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Zerza v Lapi [1998] TongaLawRp 20; [1998] Tonga LR 149 (7 August 1998)

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

CA 17/98

Zerza

v

Lapi

Burchett, Tompkins, Beaumont JJ
3 August 1998; 7 August 1998

Contract ⎯open contract ⎯ not void for uncertainty

Orders were made in a civil action brought in the Supreme Court by the respondents, Francesco Lapi and Sonia Donati, against the appellants, Klaus Zerza, his wife Marylin Rauter, and Herbert Sanft. The Supreme Court declared that the respondents were entitled to remain as tenants of premises known as the Sunset Restaurant at Fatafehi Road, Neiafu [“the premises”] until 5 July 2000 on certain terms. The Court further ordered that the appellants reconnect some services to the premises. The appellants contended that the agreement that was alleged by the respondents and found by his Honour to have been made, was so imprecise as to be void for uncertainty.

Held:

1. The trial Judge was correct in his conclusion that the agreement he found to have been made, was not void for uncertainty.

2. Provided the necessary elements are present, once the essential terms have been identified by the parties, an “open” contract is not void for uncertainty.

3. The appeal was dismissed.

Cases considered:

Plimmer v Wellington City Corporation (1884) 9 App Cas 699; NZPCC 250

Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429

Counsel for appellants: Mr Appleby
Counsel for respondents: Mr Niu

Judgment

Introduction

This is an appeal from orders made in a civil action brought in the Supreme Court by the respondents, Francesco Lapi and Sonia Donati, against the appellants, Klaus Zerza, his wife Marylin Rauter, and Herbert Sanft. The Supreme Court declared that the respondents were entitled to remain as tenants of premises known as the Sunset Restaurant at Fatafehi Road, Neiafu [“the premises”] until 5 July 2000 on certain terms. The Court further ordered that the appellants reconnect some services to the premises.

The first and second appellants are Austrian citizens. The third appellant is a citizen of Tonga and the owner of the premises. The respondents are Italian citizens.

The Respondents’ Claim at First Instance

By their statement of claim in the action, the respondents alleged, in essence, the following:

• In 1995, Mr Sanft leased the premises [then used as a two-storey dwelling house] to Mr Zerza and Ms Rauter for a term of five years on the terms that the top storey be used as a residence and the bottom storey be used as a restaurant.

• In March 1996, with the knowledge of Mr Sanft, the respondents verbally agreed with Mr Zerza and Ms Rauter 50 that (a) Mr Zerza and Ms Rauter would convert the bottom storey of the premises into a restaurant at a cost of less than $15,000, which they would fund; (b) the respondents would assist with their labour in the execution of these works [“the works”]; (c) upon completion of the works, the respondents would (i) reimburse Mr Zerza and Ms Rauter for their cost; (ii) rent the restaurant for a period of four years at a monthly rent of $300, payable annually in advance; and (d) the respondents would be responsible for the management of the restaurant business and for the maintenance of that part of the premises, and would keep all the profits of the restaurant business and bear all of its costs and expenses, and bear any of its losses.

• The works were completed by July 1996, when the respondents paid Mr Zerza and Ms Rauter the sum of $15,400 on account of the costs of the works and $3,600 by way of rent for the year 5 July 1996 to 5 July 1997.

• During the period of the year 5 July 1996 to 5 July 1997, the respondents carried on the restaurant business.

• On 5 July 1997, the respondents tendered to Mr Zerza and Ms Rauter the sum of $3,600 as annual rent for the period 5 July 1997 to 5 July 1998 but Mr Zerza and Ms Rauter refused to accept it.

• By letter dated 19 July 1997, Mr Zerza and Ms Rauter informed the respondents that the respondents should (i) vacate the restaurant premises by 6 February 1998; (ii) keep all proper records of the business; (iii) give copies of those records to Mr Sanft every month; and (iv) until 6 February 1998, continue to manage the restaurant, pay all its expenses and keep all its profits as their remuneration.

• The respondent declined to accept these terms and re-tendered the sum of $3,600. However, in August 1997 Mr Zerza and Ms Rauter again rejected the tender.

• In October 1997, without the respondents’ knowledge, the appellants disconnected the electricity, water and telephone services to the restaurant premises.

• Accordingly, the respondents claimed specific performance of the agreement for lease and a mandatory injunction directing the reinstatement of the services.

The Judgment under Appeal

The learned trial Judge found the primary facts to be, in all essential respects, the facts as pleaded by the respondents in their statement of claim, which, so far as is presently material, are set out above.

His Honour went on to say:

“I say directly that I prefer the evidence of the plaintiffs to that of the defendants. It seems to me highly improbable that what the defendant Marylin Rauter Zerza has said is true about the nature of the agreement and its terms. Wherever and whenever there are differences in the evidence of the parties, I am persuaded that the account given by the plaintiffs is the probable one.

