IN THE COURT OF APPEAL OF TONGA
Court of Appeal, Nuku'alofa

CA 3/2001

Reisedienst Quick Tours Ltd

v

Fischer

Burchett, Tompkins, Spender JJ 
19 July 2001; 27 July 2001 

Contract law – interpretation of terms of refund – appeal dismissed 

In 1998 the individual appellants were operating through the corporate appellant the business of a guesthouse in Tonga, under the name Heilala. They had discussions in June of that year with the respondent, a German experienced as a cook and in the management of hotels. The object was to provide for the establishment by the appellants of a new restaurant, to be associated with their guesthouse and to be managed by the respondent. Ultimately, a Contract of Service and a Memorandum of Agreement of Tenancy, both dated 1 October 1998, were entered into between the first appellant and the respondent, and a sum of DM 200,000 (TOP$162,000) was paid by the respondent as rent prepaid for a period of 15 years. The parties very soon afterwards had a falling out. Proceedings were commenced in the Supreme Court on 8 January 1999, in which the respondent sought repayment of the sum of DM 200,000, together with other moneys. The appellants were only partially successful at trial, being ordered to pay a balance, after an allowance for a counterclaim, of $136,827, over a period of five years at one fifth per year, with interest at 5% per annum, in respect of the claim that arose out of contracts between the parties. The main issue on the appeal was raised by the proposition that the Chief Justice had decided the litigation on a point not argued. 

Held: 

1. Having considered the new evidence tendered, the Court of Appeal could see nothing to lead it to reverse the conclusions of the Supreme Court. Those conclusions depended on a finding that the contractual terms governing a refund of a portion of the prepaid rent were satisfied. The finding that the appointment of the new chef fulfilled the relevant terms should not be disturbed. 

2. The appeal turned on the application of contractual provisions which were probably not written with both delayed completion of the buildings and early termination in mind. However, they were susceptible to the application the Supreme Court gave them, and that decision was upheld. The appeal was dismissed with costs. 

Counsel for appellants: Mr Niu
Counsel for respondent: Mr Tu'utafaiva

Judgment

[1] This is an appeal by Defendants who were only partially successful at trial, being ordered to pay a balance, after an allowance for a counterclaim, of $136,827, over a period of five years at one fifth per year, with interest at 5% per annum, in respect of a claim that arose out of contracts between the parties. The respondent Plaintiff had sued in circumstances which are set out in detail, and with care, in the judgment of the learned Chief Justice. It is not necessary now to do more than refer to them briefly, because many issues have been determined by that judgment, and the disputes on the appeal centre upon the terms of written agreements. 

[2] The individual Appellants, in 1998, were operating through the corporate Appellant the business of a guesthouse in Tonga, under the name Heilala. They had discussions in June of that year with the Respondent, a German experienced as a cook and in the management of hotels. The object was to provide for the establishment by the Appellants of a new restaurant, to be associated with their guesthouse and to be managed by the Respondent. Ultimately, a Contract of Service and a Memorandum of Agreement of Tenancy, both dated 1 October 1998, were entered into between the first Appellant and the Respondent, and a sum of DM 200,000 (TOP$162,000) was paid by the Respondent as rent prepaid for a period of 15 years. 

[3] Unfortunately, the parties very soon afterwards had a falling out. Proceedings were commenced in the Supreme Court on 8 January 1999, in which the Respondent sought repayment of the sum of DM 200,000, together with other moneys. This was before the premises to be rented had even been constructed and made ready for occupation. When the premises were expected to be ready shortly, the Respondent wrote, through his solicitor, a letter dated 14 June 1999 containing the following: 

"With respect, we wish to convey the instructions from our client in respect of these matters. 

We understand that the construction of the restaurant and accommodation is still underway and our client still maintains that if he is to return to run the restaurant the relationship between him and your clients is not going to improve. 

In the circumstances, our client wishes to have his money back and therefore has no objection if your clients can get someone else to pay our client's money and that person may run the restaurant on the basis of new agreement to be signed between him and your clients." 

[4] The references in this letter to the wish "to have his money back" and to a "person [who] may run the restaurant on the basis of new agreement to be signed between him and your clients" are clear reflections of provisions of the agreements. In the Contract of Service, clauses 12 and 13 provide: 

“12. The Manager may terminate this agreement by giving The Company not less than six months notice in writing of the date upon which he proposes to terminate this agreement. The Manager will not have the right to claim any of his prepaid rent until a new manager (to be agreed by the Company) has been found, who will then take over his responsibilities. 

13. The Company has the right to terminate this contract immediately only if the Manager violates this agreement. The Manager will not be able to claim any of the prepaid rent until a new manager has been found by The Company, who will then take over his responsibilities. Any damages occurred [sic] due to the violation will be deducted from the rent prepayment.” 

