in the tenancy agreement was acquiesced without protest and without comment for the following nearly 10 years.
10. That fact has an important legal consequence in my view. That the tenancy agreement continued to be observed and respected by both parties with the only variation being the rental change referred to. Otherwise, the agreement continued to be performed in its terms and no suggestion was made otherwise.
11. There was no attempt to repudiate or renegotiate the tenancy agreement; there was nothing other than a continuation of that being the legal basis of the relationship between the parties.
12. Accordingly, I find the actions of the parties as a result of that can only be construed in ordinary contract terms as agreeing to an amendment to the tenancy agreement which was accepted by both parties and continued to then be part of the existing agreement which was otherwise observed in all its aspect until the present dispute erupted.
13. In so far as that amendment is concerned, the parties are both bound by their course of conduct and accordingly estopped from denying it. In Amalgamated Investment and Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1981] 1 All ER, 923 at (at 120-121) Lord Denning M.R., explained:

“Although subsequent conduct cannot be used for the purpose of interpreting a contract retrospectively, yet it is often convincing evidence of a course of dealing after it. There are many cases to show that a course of dealing may give rise to legal obligations. It may be sued to complete a contract which would otherwise be incomplete...It may be used so as to introduce terms and conditions into a which would not otherwise be there......If it can be used to introduce terms which were not already there, it must also be available to add to, or vary, terms which are there already, or to interpret them. If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it-on the faith of which each of them-to the knowledge of the other-acts and conducts their mutual affairs-they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not-or whether they were mistaken or not- or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.”

14. And in conclusion^[1] he said:

“When the parties to a transaction proceed on the basis of an underlying assumption – either of fact or of law – whether due to misrepresentation or mistake makes no difference – on which they have conducted the dealings between them – neither of them will be allowed to go back on that assumption when it would be unfair or unjust to allow him to do so. If one of them does seek to go back on it, the courts will give the other such remedy as the equity of the case demands.”

15. Those principles apply here in terms of the increased rental which the plaintiff paid and the defendant accepted for the past 10 years or so.
16. What happened next was that the plaintiff wrote to the defendant company seeking to extend the tenancy in the terms set out and which I have already mentioned and eventually the defendant company replied accepting the further period of one year but lifting the rental from the then T$1,200 per month to T$2,000 a month.
17. This contest was then joined. On the one hand, the plaintiff asserts that the agreement continued in full force and effect apart from the agreed increase of rent already mentioned and that the renewal notice was a notice given pursuant to the original tenancy agreement. For its part the defendant company asserts that the tenancy agreement was at an end and that it was within its rights to agree to a further term of one year but untrammelled by the conditions and provisions of the earlier agreement including the agreement as to restriction of rental increase.
18. In my view, the position of the defendant cannot be sustained. It is clear that the agreement continued in full force and effect. Nothing was done to bring it to an end and the notice of the further period of one year was given, I find within the terms of the original agreement. It follows, that the rental is therefore limited to the calculation based on provisions of that agreement.
19. I find that the agreement had not expired, that the right of renewal was exercised within the terms of the agreement and that the defendant was therefore bound by the calculations for rental increase set out in the original agreement.
20. Clearly judgment ought to be for the plaintiff. The plaintiff seeks a declaration that it is entitled to a right of renewal and I propose to make that declaration accordingly.

Result

21. Judgment is granted in favour of the plaintiff.
22. It is declared that the plaintiff is entitled to a right of renewal and calculations of any rental increase shall comply with the rate set out under the original agreement.
23. I am hoping that this determination will allow the parties to settle this matter in the light of whatever has taken place since the papers were originally filed.
24. Costs are awarded in favour of the plaintiff to be taxed if not agreed.
    

P. Tupou KC
J U D G E

Nuku’alofa: 22 October, 2024

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^[1] p.122