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Zuvva Co Ltd v Tafolo [2008] TOLawRp 5; [2008] Tonga LR 15 (14 February 2008)

IN THE LAND COURT OF TONGA
Land Court, Nuku'alofa

LA 4/2007

Zuvva Co Ltd

v

Tafolo anor

Andrew J
14 February 2008

Land law – construction of agreements – vague and uncertain – order to vacate made and other claims of parties dismissed – parties to pay their own costs

The plaintiff held a lease of land at Touliki, Ma'ufanga upon which was situated fuel storage tanks, a petrol station and facilities for receiving and supplying fuel (the "Touliki premises"). The sole shareholder and director of the plaintiff was Sandra Naufahu. She had inherited the Touliki premises following the death of her late husband. Since then she had remarried and she wished to move to New Zealand to raise her children. In January 2004 the plaintiff and the defendant entered into what was described as a vague and uncertain arrangement involving the eventual transfer of the Touliki premises to the defendant. The plaintiff alleged that the defendant had breached the alleged agreement in various respects and sought an order requiring the defendants to vacate the Touliki premises together with damages in the sum of $407,400. The defendants denied the plaintiff's allegations and maintained that the agreement was that the plaintiff would transfer the lease to the first defendant and give the defendants exclusive possession of the business and in return they would give Sandra Naufahu financial assistance in New Zealand. The defendants counterclaimed for money expended on the Touliki premises and for the transfer of the lease to them.

Held:

1. The difficulty in the case was in trying to unravel the convoluted arrangements or agreements between the plaintiff and the defendant. There were no written agreements made and the situation was made worse by the fact that both parties were found to be less than reliable witnesses. The court described the agreement as "about as vague and uncertain as it gets".

2. The plaintiff's claims were dismissed apart from the claim requiring the defendants to forthwith vacate the land and premises which was granted. It was held that the plaintiff's right to occupy and use the land under the registered lease had not been affected by the understanding that the defendants might occupy the premises for an indeterminate period.

3. The defendant's counterclaim for money expended on the property and for the transfer of the lease failed.

4. Apart from ordering the defendants to vacate the Touliki premises all other claims of the plaintiff and of the defendant were dismissed and the parties were ordered to pay their own costs.

Statutes considered:

Companies Act 1995

Land Act (Cap 132)

Counsel for the plaintiff : Mr Niu
Counsel for the defendants : Mr Tu'utafaiva

Judgment

The Plaintiff is a private company registered under the Companies Act of which SANDRA NAUFAHU in its sole shareholder and sole director. The Plaintiff is the lessee and lawful holder of lease no.4086 which companies 1 acre 2 roods of land situated at VUNA ROAD, TOULIKI, MA'UFANGA on which are situated fuel storage tanks, a petrol station and facilities for receiving and supplying of fuel, all of which are the lawfull property of the plaintiff. That is referred to as "the TOULIKI PREMISES".

What follows between the Plaintiff and the defendant was described in interim proceedings as a complicated factual background and further that "on or about the 16th January 2004 the plaintiff and the defendant were parties to what can best be described as a vague and uncertain arrangement which, for a start, involved the transfer of the lease and business to the defendant."

The plaintiff seeks an order that the defendants forthwith vacate the land and the premises contained in lease No.4086 and damages in the sum of $407,400 together with interest. I should say that in earlier interim orders the defendants were ordered to handover the land and premises to the plaintiff for it to enter and operate the petrol station at Touliki. That interim order was granted to protect the plaintiff's position pending resolution of these proceedings.

In order to try and comprehend some of these vague and uncertain arrangements between the parties and by way of background I set out their competing accusations.

