Home | Databases | WorldLII | Search | Feedback Court of Appeal of Tonga

Tonga Asset Managers & Associates Ltd v Tonga Water Ltd [2025] TOCA 13; AC 23 of 2024 (16 May 2025)

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

AC 23 of 2024
[CV 47 of 2023]

BETWEEN
TONGA ASSET MANAGERS & ASSOCIATES LIMITED
Appellant

AND
TONGA WATER LIMITED
Respondent

Hearing:
8 May 2025

Court:
Randerson, Harrison and Morrison JJ

Counsel:
No appearance for the Appellant
William Edwards for the Respondent

Judgment:
16 May 2025

JUDGMENT OF THE COURT

Background

[1] This appeal concerns a dispute over the renewal of a tenancy agreement of a factory shed at Ma’ufanga between the appellant TAMAL as landlord and the respondent TWL as tenant. The tenancy was for a period of 10 years commencing on 1 June 2013. It provided for a monthly rental of TOP$774.54^[1] but allowed for review in these terms:

“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.”^[2]

[2] The critical renewal clause 20 provided:

“If the tenant shall be desirous of continuing the tenancy hereby created for a further term of 1 year at the expiration of the term hereby created the tenant shall give the Landlord at least one (1) month notice in writing of such desire and shall pay the rent hereby reserved and perform the several covenants herein contained and on its part to be observed up to the termination of the tenancy created then the landlord shall let the premises to the tenant agreed upon and subject in all other respects to the same clause for renewal”.

[3] Within a few days of the commencement of the tenancy, TAMAL increased the rent to TOP$1,200 per month commencing on 1 July 2013. TWL claimed that the increased rental was unilaterally imposed by TAMAL, but Tupou J found in the Supreme Court that TWL had acquiesced in the increase. That was because for the next nearly 10 years the increased rental was paid to TAML without objection. Her Honour noted that at the time the rent was increased, the Chairman of the board of directors of TAMAL was also the sole director of TWL.
[4] Prior to the expiry of the tenancy agreement on 31 May 2023, TWL sent an email dated 5 April 2023 to TAML in these terms:

“Please note we will be exercising our option to renew our lease in our current building (old site where Tonga Water is currently) for the time being.

If you have any questions, please do not hesitate to contact us.”

[5] Between 11 and 13 April there was an exchange of emails between the parties in which TAMAL inquired “How long TWL will take to renew your lease on your current building?” to which TWL responded “Looking till December.”
[6] There was then a further exchange of emails between the parties in which TAMAL sought to increase the rent to TOP$2,000 per month. TWL did not accept this and asserted that the tenancy agreement continued in full force and effect including the rent review clause 4. For its part, TAMAL was willing to grant a renewal but maintained that the original agreement was at an end and that it was entitled to seek increased rent beyond that permitted by clause 4.
[7] On 1 May 2023, TAMAL emailed TWL in these terms:

“I refer to your email dated 5^th April 2023 indicating the Tonga Water Ltd interest to continue on the above premises.

Your proposal request was tendered at the Board meeting #14 was conducted on 27^th April 2023. However, the Board instructed to approve your request with the Minimum New Rental Rate of $2,000/month.

We thank you so much for your interest to continue working with TAMA and wishing you all the best on your best endeavour”.

[8] Attempts to resolve the matter were unsuccessful. TAMAL said TWL would be evicted if it did not pay the increased rent. TWL issued proceedings against TAMAL alleging a repudiatory breach of the tenancy agreement in relation to the renewal by demanding higher rent than that permitted by the terms of the tenancy agreement.

The findings in the Court below

[9] The Judge found that the tenancy agreement continued to be observed and respected by both parties other than in respect of the increase in rent over the initial 10 year term to TOP$1,200 per month. Otherwise, the agreement continued to be performed in its terms, and this continued to be the legal basis of the relationship between them.
[10] Tupou J found:

“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”.

[11] The Judge found that both parties were bound by their course of conduct and accordingly estopped from denying it.^[3]
[12] Tupou J concluded that the agreement continued in full force and effect. Nothing had been done to bring it to an end and the notice of renewal was exercised within the terms of the agreement. It followed that TAMAL was bound by the calculation for rental increase as set out in clause 4 of the agreement. She made a declaration that TWL was entitled to a right of renewal, and any rental increase was to be calculated at the rate set out under the original agreement. Her Honour expressed the hope that the parties would be able to resolve the matter following the declaration issued.