And in the Memorandum of Agreement of Tenancy, it is provided: 

“Termination 

The Landlord hereby agrees not to terminate this agreement unless for default under this agreement. The Tenant may terminate this agreement provided he gives written notice thereof 6 months in advance. The Tenant does not have any right to claim any of the prepaid rent until a new tenant has been found.” 

[5] At the hearing of the action, the Respondent gave evidence suggesting misrepresentation and breach of contract on the part of the Appellants, but he obtained relief only on the basis that the letter of 14 June 1999 was, in the circumstances, sufficient notice to entitle him to the partial refund for which provision was made by the clauses set out above, once a manager was found by the Appellant company. Of course, the fact that the Appellant company did seek, and find, a new manager is an indication that indeed it did understand these provisions to have been involved. Possibly, although the point was not explored in argument, the circumstance that the letter of 14 June 1999 was written before either of the agreements had come into practical operation, the restaurant and accommodation not having yet been made ready, may account for the imprecision of the letter in relation to any statement of the day from which the notice was to be taken to run. 

[6] The first issue on the appeal was raised by the proposition that the Chief Justice had decided the litigation on a point not argued, the Respondent having put his case on the basis previously stated, involving misrepresentation and breaches alleged against the Appellants. The Respondent's counsel frankly conceded he had not put his argument in the way the judgment disposes of the matter. However, the Statement of Claim does seek an order for the repayment of the money, making no prayer for damages, and paragraph 30 of it does allege: 

“30. As a further alternative, the Plaintiff says that the Defendants have provided no consideration for using the Plaintiff's money.” 

Moreover, counsel for the Appellants expressly repudiated any suggestion of a new trial; what he sought was to be allowed to tender fresh evidence, consisting of documents, to this Court upon this issue. Counsel for the Respondent consented to this course. 

[7] Having considered the evidence tendered, the Court could see nothing to lead it to reverse the Chief Justice's conclusions. Those conclusions depended on a finding that the contractual terms governing a refund of a portion of the prepaid rent were satisfied. That meant a new manager had to be found. The fresh evidence included a letter from the Appellants' solicitor to the Immigration Department seeking a working visa for the new manager the Chief Justice held to have been appointed. The letter stated (inter alia): 

"Fischer was to manage and operate the restaurant and bar and occupy the private accommodation and keep all profits therefrom and paying no rent therefor for 10 years [sic] in consideration of paying to my client DM 200, 000. 00 [sic] with which my client was to carry out the construction. 

The money was paid by Fischer to my client and material was bought ... In early 1999, Fischer changed his mind. He wanted his money back and to stop the arrangement made. My client did not agree. … 

… [T] he restaurant, bar and private accommodation were duly ready on 2/7/99. Fischer was to occupy … 

However, Fischer changed his mind. He did not want to run the restaurant and bar. He agreed that my client should get another chef to run it. 

For 2 months or so my client has tried to find another chef. It has now found him. He is the abovenamed Andre Helmut Grober. He is also from Germany … My client has signed up a contract of employment with him for a period of 1 year as from 15/10/99, but renewal annually unless terminated by 3 months prior notice." 

This letter was written on 21 October 1999. The contract signed with Mr Grober in fact provided for a term of 12 months, "renewable automatically at the end of each [emphasis added] year for a further period of 1 year unless notice is given by the [appellant] Company at least 3 months before the end of the year of service that the contract will not be renewed at the end of that year." There was also a provision allowing Mr Grober to terminate after 4 months by 3 months notice in writing. 

[8] Mr Niu, for the Appellants, argued that Mr Grober was not a replacement manager within the contractual provisions. However, he was employed by the Appellants in the requisite capacity under a contract that contemplated its own continuance. The finality of the contract with Mr Grober is indicated by a letter written by the Appellant's solicitor on 6 October 1999 to the Respondent's solicitor concluding with the statement: "We have … now decided to sign up with the chef in Germany." The finding at trial that the appointment of Mr Grober fulfilled the relevant terms should not be disturbed. 

[9] Finally, counsel for the Appellants pointed out that the agreements do not provide for repayment over five years. But the order permitting this is entirely in the Appellants' favour. Had there been a cross-appeal, the Court might have been confronted by the point, but there has been no cross-appeal. 

[10] Mr Niu suggested in argument that the Appellants could not have employed a substitute manager within the contract while the litigation was undecided. But the claim made related to money, whether a contractual refund or damages (the counterclaim sought damages); no claim was made for specific performance. Accordingly, this contention lacks substance. 

[11] The appeal turns on the application of contractual provisions which were probably not written with both delayed completion of the buildings and early termination in mind. However, they are susceptible of the application the Chief Justice has given them, and his decision should be upheld. The appeal should be dismissed with costs.