Sandra Naufahu (hereinafter referred to as Sandra for convenience) says that the plaintiff company also owned or had shares in another company known as 3 Stars Petroleum Ltd which owned assets in Vava'u and it operated a business involved in fuel distribution. She says that in consideration of the defendant, Sione Tafolo (TAFOLO) paying the sum of $30,000, they could operate the Vava'u business. That agreement was said to be on the 12th November 2005. By the 14th January 2004 the amount of $14,620 was owing. There were said to be 3 fuel trucks involved. Then it is said that the Managing Director of 3 Star ie Sandra agreed to sell the Touliki lease to Tafolo for the sum of $400,000 to be paid in 6 months and an agreement was signed on the 16th January 2004. Sandra says that Tafolo produced a letter of that date agreeing for her to transfer the lease although it did not mention the sum of $400,000. She says that she signed the letter without reading it but later in March 2004 she read it and saw that there was no mention of $400,000 whereupon she tried to contact Tafolo without success and she then wrote to the Minister of Lands on the 29th January 2004 to cancel the transfer of the lease. In the meantime, she says, Tafolo asked her if he could take possession of the TOULIKI premises and to get it up and running again as a fuel business (it was said that it had been out of operation for 7 months). She said Tafolo advised her that if the business was operating then that would assist in obtaining a loan for $400,000. She agreed and Tafolo took possession of Touliki. Sandra says that by March/April 2007 she had gone to live in New Zealand where she had given birth and that Tafolo contacted her and said that as she had had a mortgage over the Touliki premises that the Tonga Development Bank had taken over the property and that he could no longer operate the business and nothing could be done. The plaintiff did owe about $55,000 to the Tonga Development Bank in relation to a mortgage over Touliki and 3 Stars owed about $150,000 to the MBf Bank. Tafolo also told her that the Vava'u operations were stopped.

He told her that he had lost a lot of money doing up the Touliki premises and he could not pay the $400,000 but he would try and pay the balance of the $30,000 for the Vava'u business (It appears that this has been paid) Sandra then says that she gave Tafolo a boat worth in excess of $100,000 and Tafolo took it.

Sandra next says that Tafolo told her that the Bank was not happy with her trying to sell Touliki when money was owed to the Bank and that if she came back to Tonga she might go to gaol. As a result she says that she gave up things in Tonga and she sought residence in New Zealand, Tafolo saying that he would provide a letter to assist her with residence. She says that unbeknown to her, Tafolo never parted with possession of Touliki and he continued to operate the bowser; that he never reported any income from the business and never paid her anything from March 2004 to November 2006. That was when she learned that he had been operating the business and she contacted him but he said that he had to recover his expenses Sandra says she tried to get him to pay rent but he did not agree although he agreed to pay the balance of the $30,000 in relation to the Vava'u business. He would not vacate the business.

It is said that Tafolo remains in possession of the 3 trucks from the 3 Star company but it is confirmed that these current proceedings are only in relation to the Touliki premises.

The Land office confirms that the lease of this land is registered to ZUVVA and there was no transfer to anyone else.

The Plaintiff also claims that Tafolo has unlawfully and unjustly taken and used its property for their own profit and they have made a profit of at least $10,000 in each month since March 2004 making a total of $360,000 up to March 2007.

The Plaintiff also says that the defendants have removed pipes from the premises to build their own petrol station at PEA and equipped it with pumps removed from the premises as well. The cost of the pipes removed are claimed as $14,000 and the pumps as $8,000. The plaintiff also says that the defendants have removed a gantry which will cost $5,000 to replace. That makes a total claim for damages in the sum of $407,000.

THE DEFENCE.

The defendants deny the allegations of the Plaintiff and say that what happened was that the 1st defendant agreed with the plaintiff that the plaintiff would transfer the lease to the 1st defendant and give exclusive possession and full control of the bowser to them and he would give financial assistance to the sole shareholder and director of the plaintiff, Sandra Naufahu.

The defendant says that no amount was agreed or set as the amount of the financial assistance which the first defendant was to pay Sandra and no time was set as to when it was to be paid or how it was to be paid.

In pursuance of that agreement they say that Sandra gave the letter to the Minister of Lands to the first defendant together with possession of the bowser on the same day in January 2004.

The defendant says that as the bowser had been neglected and inoperative for some 7 months previously that costs of clean up, coral fill, machinery and truck use of $31,000 was spent, a shed was built to store lubricants ($40,000) and an office was also built ($7,000) making a total cost of $78,000 to the defendants.

In addition, the defendants also paid the annual rent payments of the lease of $4,000 per annum to the lessor for 4 years (2003 to 2007) making a total of $16,000.

Further, in pursuance of the agreement, the defendants say that they paid financial assistance to Sandra of about $30,000.

Accordingly, the defendants say that the plaintiff's claim should be dismissed.