I have already particularized the findings and the nature of the plaintiffs’ claim. All the elements or ingredients of a valid and enforceable contract exist. I am satisfied that the parties were ad idem (that is of the same or like minds). There was certainty of object — the establishing of a sub-tenancy for the purpose of the running of a restaurant.

The Rauter-Zerzas were in an unfortunate and difficult situation by reason of Marylin Rauter-Zerza’s allergy and the language handicap suffered by her husband. They were now saddled with expenses already outlaid and improvements to the premises which they could not exploit.

The Lapis came upon the scene at precisely the right time. There is no doubt about the agreement. The Lapis performed their obligations. They paid all that was required of them to pay and the rent in advance. The documentary evidence reinforces the evidence of the Lapis in that respect.”

After rejecting some special defences, which are not pressed before us, the learned primary Judge granted the relief sought by the respondents.

The Grounds of the Appeal

The appellants do not seek to challenge the findings made by the trial Judge as to the credibility of the witnesses. But it is submitted on their behalf that the agreement alleged by the respondents and found by his Honour to have been made, was so imprecise as to be void for uncertainty. Their argument is that there is no provision in the agreement sued upon which deals with several potential issues which might arise between the parties; for instance, the appellants suggest that there was no evidence of a concluded agreement on the questions (i) how a breach of the contract was to be determined; and (ii) what specific consequences, if any, would flow in the event of a breach occurring.

Conclusions on the Appeal

In our opinion, the trial Judge was correct in his conclusion that the agreement he found to have been made, was not void for uncertainty.

In the first place, the essential terms of the tenancy were spelt out in the arrangement, albeit informal, that was found to have been made by the parties. That is to say, in our view, the parties identified, with sufficient certainty, the necessary elements: the premises, the term, and the rent.

The initial capital contribution made by the respondents towards the costs of renovation of $15,400 should be treated, as indeed it was, in the nature of a premium paid for the grant of their tenancy. Nothing now turns on this payment for immediate purposes, as its character is certain, but it serves to reinforce the conclusion that all of the parties must have contemplated that the respondents were to be granted a tenancy of more than a limited duration, as the respondents claimed, and as his Honour found. In other words, the fact that the respondents were prepared to pay a premium for the grant of their tenancy in the same amount as Mr Zerza and Ms Rauter paid for a tenancy of five years’ length, tends to confirm that the parties contemplated that the respondents’ tenancy would be of equivalent duration, [or at least approximately so] to that granted by Mr Sanft to Mr Zerza and Ms Rauter.

Next, even if it were open to the parties, as of course it was, to agree on other matters such as the consequences of a breach of their contract, the course was equally available to them to proceed to identify the essential terms of their arrangement [ie, the premises etc, as stated above] yet to leave any other matter to the operation of the general law, modified by statute where legislation was applicable — in other words, to that extent, an “open” contract. Provided the necessary elements are present, as the essential terms were identified by the parties here, an “open” contract is not, for that reason, void for uncertainty.

It is true that there might be a question arising as to which of several possible meanings of an expression used by the parties, for example, “expenses”, was intended. But it does not follow that an agreement using that expression is void for uncertainty. Thus, in Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429, it was held that the words “supplier’s costs” were not meaningless, however wide might be the area of possible disagreement as to their denotation in a particular case.

Barwick CJ said [at 437]:

“I do not think there is any uncertainty or for that matter ambiguity in the expression “supplier’s costs” in cl 5, however wide may be the area of possible disagreement as to its denotation in a particular case. A contract to build a bridge at cost could not, in my opinion, be held void for uncertainty it could not properly, in my opinion, be said to be meaningless nor is it, in my opinion, ambiguous. Endless might be the arguments pro and con as to whether or not in marginal cases some item of expenditure is as claimed a cost or as to how much of an expenditure is a cost, of the particular activity. But to my mind, generally speaking, the concept of a cost of doing something is certain in the sense that it provides a criterion by reference to which the rights of the parties may ultimately and logically be worked out, if not by the parties then by the courts. There are no elements in the circumstances of this contract to deprive the concept of that certainty.”

In these circumstances, it is not necessary for us to consider whether, even if contrary to our view, the contract sued upon was in truth uncertain, the Court might still have granted the respondents similar relief by virtue of their “equity of possession” [see Plimmer v Wellington City Corporation (1884) 9 App Cas 699; NZPCC 250;
Halsbury’s Laws of England, 4th Ed Vol 27(1) at 33-4].

In our opinion, the appeal must fail.

Orders

On the argument of the appeal, there was discussion about the form of the declaration made by his Honour, which was in these terms:

“1. The plaintiffs be entitled to remain as tenants of the premises known as the Sunset Restaurant at Fatafehi Road Neiafu until the 5th day of July 2000 subject to the terms and conditions upon which they have occupied it since the 5th day of July 1996 or as the parties may mutually agree in writing.”

In our view, such an order is appropriate for present purposes.

The terms of the mandatory injunction are not now challenged.

The appeal is dismissed, with costs to be taxed if not agreed.