Grounds of appeal

[13] The grounds of appeal focus on alleged errors on three main issues:
(a) The finding that the tenancy agreement had not expired on 31 May 2023 at the end of the 10 year period;
(b) The conclusion that the right of renewal had been properly exercised in terms of clause 20; and
(c) The failure to grant equitable relief for TAMAL for the continued occupation of the premises by TWL during the period of the litigation.

• [14] Counsel for the appellant Mr Folaumahina filed written submissions and asked the Court if the appeal could proceed without an appearance. He was advised that an appearance was required unless the respondent agreed that the appeal be determined on the basis of written submissions. Agreement to that course was not forthcoming. Mr Folaumahina did not appear at the hearing and did not arrange alternative counsel. This was a serious discourtesy to the Court.
• [15] In its statement of claim, TWL accepted that it had acquiesced in paying the increased rent over virtually all of the 10 year period of the tenancy agreement. The finding in the Court below that the tenancy agreement had been varied in that respect confirmed this point. At least for the initial 10 year term, the new rent paid was not subjected to periodic review under clause 4. The parties appear to have accepted this was unnecessary given the substantial increase in the rent beyond that stipulated in clause 3 of the agreement.
• [16] It is common ground that the tenancy agreement would have expired on 31 May 2023 unless TWL properly exercised its right under clause 20. There is no dispute that TWL’s email of 5 April 2023 gave more than one month’s notice of the exercise of its option to renew (or strictly speaking its option to extend the existing agreement). We accept that TWL’s email did not refer to clause 20 but this was the only clause in the tenancy agreement granting a right to the tenant to renew. In saying that we “will be exercising our option to renew our lease in our current building...” TWL could only be referring to the right of renewal conferred by clause 20. TWL had also complied with the terms of the existing agreement and was not in breach.
• [17] However, as Mr Edwards accepted, a lessee who wishes to exercise a right of renewal must proceed in conformity with the conditions in the renewal clause and must indicate clearly and unequivocally an intention to exercise the right in accordance with the option.^[4] The right of renewal conferred by clause 20 was to extend the tenancy for a further term of one year. The notice given by TWL did not refer to any specific term, but to renewing the lease “for the time being”. While this might conceivably have been capable of being construed as being for the 12 month period stipulated in the lease, when specific inquiry was made by TAMAL, the response was that TWL was “looking till December” which would have meant a period of six or seven months. This was uncertain and plainly not in conformity with clause 20. TWL was intending to move to other premises and the emails exchanged at the time suggest it was looking for an open-ended extension significantly less than one year in order to facilitate its plans. We are not persuaded that TAML ever accepted that the option had been validly exercised. Its willingness to allow the lease to continue was conditional on a substantial rent increase which was not acceptable to TWL.

[18] We conclude that the right of renewal under clause 20 was not exercised in accordance with its terms and that the tenancy came to an end on 31 May 2013. Thereafter, TWL remained in possession of the premises until around the date of the judgment below. TWL continued to pay rent during this period at the rate of $1200.00 per month applicable to the initial 10 year term but there was no agreement as to the rent that should be paid post the expiry of the tenancy agreement on 31 May 2023.

[19] In its statement of defence TAMA sought payment of rent at the rate of $2000,00 per month for the period TWL was in possession after 31 May 2023. That should be resolved by agreement but fixed by the Supreme Court if not agreed.

Result

[20] We make the following orders:

(a) The appeal is allowed.
(b) The declaration made in the Supreme Court is set aside.
(c) The rent payable by the respondent to the appellant for the period of its occupation of the premises after 31 May 2023 is to be agreed and fixed by the Supreme Court if not agreed.
(d) There is no order for costs in this Court.

Randerson J

Harrison J

Morrison J

^[1] Clause 3.
^[2] Clause 4.
^[3] Citing Amalgamated Investment and Property Co Ltd (In Liq) v Texas Commerce International Bank Ltd [1981] 1 All ER, 923 at 120-121 per Lord Denning MR.
^[4] Hinde McMorland and Sim (italics) Land Law in NZ 2024 Para 11.158 citing inter alia Petroleum Pty Ltd v. Bernadini Pty Ltd [2010] WASCA 229; [2011] ANZ Conv R. Although in New Zealand a right to apply for relief exists under s 261 Property Law Act 2007, no such right is available in Tonga.