Alternatively, the defendants say that in pursuance of s 103(1) and (2) of the Land Act, the plaintiff is estopped from evicting them from the bowser and the leased land because they have acted to their detriment (in spending the above sums) in reliance upon the representation of the plaintiff that it would transfer the lease to the first defendant and give him exclusive possession and full control of the bowser.

In addition to those defences, the defendants counter-claim against the plaintiff based on the same allegations as are contained in their defence that:

a) They should be re-imbursed for all the money which they have expended and which they paid to Sandra as above; or

ALTERNATIVELY

b) the plaintiff be ordered to withdraw the letter which it has written to cancel its letter of consent to the transfer of the lease to the first defendant, and to refrain from interfering with the transfer of the lease to the first defendant.

I make the following findings of fact.

There is no dispute that the plaintiff sought to transfer the lease (lease Number 4086) to the defendant on the 16th January 2004. Her letters to the Minister of Lands of that day is somewhat illuminating in that she says:

"The reason why I am making this application is that I and my family have migrated to New Zealand and it is my wish that the lease be changed to my close relative SIONE FEKAU TAFOLO."

The evidence reveals that the parties have a history of making business arrangements between them whereby they assist each other in one way or another.

The plaintiff says that the agreement to transfer the lease was for the sum of $400,000. But there is no mention of this in any documentation and that is denied by the defendant. I have doubts that this figure was ever agreed upon or any other figure and there are doubts about the validity of this agreement. In any event the plaintiff was indebted to the Tonga Development Bank in the sum of about $55,000 in relation to Touliki and some $150,000 to the MBf Bank concerning the 3 Star company. It soon became apparent to the plaintiff that the transfer of the lease could not be executed due to the debt owing to the banks. On the 24th February 2004 the Tonga Development Bank obtained an injunction restraining the Minister of Lands from transferring leasehold land number 4086 registered under the name of Zuvva Company Limited.

The difficulty in this case is trying to unravel the convoluted arrangements or agreements between the plaintiff and the defendant. That is the "vague and uncertain arrangements" already referred to. There appear to be no written agreements made and the difficulty is made worse by the fact that I find both parties to be less than reliable witnesses.

I think that the background to all of this is that the plaintiff had inherited various businesses following the death of her late husband and that included the Touliki businesses. She appears to have been inexperienced in business at this time and there were financial problems. The Touliki business had been unsuccessful with problems with various managers etc. The business was not in operation at the time she tried to transfer the lease to the defendant. She at this time wished to move to New Zealand to raise her children and she had recently re-married. She became concerned about the debt to the bank and believed that she could lose the property. That was her motivation in wishing to transfer the lease to the defendant. I do not believe she had agreed to do this for the amount of $400,000 but rather that the defendant would restore the Touliki operation and in return he would financially assist the plaintiff in New Zealand. The defendant was to have exclusive possession and full control of the premises and to operate it.

But when the transfer could not be made (the injunction had been granted) the agreement changed. She had previously sought to withdraw the transfer on the 29th January 2007. The defendant proposed that he would simply restore the operation and that he would financially assist the plaintiff. This suited the plaintiff who wished to reside in New Zealand and wished to be free of the financial problems she had endured. This occurred in May 2007. There were discussions between them at that time and the agreement did not now include an agreement to transfer the lease to the defendant. The plaintiff agreed that by then there was no question of the lease being transferred and no question of the defendant paying $400,000. She wanted the defendant to restore the business and to run it and for him to assist her financially. They both agreed.

This agreement however is about as vague and uncertain as it gets. Nothing was written, no contract entered into and there appears to be no written management agreement. The amount of the assistance to be paid is unclear and the term of the agreement appears to be open ended. There appears to be no agreement for profit sharing. Some evidence of this agreement for the defendant to assist the plaintiff is shown in her letter to the defendant of the 15th January 2007 and I quote:

"Thank you for the completion of the payment towards the arrangement account made between ourselves since December 2003. It enabled me to pay for part of my son's ticket to the U.S.A."

As late as May 2007 she was requesting $800 for an airline ticket.

I do not accept the plaintiff's evidence that she had been cheated and lied to. I do not accept that the defendant had told her when she was in New Zealand that the bank had re possessed Touliki and nothing was left. How come she continued to request financial assistance? I do not think this is credible evidence. It was obvious to all that Tafolo was operating the business and why would she abandon a business which she says is worth $400,000 with debts owing of only $55,000.

I should say at this stage that there is no claim made in relation to the various dealings in Vava'u and in relation to 3 Star petroleum. There is no claim in relation to the boat which was said to have been given to or taken by the defendant. Those matters have been referred to as evidence of the modus operandi of the parties and the informal way in which they seemed to conduct their affairs. What are the consequences of there verbal agreements or arrangements between the parties?

The Plaintiff claims:

(i) Firstly, the plaintiff claims $360,000 which represents an estimate of the profits made by the defendants since 2004 due to the unlawful and unjust taking and using of the Touliki premises.

It is clear from my findings that the property was not unlawfully or unjustly taken from the plaintiff and further that there was no agreement that the plaintiff would be entitled to the profits. This claim is dismissed.

(ii) The plaintiff claims $5,000 for the removal of a gantry by the defendant.

I accept the evidence of the defendant that the gantry was in a derelict condition and required to be removed. The agreement between the parties was that the defendant would restore the premises and operate them. He expended money doing that and it seems to me that it in operating the business it was not unreasonable to remove the gantry as part of restoration.

(iii) The plaintiff claimed $14,400 for the removal of pipes.

The defendant agreed that he had removed these pipes. He says they were no longer in use and were derelict. I think he was given an open licence to run the operation as he saw fit. He has himself spent considerable sums improving the premises for which he will not be recompensed. In the circumstances I do not feel that he should have to pay for the cost of the pipes and their removal. They were part of the restoration of the premises.

(iv) There is claim for $8,000 for the removal of a petrol pump.

There is some evidence that there had been three petrol pumps in operation and the plaintiff says the defendant has removed one and only 2 are left. But there is other evidence that in January 2004 there were in fact only 2 pumps there. That comes from a valuation report with photographic evidence. On balance I am not satisfied that the defendant has removed a petrol pump. That claim is dismissed.

(v) The plaintiff's claimed an order that the defendant's forthwith vacate the land and premises contained in lease number 4086.

The plaintiff is the lawful registered holder of the lease and I think that its right to occupy and use the land of this lease has not been affected by an agreement as uncertain as this. That is, in the absence of any written agreement but where there is only an understanding that the defendant may occupy the premises for an indeterminate period then the plaintiff, as the registered holder of the lease, may assert its rights to occupy and use the land.

The defendants are to vacate the land and premises at Touliki, Ma'ufanga contained in lease No.4086.

2. The defendants counter claim

The defendant claims:

(i) $78,000 being the amount of money expended by the defendant on cleaning and developing the Touliki premises.

(ii) $30,000 being the money paid by the defendants to financially assist SANDRA NAUFAHU.

(iii) $60,000 being the money paid by the defendants for the rent of the lease for the years 2003 to 2006.

Alternatively the defendant seeks orders that the plaintiff withdraw its letter dated 29th January 2007 to the acting Chief Land valuer of the Ministry of Lands to cancel the letter of the 16th January 2004. In other words the defendant is seeking the cancellation of the letter which sought to cancel the transfer of the lease to the defendant.

It follows from my findings that the agreement between the parties was that the defendant would restore and operate the Touliki premises and in return the defendant would financially assist the plaintiff. But as stated nothing was written and no period of time was ever agreed to.

The defendant expended moneys although I do not believe it was anything like $78,000 and in return he operated the business and he received the income. He agreed to this so that he is not entitled to recover what he expended. He agreed to assist the plaintiff so he is not entitled to recover what he expended as per the agreement. His side of the bargain is that he would receive the income and the profits from operating the business.

On my findings it was not a term of the agreement between the parties that the lease was to be transferred to him. Although he may have held out hopes that he would get it one day. Therefore he cannot obtain any orders seeking the transfer of the lease.

Consequently, the plaintiff fails in her claim seeking a share of profits from the business and for alleged damage to the property and the defendant does not succeed in his claim for money expended on the property and for the transfer of the lease. All of this may seem harsh but it is a consequence of the parties entering into such a vague and uncertain agreement which is never in writing and which amounts to little more than an arrangement or understanding between them for an unknown period of time.

ORDERS

The defendant is to vacate the land and premises contained in lease No.4086.

All other claims of the plaintiff and of the defendant are dismissed.

In the circumstances where both parties have failed in their claims save for the order for the defendant to vacate the premises I propose to order that both parties pay their own costs.